3 Strategies for Measuring the ROI of HR

Though people strategies may seem qualitative, they’re directly tied to profitability and comprise many tangible, measurable elements: equitable pay, manager efficiency, and employee motivation are just a few. But it can be hard to tie the impact of these initiatives to a dollar amount.

“It’s difficult to parse out the actual impact of an HR policy or project because in real life, there are so many variables that impact the behavior of our employees,” said Diane Gayeski, PhD, Professor of Strategic Communication at Ithaca College and Principal of consulting company Gayeski Analytics.

When working with qualitative and quantitative variables, use these strategies to effectively measure the ROI of HR within your organization.

1. Take stock of where you are.

Before you can figure out the ROI of your people programs — and if your HR initiatives are leading your company in the right direction — you need to establish a baseline.

Doing an audit of your current HR practices, projects, and initiatives, and how each of these entities is impacting your team and organization as a whole, will help you “not only to identify gaps but to also benchmark current processes,” said Jana Tulloch, CPHR, founder of HR consultancy Tulloch Consulting.

Say you’re gearing up to roll out a new onboarding program and want to measure the ROI:

• Dig into your current onboarding process to make sense of what you’re already doing.
• Review your budget to see how much you’re spending onboarding employees.
• Send out an employee survey to get feedback on what your team liked about the onboarding process — as well as what they thought you could do better.

Once you collect that data, you’ll have a clear benchmark for evaluating your new onboarding process. For example, after implementing your new onboarding process for six months, you may find that you spent $5,000 more on your new program, but employee satisfaction with the process has dramatically improved, which can have a significant impact on retention and performance, both of which can be tied to your ROI.

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2. Diversify your reporting metrics.

“There are many limitations of just trying to look at the returns versus the expenses of a specific [HR] project,” she said. “It’s difficult to isolate all the variables that might impact a given outcome.”

“Even when it is more likely that you can isolate the effects of a given intervention or project, often the ROI is not an impressive number,” she said — which can make it challenging to illustrate HR’s impact and value to leadership.

In response to these challenges, Gayeski developed her (e)valuation model, which, she said, is built around the idea that “HR projects, policies, and platforms can be assessed in different ways depending on the problem [they’re] trying to solve.” Unlike traditional ROI evaluation models, which just look at returns versus expenses, the (e)valuation model offers different ways to measure and evaluate HR initiatives.

“The point is that [traditional] ROI is not the technique that should be used in every situation to try to express the outcomes of an HR intervention,” said Gayeski. “The model looks at various types of assessment methods, based on the underlying problem or opportunity.”

Using the same onboarding program example, here’s how you could evaluate your people programs with the four methods from her continuum model:

• Smiles: Superficial methods for measuring employee satisfaction, such as sending out employee surveys to get their insights on the onboarding experience, and how prepared they felt to step into their new roles.
• Quick Fixes: Methods that measure the outcomes of an individual project or initiative, such as analyzing the percentage of candidates who accepted offers and moved forward with a position within your company.
• Long-Term Returns: Outcomes of coordinated strategies over time, such as measuring how your recruiting, hiring, and onboarding initiative impacted employee retention over the course of 12 months.
• Infrastructure Assets: Contributions of HR to the bottom-line valuation of a business, such as implementing a new employee feedback system, calculating the estimated impact on profits or savings, and projecting that increased bottom-line as shareholder value.

Measuring your HR initiatives at each of these different levels will give you more holistic and accurate sense of the impact on your organization, and can help you make a stronger case for each initiative — even if that ROI doesn’t directly translate to a dollar amount and, instead, is more linked to an intangible (but invaluable) asset like organizational culture.

3. Set clear KPIs.

You can’t effectively measure the ROI of HR if you don’t know what exactly you’re measuring — which is why you need to set key performance indicators (KPIs). These metrics help you define what you’re trying to accomplish with your HR initiatives, and, just as importantly, how you’re going to measure success in reaching your goals.

For instance, if you’re rolling out a new learning and development (L&D) program with the objective of driving productivity, you need to know how you’re going to measure whether productivity is improving. You could try the following:

• Compare employee output with hours worked to see if they’re able to accomplish more.
• Ask employees to fill out an anonymous survey to self-report how productive they feel each day
• Track how quickly projects get done, and compare that to similar projects from before the L&D program.

“[HR is] just like Sales, or R&D, or any other department in an organization,” Tulloch said. “What gets measured gets done. Plan, execute, measure, and refine.”

Rethink How You Measure ROI

Evaluating people strategy requires that your company thinks of HR as integral stakeholders, strategic operators, and key contributors to business outcomes.

By taking stock of where you are, setting clear objectives and KPIs, and adopting a broad, multifaceted approach to evaluating the impact of HR, you can get a better sense of how your investment into your team, your strategies, and your software is paying off — and what kind of ROI your HR department is driving.

To discover how Lattice can help you do more with less, download our ebook, The ROI of HR Tech.