The good news is that CEO’s are inviting Human Resource professionals to be
involved with strategic planning and the “business of the business.”
The bad news is that whether we like it or not, we must become bilingual and
add the language of numbers to our knowledge base.
We can increase our credibility as HR professionals if we understand what’s
important to Line Managers, the CFO and the company’s Board of Directors.
We can increase our credibility even more if we can clearly articulate how
HR activities and interventions affect what’s important: company
profitability and customer service.
We can begin shifting how we’re perceived within the organization by
learning to ask measurement oriented questions before developing HR
initiatives. Important questions are:
- Who are the department’s customers?
- What are the benefits of our services
to our customers?
- What are the consequences of not
providing these services?
Some of you may be thinking, “Oh no,
she’s going to start talking about doing things like cost-benefit analyses!”
You’re right; I am. Over the years, I’ve found that HR professionals
shy away from conducting cost-benefit analyses on projects for several
reasons:
- They don’t know how
- Results may show their programs don’t
work
- It’s too time consuming
- They believe it’s a “smoke and
mirrors” process
- There’s no perceived incentive
If you don’t know how to go about doing
a return on investment assessment, don’t worry. A worksheet and
example is included with this article. The approach is straightforward
and easy to understand and explain to your staff and your department’s
customers.
It’s true that conducting an R.O.I. analysis may reveal that a project or
initiative that you or your team have started is not working or isn’t saving
the organization money. Don’t you want to know this first so you can
redirect your efforts?
Up-front analysis of projects and interventions certainly does take some
time (less time as you become skilled at the process). I firmly
believe that you have to go slow to go fast. By that I mean that
careful attention to objectives and costs at the beginning of projects
results in the ability to implement the work faster once you have a solid
plan. Taking the time in the beginning can save you hours of frustration and
wasted efforts later.
It’s true that numbers can be manipulated. We read statistical
analyses by researchers regularly that are slanted to support whatever the
researcher is trying to prove. The R.O.I. approach that I’m advocating
is vulnerable to numbers manipulation as well. How you explain the
approach and your recommendations for action based on return on investment
analysis is up to you and your conscious.
The incentive for understanding the needs of internal customers and learning
how to talk their language is increased credibility within your
organization. Increased credibility results in approval for projects,
staff, and other resources. That’s ample incentive for most of me!
Over the past two years, I’ve interviewed line managers in organizations
around the U.S. and asked them their perceptions of the Human Resources
function. From these interviews, it’s clear to me that HR must work
diligently to dispel some pretty negative perceptions. Here’s what
these line managers said about the HR function:
- HR just costs money
- HR doesn’t add value
- We can hire or fire people ourselves
- HR wastes my time and my staff’s time
- HR interferes with operations
- HR doesn’t know the business
To dispel these perceptions, we need to
connect our activities and interventions directly to the organization’s
Mission, Vision, and strategic objectives. We must take on the role of
an internal consultant when line managers bring issues to our attention and
help them understand the true problem, the cost of that problem, potential
interventions, the cost of the interventions, and the difference between the
intervention cost and the cost of the problem. This is a return on
investment (R.O.I.) approach to our work, as shown in the following example.
Step 1. Clearly state the business problem. For example, our
organization has
a turnover rate of 32% for computer programmers.
Step 2. Calculate the cost of the business problem. For example,
calculate the turnover costs for separation, replacement, and training for
each computer programmer that left the organization last year.*
Step 3. Identify a potential solution to the business problem based on
historical data or benchmarking. For example, a study of exit
interviews may reveal that key first-line supervisors aren’t effective
managers. A combination of training and one-on-one coaching may
be a viable solution.
Step 4. Calculate the cost of the solution. For example, you could
price having a consultant conduct a series of supervisory training workshops
and the time for an HR staff person to develop and conduct a series of
coaching sessions with individual supervisors.
Step 5. Implement the solution and monitor results. The planned for
result, of course, would be lower turnover of computer programmers after
three months, six months, and a year as a result of more effective
supervision.
Step 6. Calculate the improvement benefit with this formula:
Cost of business problem before implementing solution (Step 2)
Minus Cost of business problem after implementing solution, less cost of
solution
Ex. $585,000 Annual t/o cost in 2000 for programmers
300,000 – 50,000 Annual t/o cost in 2001, less solution cost
$235,000 Net Improvement Benefit
Step 7. Calculate the cost-benefit ratio as follows:
Net Improvement Benefit (Step 6) ¸Cost of the Solution (Step 4)
$235,000/$50,000 = 4.7 to 1
For every $1 spent for a solution, $4.70 was saved!
If $50,000 sounds like a lot of money for an intervention, you can point out
that for each dollar spent $4.70 in expenses was saved over the prior year.
In other words, you’re getting a return on your investment.
This approach can be used for any HR activity, as long as you’ve documented
(or can benchmark) the cost of a business problem.
*If you’d like a worksheet on calculating the cost of turnover, please
e-mail me at linda@gravett.com and
I’ll send one to you.
In summary, to increase your credibility as an HR professional it’s
necessary to talk the same language as your internal customers – the
language of numbers. When I’m approached with an issue or concern, this is
the process I use:
- Analyze what’s happening now: what’s
the true problem?
- Envision the ideal: what are the
objectives?
- Clarify performance and systemic
gaps.
- Determine the cost of the gaps: the
cost of the problem.
- Use your experience and expertise to
initiate necessary interventions.
- Evaluate the difference between the
cost of the problem and the cost of the intervention. Make a
conscious choice to employ the intervention even if the steps you need to
take cost more than the cost of the problem.
Feel free to contact me if you have any
questions or comments about this article.
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