Measuring ROI on HR is not difficult. In fact, with some training anyone can master this. If you know how to do it right, it is really all about planning, persistence and probabilities. However, at (at least) one point during the process, you will be left with a question which goes something like this: “How much of theses benefits was the result of this project and how much was due to other factors?”. This is the problem of isolating the impact of the activity.
The problem of isolating the impact when measuring ROI on HR is real but it should not – as many do – lead to the conclusion that you therefore cannot measure ROI on HR. You just need to overcome the issue.
In every HR project there will be a multiple of factors which influence the outcome. You create a talent management program and subsequently the turnover of talent fall. How much is explained by the talent management program and how much is due to general higher unemployment rates (and therefore fewer jobs for talents to leave for)? You send your middle managers on a training program in effective communication and subsequently the job satisfaction goes up. How much is due to other factors such as spring arriving, generous pay increases, general increase in job satisfaction across the country, the fact that your product has improved and your customers are more happy? Isolating the benefit is tricky.
Jack and Patricia Phillips write in their book “Show me the money”, which I will recommend to anyone wanting to embark on the journey of becoming better at doing ROI on HR, about common myths when isolating the impact of the activity. I believe there are five myths:
- The project is complementary to other activities and projects and therefore we should not calculate ROI on this project. All projects complement each other. So do all investments across the business. This is not a reason not to look at the individual components. Indeed if done well, this will actually show the value of how they complement each other.
- Estimations adds no value. During the process of isolation you will need to make certain estimation based upon experience or ‘best guesses’. Although this should only be done when there are no other alternative, it can provide value and credibility.
- There is no control group so therefore we cannot isolate the impact of this project. The best way to isolate the impact is though a control group. No doubt about that. Control groups can prove cause and effects. But this is often not possible to use such a design. Correlation studies can be used instead although they do not prove cause and effect. They may make the link probable and this is good enough in many cases. The challenge is make the conclusion as credible as possible.
- It is obvious how this links to shareholder value, so we do not need to isolate the impact for this project. I hear this so often. “It is so obvious that the leadership development program adds value – just look at the strategy map” . Unfortunately this is not the case. Stakeholders may conceptually understand it but they are more willing to accept it when they see the proof.
- Others don’t do it – let’s ignore it. 10 years ago, you could have ignored it. You could have pointed out that the isolation issue made it impossible to do a ROI calculation on your HR activity. No longer.
ROI on HR is not difficult. But there are a few steps in the process, which requires more attention and care than others. Isolating the impact is one of them.