ROI in HR: what it is and how to measure it
In all my time as an HR professional, I’ve never seen the sector receive as much focus and investment as it has over the last two years.
But with investment comes expectations; stakeholders within the business will expect to see results, often referred to as a return on investment (ROI), following the increased spending on technology, people and training.
What exactly is a return on investment?
A return on investment or “ROI” is a measure of what you’re spending (salaries and technology costs) and the output that’s subsequently delivered.
An ROI enables businesses to measure the efforts and results in relation to pre-determined goals and objectives.
What is a good return on investment in HR?
Ultimately, a good ROI will vary for each business as it depends on what you’re looking to accomplish.
However, as a starting point, measure yourself against either your historic performance or industry best practices.
Use the study from Bloomberg as an example of what’s achievable: typically, a single HR professional can look after up to 100 people, but with efficient software, that number increases to effectively supporting 400 people.
The importance of ROI in HR
Outside of satisfying internal stakeholders, measuring ROI enables you to accurately track whether goals are achieved.
If you discover you’re falling short of your goals, the insights can be used to resolve issues and make improvements.
Perhaps you’ve identified a people issue, meaning your HR team/employees may need additional training and support to provide your desired results.
Alternatively, it could be software issues that are hindering your goals; outdated technology and processes are often inefficient and admin intensive, pulling people away from value-added activities. View the IRIS collection of HR software to suit every business size and maturity level.
Dispelling outdated views
Regarding return on investment, in the past, HR has been viewed as a soft department that didn’t directly contribute to business goals such as growth and sales.
But as we all know – and as showcased over the pandemic – HR undeniably contributes to key business outcomes and survival, which should be highlighted when measuring your ROI.
What should HR be measuring?
When measuring ROI, businesses often look only at cost reduction and time savings.
But as the impact of HR spreads far wider, I’d advise you to take it a step further, examining whether you’re achieving departmental and strategic goals.
Department goals are the aspects of your day-to-day that must be completed to ensure the business maintains operations, including:
Ultimately, if strategic goals aren’t achieved, the business won’t cease to exist. However, they’re necessary to meet the demands of the modern employee and take operations to the next level.
These goals include:
- Employee engagement
- Leadership training
- Health and wellbeing initiatives
- Talent succession planning
- Workforce productivity improvements
Four ways HR can measure ROI
Now that we’ve established what areas need analysing to showcase the return on investment associated with HR, the big question is: how do you measure the impact?
1) Conduct a 360-degree review
When you put your blood, sweat and tears into what you do, understandably, criticism can be difficult, yet it’s essential to optimising the way you work.
Consider utilising a 360-degree review – rather than asking for feedback from an individual, ask the opinion of a group of stakeholders of varying seniority levels to find out what’s working and what can be improved.
You can also take it a step further and request feedback from all employees, determining the impact HR has had on the entire business.
Top tip: Some HR software offers survey functionality, enabling you to request feedback directly from employees within the system.
2) Look at your data
Use the reporting functionality within your HR software to delve into key employee metrics such as attendance, sick days, performance and retention.
By comparing the data across multiple years or from when certain initiatives/changes were made, you can see the results and easily share them with stakeholders.
3) Request a software audit
Reach out to your HR software provider and request them to conduct an audit that can examine if you’re using the system to its full capabilities.
You may be missing out on key features and benefits that can make an enormous difference in achieving your departmental and strategic goals.
4) Use our ROI calculator
The quickest option out of the four: use our ROI calculator for a quick analysis of your HR.
We’ve created this easy-to-use diagnostic tool to help you assess where your HR is now and highlight areas where you can take your processes to the next level.
Take your HR up a notch
Hopefully, this article has provided an insight into the importance of assessing your return on investment. If you’re looking to take your HR up a notch, check out our HR solutions here.