Increasingly, organizations look to return on investment (ROI) of departments traditionally difficult to quantify, such as hiring and talent management. It may be tough, but it can be done!
Investors, CEOs and executives are constantly examining administration costs, for accurate ways to calculate ROI.
In fact, no corporate sector is immune to ROI scrutiny. Research and Development, as well as training and other departments with “softer” (not easily quantified) costs, suffer under the same economic microscope, at least to a certain degree.
Now, HR departments have to justify their effects on the bottom line. Fortunately, technology comes to the rescue.
Talent management (and human relations in general) is now given several choices; many software program and systems will streamline the acquisition, hiring and onboarding process. Many are state-or-the-art tools, which can have a definite impact on ROI.
Technology can improve total returns on investment for talent management. Use it to extend the sequence of talent; automate and track many HR activities, including calculating financial contributions and earnings at each level.
Software incorporates all parts of the talent management system, combining it into a single definite metric—either web-based or in the cloud, depending on vendors. Consider such software-as-a-service providers such as Workday, HR in the Cloud, Ovation Technologies and Silk Road.
Of course, these calculations can be done manually, but worth doing, considering what is at stake.
ROI is the ratio of capital added (or lost) compared to capital invested into whatever system, product, activity or project. An investment is averaged usually over a three year period.
Follow the six steps to verify the ROI of talent management:
- At first, the idea of calculating the cost versus performance for talent management systems may seem strange, more so if it is for an organization with a large number of people. Polling works well in those cases.Choose an evocative number of managers (or responsible employees) and ask about the average time spent preparing performance appraisals—either for a single year or per employee.
- Take the numbers provided by staff and multiply each average by the total number of employees in your organization. Apply the average salary for managers and employees. For example, a principal spends an average of 4 hours on each employee appraisal, with average hourly wages of $30. For a company of 200 people, the total cost would be as follows: 4 × 30 × 200, or $24,000.
- Calculate employee cost. If an average staff member spends 2 hours on the assessment process, and the average earnings per hour are $18, the total cost for appraisals for employees is 2 × 18 × 200, or $7,200.
- Account for annual staffing needs, as well as the average time HR people spends administering and managing the hiring process.
- Add other labor costs—copying, collecting, mailing and printing—which make up for various costs. Even with associated costs not factored in, combined hiring costs would be $31,200 annually.
- Do not miss the physical costs of hiring, including the cost of supplies—paper, stationery, copier repair, printer cartridges and so on. Even a small price increase—say two to three percent—should be taken into the calculation.
In the end, labor and physical comprise total costs incurred make the investment; divide that number by the cost of the software purchase, becomes the ROI.
Although it may be difficult to calculate the ROI on intangible assets, like hiring and talent management, this evaluation will always provide an organization enough of an idea of profitability.
Use available hiring management technology for increased ROI:
- Online recruitment software
- Employment screening software
- Applicant tracking systems
By outsourcing hiring, and talent acquisition and management, the choice becomes crystal-clear—new hiring tools can —quantifiably–save businesses resources, time and money!