Wouldn’t it be great if we could say, “We’ve spent £X on developing our culture, and we estimate that the financial benefits are £Y”?

Whilst many believe that organisations have a legal and moral obligation to develop their culture, investments often get deprioritised.

It’s fair to assume that this would happen less frequently if cultural initiatives showed clear financial benefits.

However, the evidence of bottom-line impact has been described as “the holy grail of HR”.[1] This is no less true for investments in culture, which feels like an abstract, complex part of an organisation’s psyche.

 

So, is it even possible to show the financial impact of investments in your culture?

In a word: yes.

It’s rarely easy and always imperfect, but you can quantify the impact of investments in your culture. We can do so before, during and after investments:

1.Before – We can forecast the financial returns to influence the budget devoted to developing your culture.

  • “If we spend £X, we should return £Y if we impact attrition by Z%”

2. During – We can calculate the ongoing financial impact of investments, shaping their ongoing design and implementation.

  • “So far, we’ve spent £X and saved £Y as attrition has decreased by Z%. This part of the initiative seems particularly impactful.”

3. After – We can calculate the ROI of interventions retrospectively.

  • “We spent £X and we estimate that we have saved £X by reducing attrition by Z%. This is an ROI of XXX%.”

 

How do we actually do it then?

In essence, we track ‘soft’ measures that we’d expect our cultural initiatives to shift and then translate the changes in these measures into ‘hard’ financial figures.

To ensure accuracy and credibility, these translations should always be based on evidence from peer-reviewed journals or credible institutional research.

Examples are:

  • Attrition. Evidence suggests costs of somebody leaving can range from 16% to a whopping 250% of the individual’s salary, depending on the seniority and rarity of the person’s skillset. [2], [3]
  • Engagement. It has been estimated that disengaged employees cost organisations around 34% of their annual salary,[4] and engagement improves performance by 13-20%. [5], [6]
  • Internal vs external hire ratio. External hires typically earn more than people promoted internally into positions, and the cost of finding and hiring external talent is 1.7 more than finding internal talent.[7]

 

Let’s consider a worked through example…

  • Let’s imagine you invested £80,000 in a cultural initiative that impacts one of your departments that consists of 200 people.
  • Let’s imagine the average annual salary amongst this group is £30,000 and attrition in this group has historically hovered at around 20% (40 people leaving each year).
  • However, in the year following your programme, attrition decreased to 10% (20 people leaving each year). You didn’t see equivalent changes in other parts of your business.
  • This means that 20 fewer people have left. As shown in the estimates above, it’s been estimated that attrition typically costs 16% to 75% of someone’s annual salary.
  • The total salary from across these 20 people would be £600,000. If we multiply these by 16% and 75%, we can find that the most conservative estimate of money saved would be £96,000 through to an ambitious estimate of £450,000 saved.
  • To calculate ROI, we would then subtract the investment (£80,000) from the two estimates of money saved (£96,000 and £450,000) and then divide by the investment (£80,000). We then multiply this figure by 100. This would give us estimated ROI figures of 20% to 463%.

These calculations are imperfect and require you to explicitly state the assumptions made. They do, nevertheless, equip us with the ability to speak the same language as Financial Directors and other commercially savvy leaders.

They allow us to say, “We spent £X, and our calculations suggest the financial benefits are £Y.”

 

How have you seen the ROI of cultural initiatives demonstrated?

If you want help demonstrating the impact of people interventions on the bottom line, then please get in touch.