14 Aug
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Introduction
No business can ever succeed unless it values and manages its workforce or human resources properly. In fact, it is an area that needs serious attention. Which is why the concept of Human Resource Management exists. It is a wide umbrella of systems put in place to manage an organization’s human capital. And it needs to be profitable as well. This brings us to the term Human Resource ROI. It is, in simple terms, a measure of the monetary benefits of a specific HR program (or a set of HR tools) when compared to the costs it incurs. For a very long time, people assumed that HR ROI couldn’t be measured or was very complicated to measure.
Even until a few years ago, many organizations hesitated to spend on HR technological upgrades because they assumed that the ROI would be either insignificant or difficult to calculate. Things have changed now, though.
It is easy, practical, and necessary to calculate the ROI of technological investments in HR for various reasons.
The post-pandemic HR fraternity has realized how critical technology can be when employees, employers, clients, and other stakeholders get stranded in different parts of the world and are still expected to function normally.
Organizations that have invested in the right technological tools have sailed through the last few years confidently and with little disruption in their processes and business operations, while others have struggled.
Investing in the right HR technology and being able to justify the investment is the need of the day but that can happen only when organizations can see the required returns on their investment in HR technology.
Why Do You Need to Measure Human Resource ROI?
Measuring ROI in human resources will help identify your team’s internal weaknesses and strengths and give a clear understanding of what has been working and what hasn’t. The ROI will also let you know your future areas of improvement.
Here are some of the benefits of measuring ROI in HR processes.
- To understand how well you have been spending your budgets
- To know if your HR initiatives are actually working
- To get an understanding of the abilities and quality of your workforce
- To know which areas to focus on in the future
The Cost of Implementing HRM Technology
When it comes to technology-based investments, there are mainly four expected costs you should consider before calculating Human Resource ROI.
- The fixed cost of the solution (usually modern technologies have monthly subscription costs that are far less compared to earlier lump sum one-time costs)
- Monthly expenses incurred to operate
- Costs including data migration, installation, and maintenance
- Costs for training HR personnel & employees in using the new software solution
Many companies take into account only the original cost of the solution and monthly expenses while calculating the expenditure. But the last two costs that are left out can also be considerable. It can affect not just the budget but also the overall viability. In such a scenario, maintaining the software and training the HR team can be difficult.
Hence, it is better to be prepared for the expenditure upfront. When you pitch for a new HR management software, be clear about both one-time and recurring costs and include all four cost heads discussed above when you calculate the human resources return on investment.
The Direct and Indirect Benefits of HR Technology Investments
If you’re still on the fence about incorporating HR technology into your business, please take note of and understand some of the benefits that will help you justify the investments.
Getting Rid of Extended Processing Time
The time needed for work to get done is an essential factor in calculating HR ROI. When an HR department functions manually, employees need to wait for a longer period to get updates and solutions. An HR team that embraces technology can automate all time-consuming manual processes. This will allow you to focus more on important tasks as well.
Eliminating Chances of Manual Errors
Errors lead to wastage of time and efforts, and in worst cases, lead to productivity and revenue losses. Without a doubt, all these affect your Human Resource ROI.
You can prevent such occurrences by investing in the right HR technology tools. The right technology can automate compensation planning, salary management, performance management, and execution. It can even take over onboarding and exit processes and put together precise reports with far more reliable data that are needed to make management decisions.
Increasing HR Department Productivity
The right tools will accelerate productivity by bringing in automation. This means a task that needed X man-hours to be completed can now be finished in so much less time, with the same efficiency.
Understanding the value of time that is saved because of technology adoption is crucial to understand the importance of human resources return on investment.
Modern technology also enables organizations to improve performance management processes by making them real-time and continuous, which has a direct impact on employee performance and productivity.
Automating other HR components collectively improves employee experience with an organization, leading to increased employee engagement.
Here is a list of productivity gains, thanks to technology, and the ways in which these gains help.
|
Productivity gains |
How do they help? |
|
Man-hour costs |
Saved Cost to Company (CTC) with lesser manual hands-on HR tasks |
| Resource Management |
Ability to hire and retain best-in-class talent |
| Learning & Development | Remote learning facilities, flexibility for employees to choose to learn, costs saved on hiring onsite trainers |
| Employee engagement | Better workforce culture, innovative engagement practices |
| Performance Management |
Better alignment, Feedback and performance planning |
Risk Reduction
The HR department needs to handle extensive legal compliances that are required for the company to function seamlessly. The slightest of errors in employee data collection, background checks, visa processing, medical, travel, or tax data can cost the company millions.
Adopting good HRM software can bring down the risk of errors. Again, these increase the overall HR ROI by eliminating the costs of legal battles.
Competing in Global Markets
Technology will be the core of all business processes shortly. If small companies want to compete with global giants in the market, then investing in HR technology software is a need that cannot be ignored.
How to calculate the HR ROI of technology-based investments?
When it comes to calculating human resources return on investment, you may need to keep in mind the below pointers.
- Get a list of all HR metrics that actually matter and those that don’t. Some metrics may not contribute much to the organizational priority. You don’t need to waste time and effort finding their equivalent HR ROI. Pick the most vital ones first.
- Get clarity on how you will be tracking data. There are great tools in the market that can help with your HR processes and provide clear and easy-to-analyze data. You can check some of PossibleWorks’ tools to know how easy we make it to track data.
- Make sure your HR metrics are directly connected to your overall business objectives. This will make justifying ROI easier.
- Use the results of your HR ROI calculations to improve performances, make better investment choices, and make clearer decisions in the future.
Conclusion
Technology is the future, and there is no second-guessing this. However, if you think your management is still hesitant and convinced to make that investment in HR tech, then here is a list of case studies for you to share. This includes a list of top brands that have made use of PossibleWorks’ tools and software to upgrade themselves and improve their overall profits and value.
It does take some time to figure out how best to calculate your Human Resource ROI. Once that is done, though, you don’t need to hide behind the excuse of HR results being intangible every time you pitch in for an upgrade. You will be able to produce before and after ROIs to show that HR technology is worth the effort and money.
If you think you need some help identifying the kind of tools to help improve your existing HR processes, get in touch with us right away, and we will have an expert contacting you with all the right solutions.
