Historically, measuring ROI in human resources has been tough. HR departments have had trouble demonstrating the ROI of their projects. Unlike marketing and sales, which can use revenue figures to demonstrate activities that are profitable, HR ROI metrics rely on employee satisfaction surveys and retention figures to measure their progress.
For many on the C-suite these HR ROI metrics don’t mean as much because it’s difficult to pin a monetary value to them. Unlike other departments, where all activity is geared towards profit, HR teams undertake a lot of varied projects which have goals other than revenue generation.
They may be working on improving employee satisfaction, reducing churn or improving their internal processes. With so many variables it can be difficult to distil all that activity into one, easy to digest HR ROI metric. Which, in the case of any other department, would be revenue generated.
But this doesn’t mean that HR leaders shouldn’t concern themselves with ROI. In fact, quite the opposite. Demonstrating ROI in HR, whilst not as straightforward as other departments, is achievable and the insights your company gains from regular HR reporting can help you secure more budget for future HR initiatives.
Measuring ROI in human resources also helps show off the work you do to other leaders in your business. It can be instrumental in building relationships across departments and can foster closer collaboration and information sharing, which is good for your business as a whole.
This means that measuring and reporting on your HR team’s ROI is at the top of your priorities list when running your HR department. It can be difficult knowing where to start when reporting on your team’s ROI, so we’ve put together this article to give you 5 top tips for measuring your team’s return on investment.
1. Define a start point
If you want to measure the ROI of your HR projects you first need to define a start point for each one. After all, it’s quite difficult to quantify improvements if you don’t know what you’re improving upon.
Doing a thorough audit of all your current HR practices, initiatives and projects is a great place to start if you’ve never reported on the ROI of your HR team before. By listing your current HR projects and detailing how they impact your organisation you can identify things in your department you can improve and get a good idea of how you’re currently performing.
How you benchmark each project depends on what it is. For example, if you’re looking at your employee retention rates you may find that 40% of your employees stay at your company for at least 2 years. Increasing this percentage to 75% would be a great way to demonstrate improvements in your team and ROI.
Staff turnover costs companies money, so reducing your employee churn will have the knock on effect of saving your company money.
It’s only by benchmarking your current processes, defining a starting point and identifying areas for improvement, can you begin to report on the ROI of your HR department. The more data you can gather during this process the better.
2. Set clear KPIs
As we’ve mentioned already in this article, HR teams can’t rely on a metric like revenue generated to demonstrate the ROI of their activities. They must instead select unique success metrics for each of their projects.
KPIs are essential for helping you define what you want to accomplish with your HR initiatives. They also show your leadership team and colleagues how you’re measuring success and how you plan to achieve your goals.
These KPIs must be easily understandable and clear. It’s no use presenting a confusing array of numbers and percentages to your colleagues when you’re trying to explain how you’ve achieved ROI.
It’s much better to keep the figure simple and explain how achieving that goal will have a positive effect on your business.
An example could be increasing the amount of employees who are very happy at work to 90% of your total workforce. You could measure this amount with a quarterly, anonymised survey and present this figure to your colleagues when they ask about the ROI of your initiative.
Happy workers don’t leave the company they’re at. So the more staff that are happy the less churn a business will experience. Hiring costs money so by hitting this KPI the HR team keeps hiring costs low, in turn proving their ROI.
3. Conduct regular employee engagement and satisfaction surveys
You’re only as accurate as your last data set. That’s why it’s wise to conduct regular employee engagement and satisfaction surveys to get a true understanding of the mood and culture in your company.
If you’re only surveying your employees once a year it can be very difficult to track your HR initiatives and figuring out whether they’re helping you achieve your ROI goals.
It’s also very difficult, without regular data, to find out which of your HR initiatives are working and which aren’t. Once you know these facts you can adapt your approaches to maintain or improve the effectiveness of your HR processes.
Employee surveys are just one of many ways to gather data about your company. Some of this data will directly relate to your KPIs whereas other figures can help inform future projects. By asking the right questions in these surveys you can gain a clear picture of how your employees are feeling and whether your initiatives are having the desired impact on your company. This knowledge, in turn, will help you report on and measure your ROI.
4. Count the number of hires from internal referrals
If you’re wondering what metrics you could use to measure the ROI of your HR initiatives, the number of new employees from internal referrals is a great place to start.
This is the number of people who secured a job at your company based on a referral or recommendation from someone who already works with you. Happy staff will sell the benefits of your company to their friends. If you’re getting a lot of hires from internal referrals it stands to reason that your staff are very happy.
The more your staff champion your company the less proactive work the HR team needs to do sourcing new employees. The KPI for this initiative could be: 6 out of 10 new employees for this year to come from internal referrals, for example.
This helps you achieve ROI as you’ll spend less work hours sourcing staff to interview and screen. You can then recoup those hours and use them for other projects. Plus, more happy and engaged staff at your company will work harder and be more productive.
5. Report on retention and churn
We’ve mentioned retention and churn several times already in this article but as a HR leader they’re arguably some of the most important metrics you can measure. Increasing retention and reducing churn in your business can drastically cut costs in your department and let you allocate resources to other projects.
Good retention and churn figures can also be tied quite easily to monetary value. The cost of hiring and impact of staff shortages on businesses has been written about extensively. With a bit of research and communication with your leadership team you can agree how much it costs your business when you’re a staff member down. Therefore filling vacant positions saves your company money and improves your ROI.
You can also look at the cost of onboarding new members of staff (from job posting to position filled), avoiding churn means you don’t need to undertake the expensive process of finding new hires. This metric too can be used to judge the ROI of your HR team.