Return on Investment�(ROI) �in HR Interventions

Michael Jones

Snr. VP Human Resources

Scotiabank Group

SMALL BUSINESS SALES MODEL

History

• Developed in 1920s as tool to place value on the payoff of stock investments
• Evolved into a tool used to measure wide range of investments, including human capital investment
• Uses quantitative data to determine return on investing in human capital

SMALL BUSINESS SALES MODEL

HR Accountability Progress

​

​

​

​

​

​

​

1960s 1970s 1980s 1990s 2000

MBO in Personnel

Feedback Surveys

HR Case Studies

HR Auditing

HR Key Indicators

HR Cost Monitoring

HR Satisfaction Surveys

Competitive HR Benchmarking

Human Capital Measurement

HR Macro Studies

Balanced Scorecard

ROI Methodology

HR Profit Centre

Solid value-added Approaches

Early Approaches

Leading Edge Approaches

HR Accountability

SMALL BUSINESS SALES MODEL

The Next Phase ?

Unless HR gets more quantitative, we will move from leading edge to bleeding edge as businesses outsource HR because of misunderstanding…..!!!

SMALL BUSINESS SALES MODEL

Tracking HR activity vs. Measuring HR value

There is a huge difference between tracking HR activity and measuring HR value�

SMALL BUSINESS SALES MODEL

Value Chain – HR Programs

Level 1- Action and Reaction

Level 2 – Learning

Level 3 – Application

Level 4 ---Business Impact

Level 5- ROI

Jack Phillips

SMALL BUSINESS SALES MODEL

What is ROI?

• Return on investment (ROI) is the impact (positive or negative) of expenditure on income.

​

i.e. - income/expenditure = ROI

therefore - $10/$100 = 10% ROI

​

SMALL BUSINESS SALES MODEL

Value of ROI measurement

• Communicates how HR AFFECTS an organisation
• Assists HR in talking about and proving the VALUE of HR programmes
• Quantitatively PINPOINTS which programmes need improvement
• JUSTIFIES expenditure

​

​

​

​

SMALL BUSINESS SALES MODEL

Value of ROI measurement

• Because “what gets measured gets done BETTER
• Numbers speak louder than words:
• to potential sponsors/other executives
• to employees
• Ensures proper governance of organization’s financial resources (prevents HR from just spending, spending, spending……)

​

SMALL BUSINESS SALES MODEL

KEY ADVANTAGES TO HR

• Assists US in prioritising OUR HR initiatives
• Expansion of successful HR programs and elimination of unsuccessful ones
• Better relationships with executives and middle managers who need to understand HR's value

​

​

​

SMALL BUSINESS SALES MODEL

What are HR Interventions?

• Initiatives (proactively or reactively) employed by organizations to improve employee’s welfare, performance levels, and business outcomes

​

• Sponsors of HR interventions increasingly rely on proof/projections of positive ROI to decide what interventions to employ

​

SMALL BUSINESS SALES MODEL

Applications

​

• Career development
• HR Communication
• Learning
• Meetings and events
• Organisation development
• Orientation systems
• Safety and health programmes
• Technology implementation
• Recruitment
• Comp and Benefit/Rewards

SMALL BUSINESS SALES MODEL

Some Examples

• Rewards & Recognition programmes

​

• Employee Assistance Programmes – Internal and external professional counseling services, (Family Life Ministries), Ombuds services, etc.

​

• Training & Development Programmes – cross – training, classroom/on-line training, coaching, external/academic training, etc.

