ROI of Human Resources is only meaningful to organizations if it is at an acceptable level.
(ROI=Return on Investment)
Return On Investment of Human Resources refers to the value of the returns from investment in HR.
The investment on human resources involves, inter alia (or among others):
The amount of money spent on recruiting the right people for the organization. This is usually based on the principle of hiring the right number of people with the right quality and at the right time.
Spending on HR processes improvement in efficiency, accuracy and speed.
Money spent on training to keep up-to-date people's skills, competence and knowledge.
Spending on strategies to motivate employees and make them more committed. Included here are monetary and non-monetary rewards.
Ask the question whether or not the investment made on people has brought about the expected results. These revolve around improvement in employees' and organization's productivity and generating more revenue.
Formulate performance indicators to measure these. Do not measure what do not truly contribute towards improving productivity.
What is acceptable Return on Investment of Human Resources?
The notion and understanding of what constitutes acceptable ROI vary from organization to organization, and from industry to industry.
What organizations may agree is that such investment must bring about tangible benefits, to both organization and employees.
Measurement issues regarding ROI of Human Resources
It is said that HR ROI "involves a long and tedious process of data collection." People now talk about 'big data.'
Data collection may span a number of years - two to three - in order to see the trend.
Organizations will come face to face with problems of measuring intangible benefits of HR investment such as improvement in employee morale. You can see how people behave at work but it is not easy to put it into something that is measurable.
Achieving Higher ROI
Apart from giving your people the required training, you may want to implement coaching sessions or a mentoring system. This can improve confidence and morale. But you need to have people who have the competence to as effective coaches or mentors.
Some believe that treating people right helps improve ROI. But what does this mean in reality? It involves a lot of things and its effectiveness on different people varies.
Job satisfaction is thought to help improve the return on the investment in HR. As stated above, this is an intangible thing and is hard, if not impossible, to measure.
One other method you can adopt is to implement programs that are intended to improve employee motivation.
Although motivation is not easy to measure, you may see the benefits in terms of increased employees commitment to their work, reduced absenteeism and minimal turnover.
However, even if it is not easy to measure ROI of human resources, it does not mean that you refrain from doing anything about it. This must not prevent you from taking steps to find alternatives that can help verify HR contribution and whether it is to the expectation of top management.
Whatever method you use, no one can deny that at the end of the day HR must make valuable contribution towards the business success of organizations. This is one of the important reasons why organizations need to look for performance indicators that effectively measure HR effectiveness.
This is not to deny some of the allegations that using some kind of measures for HR seems to indicate that people's values are quantifiable in monetary terms. This raises the question that just because a person is paid higher, he or she will perform better or that his or her quality of work is better. Quality performance should result in better rewards.