Human Resources: Measuring the ROI of HR in Your Organisation
In today’s business climate, CEOs and top executives continuously look for quantifiable results from every department in their organisation, this is especially true for the human resources department. The stakeholders expect concrete figures to back up their assumptions about which human resources initiatives deliver tangible business benefits and which do not.
HR is at the centre of almost every vital business initiative and decision, so this function must be able to prove its worth continuously and demonstrate its impact on company performance.
This article breaks down the concept of ROI in the context of HR and discuss how organisations can measure and improve this for the better.
What is ROI in HR?
ROI stands for “return on investment” and refers to the potential financial gains of a particular business decision or action.
In the HR content, “ROI” refers to the ability of the human resources division to contribute to the organisation’s bottom line. The human resources division of an organisation performs essential tasks and the critical question facing organisations is whether these tasks contribute to the bottom line – in other words, do they have a ROI?
An organisation’s HR team must establish metrics or key performance indicators (KPIs) to track its progress to measure ROI successfully. This could include measures such as:
- Employee retention rates
- Employee engagement levels
- Employee training costs
- Time to fill open positions.
Once an organisation’s HR division has established these metrics, it can begin tracking and quantifying its results over time to ensure that the HR function provides value.
How can companies measure and improve ROI?
There are multiple ways that companies can measure and improve ROI in their HR departments. One way is to conduct regular audits of HR processes and procedures. These audits can help identify areas where HR falls short and recommend improvement. Additionally, many organisations choose to outsource their HR function to third-party HR service providers. Outsourcing can help reduce costs and increase efficiency within the department, leading to a higher ROI.
Tips for tracking human resource metrics
HR metrics should be simple, straightforward, and alligned to your organisation’s goals and priorities. Here are six tips for tracking HR data to assist you in considering which data points matter to your organisation.
1. Know why each HR metric matters
As you collect and track HR data, keep in mind the real reason behind collecting the data and why this data is vital to your organisation. If the data isn’t alligned to an organisational priority, time spent tracking or analysing the data is wasted. Without a good idea of why your ROI and metrics matter, you won’t be able to develop a cohesive business strategy and achieve sustainable success on business goals.
2. Keep it simple
HR metrics shouldn’t be complicated. If the metric isn’t simple, straightforward and quickly gathered and calculated it shouldn’t be used. The aim should be to track and collect simple, concise information that will provide valuable insights into your HR and organisational objectives.
3. Identify how you will track data
Many tools are available to track HR data, from spreadsheets to comprehensive human resource management systems. An important step is to identify which data you will collect and how.
4. Know your audience
As you collect HR data, some information will be more insightful to HR, and others will be more insightful to stakeholders like the owner or CFO. Remember the metrics that matter most to your audience as you present information.
5. Connect HR metrics to organisational objectives
The most potent and significant HR data connects HR metrics to business objectives. Ensure that the data can be put to practical use once collected.
6. Don’t just file data away – share it
You’ve collected useful HR data, so don’t just file it away. The data you have collected should be analysed and shared with your leadership team in a user-friendly presentation. This step will allow you to start creating an action plan for achieving your HR goals.
HR data that leads to action
Data without analysis and action is just numbers on a screen. Use your HR data to understand trends, issues and opportunities within your workforce. Next, take action to make changes based on your learning.
To make the most of your HR ROI calculations:
- Connect the HR data to business objectives and goals.
- Use the data to drive organisational improvements. Learn what is working and what not, then make the necessary changes.
- Schedule regular times to review the data and get your team involved to focus on any trouble areas. Strong habits produce strong results.
- Communicate your findings and recommendations to key decision-makers.
Measuring the ROI of human resources isn’t as easy, simple or straightforward as some other business areas, but it’s doable. The aim is to take stock of where you are, set clear objectives and KPIs and adopt a broad, multifaceted approach to evaluating the impact of HR in your business. Mastering these steps will give you a better sense of how your investment in your team, your culture and your organisation is paying off – and the value of ROI that your HR department is driving.
How can outsourced human resources increase this ROI?
Not every organisation is in a place where it can effectively and continuously evaluate the ROI of its HR department and take action to improve it. This might be because it is too early in the journey or simply due to a lack of tools, processes and resources.
Organisations investing in outsourced human resources services usually experience essential benefits that result in a higher return on investment and business success, such as:
- Saving money by reducing or eliminating the need for in-house staff
- Improving efficiency by providing access to expert tools and technologies
- Freeing your internal team to focus their attention on strategic initiatives that drive business growth
- Driving business growth by providing access to a highly-skilled, engaged workforce of HR experts
- Ensuring regulatory compliance and mitigating various legal risks surrounding HR
An organisation can make measurable improvements in its HR ROI by partnering with an outsourced service provider like MASA. We have over 40 years of established credibility and extensive experience supporting organisations with the best human resources solutions in South Africa.
Spending on HR services is an investment which should provide a return and we structure all human resources services to ensure maximum ROI. The MASA HR division offers a complete solution for any HR-related tasks- from crafting a unique strategy to payroll services and all other HR processes.
Every business is unique. No matter how complex or large the task, we develop a tailored approach designed and managed by market-leading human resources and industrial relations experts. We are passionate about using the best people to drive the best outcome.
Reach out to us if increasing your HR return on investment is a top priority or if you’re looking for a trusted partner to help you access the right people, resources and strategies to concentrate on your core business.