Today’s topic is a little less fun than recent posts. But, it’s key foundation material for any HR Department to be able to prove their worth. At the end of the day HR like any business unit needs to prove their worth. You as a HR leader need to prove your worth. Return on Investment 101 here.
A vital component to getting to the end goal of proving ROI is first being able to audit for what is working and what is not working. Then, based on areas needing development, one can develop a scorecard. Finally, one must compute the dollars at risk where there is a shortfall, and the dollars to be gained by improvements and strategies come to fruition.
So, for example, an audit of I-9s may show that based on number of missing or incomplete I-9s, the company could be fined 50K. This is risk. Strategy would then be to rectify the situation thereby mitigating risk. A second example is turnover. I actually did this at a previous company that had high turnover. Based on turnover rate and known cost to replace/cost of attrition, we computed the annual cost of turnover to be $1 million. We broke that down by number of people. Then, as we applied specific strategy to reduce turnover we could quantify the dollars saved as attrition was reduced. I was able to pay for my whole team’s salaries, and some, just by moving the needle on this one metric.
Some of the areas one reviews may be hard to quantify. This just requires some critical thinking. For example if I determine the method of training delivery is dated (say, boring classroom training that engages too few learning styles) I may list as an area to fix. To drive to ROI one must quantify the lost dollars due to poor training delivery. Let’s say the learners take four extra weeks to learn because the real learning happens on the floor since the classroom training was poor. This may mean 25% less productivity due to time spent with repeat learning. This can be calculated into hard dollars by computing hours and wages in that period. So, get creative and logical to prove this stuff.
But, before one can even get to the end goal of measuring ROI, one must know what’s broken. Below is a very simple model of a few of the key areas I feel HR needs to audit. This just scratches the surface to get to the end goal of measurements but it’s a starting point. One can then take the takeaways and build a metrics deck and measurement points to get to ROI.
This is not easy stuff, but it’s critical for HR to survive. Transaction based and administrative HR cannot survive in today’s work environment. Our jobs are not about upholding rules and throwing parties. We may do that as part of the function, but it’s not enough. Our job is about elevating the workforce to the next level. It’s about managing, shepherding, developing, retaining and creating human capital in a manner that beats our competition. It’s a tough job. And, without metrics, it can’t be done.
I’m curious to hear from fellow bloggers — what else do you rate when evaluating a HR department for risk, compliance and effectiveness?