​Is HR Really Measuring ROI?

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There are many activities that are included in daily business operations.  It may be important that each of these duties be done.  What is important is prioritizing business activities to measure success. 

For example, if a customer service call center measures only how many customers a representative serves, then does a higher number mean better performance?  In most cases, I think that the answer is no.  A better number to measure is the number of issues resolved on the first call, or a customer rating of service.  It is issues like this that HR deals with on a consistent basis.

What should we measure, and how do we measure it?  Like many, I used to think that a response to an effort was the return on investment, or ROI.  In situations like a job fair, I went to the job fair and counted the amount of resumes we received at our table and the job was done.  The higher the number the "better" the result.  In truth, this doesn't really measure anything.  Sure a lot of activity seems great, but if none of the resumes match what we are looking for then the result doesn't mean anything at all.  To learn more about applying ROI measurements to HR functions I spoke to Dr. Jack Phillips of the ROI Institute.

I learned that many of the areas that we probably should be measuring, many are not.  Since it is easy to measure physical activities we often do just that.  But there are other areas that we could be measuring that may also have an impact on these activities.  Leadership development is one of those areas.  We can provide training and development to leaders, and that training or development is not directly measurable, but when we start to see the difference that leader is making with their team and in their department, which is something that we can measure.

It was surprising to see that the method for calculating ROI was simple, straightforward, and could be applied to just about any facet of business.  A common misconception is that measuring ROI is too complex, or too expensive.  The biggest challenge that I see for companies is being dedicated to the measurement.  While there is a dedicated process that the ROI Institute uses, I will provide a general overview of an ROI calculation.

Let's say that I wanted to implement a new training program for creating better "widgets".  Based on my research, I found that this would increase sales by (X).  I would need to include ALL costs related to training (Y).  This includes lost production time, the payroll expense of employees in training, paying for materials, facilitator, training room, etc..  The formula would look like this:

ROI(%)= X/Y multiplied by 100.

I think that it is easy to measure an activity or response to an activity, but often times that information does not show us the impact that these activities are having.  Not all activities need to measure for ROI.  Activities should be measured on ROI based on their importance and impact to the business, with ROI focusing on those activities with greatest importance.

The language of business is numbers, and now you can talk about the impact your business is making.

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