SMALL BUSINESS SALES MODEL

Some Examples

• Safety/Health/Wellness programmes

​

• Commission Based Systems

​

• Recruitment Programs

​

• Employee feedback systems

SMALL BUSINESS SALES MODEL

Note…

• Not all HR interventions should be subject to ROI analysis
• Eg- Some HR programmes are designed to combat illegal behaviour, discrimination, etc
• Costs of doing business

SMALL BUSINESS SALES MODEL

Criteria for selecting programmes

• Expected life cycle
• Importance in meeting organisation’s goals
• Impact on the business
• The cost of the programme
• Visibility of the programme
• Size of the target audience
• Extent of management interest

​

Phillips

SMALL BUSINESS SALES MODEL

The ROI Methodology-Quick Study

Isolate the effects of solution

Collect data during & after solution implementation

Develop evaluation plans & baseline data

Develop/review objectives of solution

Convert data to monetary value

Calculate the ROI

Generate impact study

Evaluation

Planning

Data collection

Data Analysis

Reporting

Capture costs of solution

Identify intangibles

Intangible benefits

SMALL BUSINESS SALES MODEL

​

Designing HR Interventions and Measuring the ROI

SMALL BUSINESS SALES MODEL

Step 1 – Identify the Need

​

• Need may be:

​

• proactive (e.g. based on a growth strategy) or reactive (e.g. responding to a performance gap).

​

• identified by doing a review/study or conducting an audit/OD consultation

​

SMALL BUSINESS SALES MODEL

Step 1 – Identify the Need

• State the need in specific, numeric and financial terms

​

e.g. “Due to lack of training of new staff hired in the last year productivity fell by 15% last quarter’

​

SMALL BUSINESS SALES MODEL

Step 2- Identify the cost of the Need

​

• Refers to both the financial expenditure necessary to implement the intervention, as well as the potential opportunity costs.

​

• Opportunity cost may be looked at in terms of losses and/or gains.
• What might be lost without the intervention?
• What may be gained from the intervention?

​

SMALL BUSINESS SALES MODEL

Step 2- Identify the cost of the Need

​

• Financial expenditure is usually easy enough to measure – this usually includes the cost of HR, material and other tangible resources

​

e.g. “Due to lack of training of new production staff hired in the last year productivity fell by 15% last quarter. Consequently, sales are down by $5M YTD. Based on last year’s budget the cost of training these new staff would be approximately $750,000”

SMALL BUSINESS SALES MODEL

Step 2- Identify the cost of the Need

​

• The opportunity cost can be somewhat more subjective but must also be considered

​

• Using trend analyses and benchmarking are useful approaches

SMALL BUSINESS SALES MODEL

Step 2- Identify the cost of the Need

E.g. - measuring your Cost of Vacancy (COV) in financial terms can help to justify a new/improved Recruitment and Selection intervention…

SMALL BUSINESS SALES MODEL

Step 3 – Select Appropriate Intervention

• The needs analysis consultation would have identified possible interventions to solve/ improve the problem

​

• The intervention selected would be based on feasibility having regard for urgency, cost and practicality

​

• A project plan could detail the projected expenses associated with the intervention

​

SMALL BUSINESS SALES MODEL

Step 4 –Implement the Intervention

​

• This is a process involving:
• Launch
• Monitoring and Controlling^*
• Evaluation

* Follow-up is critical to ensure effectiveness

Where concerns arise, these should be addressed and adjustments in the budget and schedule must be advised to sponsors.

SMALL BUSINESS SALES MODEL

Step 5 – Evaluation of ROI �

2-step process:

1. Calculate the Improvement Benefit

​

Cost of business problem (before) = $5,000,000

Cost of business problem (after) = $1,000,000

Gross Improvement Benefit = $4,000,000

Cost of HR intervention = $ 750,000

Net Improvement Benefit = $3,250,000

SMALL BUSINESS SALES MODEL

Step 5 – Evaluation of ROI

2. Calculate the Cost Benefit Ratio

Net Improvement Benefit/ = $3,250,000

Cost of HR intervention = $ 750,000

​

ROI = 4.33 to 1!

i.e. for every $1 spent $4.33 was saved.

SMALL BUSINESS SALES MODEL

Note

​

Convert all data to monetary values, if possible

​

SMALL BUSINESS SALES MODEL

Additional calculations

• Payback period
• Net present value
• Internal rate of return

SMALL BUSINESS SALES MODEL

ScotiaBank examples

Recruitment ROI

Recruitment Marketing Campaign- 25% lift

​

Job Board ROI- differentiated results

​

Training evaluation ROI High Impact training programs (10%)

SMALL BUSINESS SALES MODEL