Measuring a return on investment (ROI) can be straightforward. For example, a business invests £5,000 in an ad campaign, and those ads result in sales of £30,000. That’s a £25,000 profit – a 500% ROI.
Calculating results this way is cut and dry. When projects have a definitive start, end, and profit, getting to the ROI is simple. Measuring ROI in human resources isn’t so easy. HR departments are vital and necessary but pinning a monetary value to HR projects isn’t always possible. While marketing and sales departments have clear KPIs that measure success, HR ROI metrics rely on people focused projects, where there are a lot more variables.
If it’s so challenging to measure ROI, why should HR leaders do it? Here’s why it’s important:
It always helps to know that you’re doing a good job. Working for weeks and months on a project and not really knowing what came from it can be very discouraging.
Businesses want to know that if they put money into a HR project that they’re going to get something back. If they know that the HR department has been responsible for an increase in retention, onboarding more employees, etc., then they’re more likely to invest in more projects in the future.
Improve employee satisfaction
Clear KPIs and goals generally lead to better performance. HR departments are the backbone of any successful company – if a HR team isn’t performing well but can’t pinpoint where, then they can’t improve on it. This has a knock on effect to the wider team. Similarly, if a HR team knows exactly what they need to improve and how to do it, the employees will feel the benefits of these changes.
If the HR department is running smoothly and working to improve areas of the business, employees will feel happier in their role. Of course, if people are happy in a job and are getting what they need from the company, they’re less likely to leave. Increasing retention and reducing turnover is a sure way to significantly reduce costs and improve ROI. Unlike other HR projects, a monetary value can easily be pinpointed to turnover.
How to get started when measuring ROI in HR:
- Define a start point and take stock of where you are
Measuring the ROI of HR projects begins with defining a start point. For example, if your goal or project is to increase retention, definitively pin down where you are now. That way, you can confidently know how much you’ve improved in what time frame. Start by doing this with all of your initiatives, goals, and projects.
Once you’ve got a start point, list how each project impacts the organisation and identify areas for improvement.
- Set KPIs
You can’t measure ROI without knowing where you want to be and what exactly it is you’re measuring. KPIs help determine what you’re trying to accomplish and how you’re going to measure the success of a project.
For example, if you’re rolling out a new time management system in the hopes of improving productivity and time management skills, you need to know if it’s working. You could ask employees to fill out a survey stating how productive they felt and if they felt they managed their time better. You could also track how quickly and effectively tasks were completed, in comparison to similar tasks before introducing the new system.
- Regular employee surveys
Feedback surveys empower employees, increase employee engagement, and provide HR teams with invaluable data. Surveys shouldn’t be neglected and should always be anonymous. Employees are much less likely to give honest feedback if the survey isn’t anonymous, resulting in worthless information for measuring HR’s ROI.
Did you know that several HR software offerings include employee feedback forms, completely at the autonomy of the employee? When HR sends out a form every quarter or 6 months, issues that employees have by that point might have already become irreversible. A disgruntled employee is much more likely to leave an emotion driven survey, rather than constructive criticism. An automated system can allow employees to give feedback as and when, meaning HR teams gain a true perspective of how employees are feeling. It can also directly link to HR initiatives, as feedback can be compared before and after the rollout of a certain project.
How Phase 3 can help improve your HR department’s ROI
Measuring the ROI of human resources isn’t as straightforward as other departments, but it is important and it can be done. HR has an effect on the wider business, so ensuring the department is the best it can be should be a priority.
If you’re struggling to improve your HR team’s ROI or would like to chat about how you can better measure the work you’re doing, we can help. We’re HR software and payroll specialists, working with teams to help improve and streamline processes, onboard new technology, and increase productivity. We get to the root cause of HR teams’ problems, finding practical and actionable solutions. If you’d like to find out how we can help your HR team improve your ROI, get in touch today.