Evidence of bottom-line impact has been described as the ‘holy grail’ of HR.1

Demonstrating financial ROI complements ‘softer’ measures of success, giving HR practitioners real credibility at the top table.

The bad news? It isn’t always straightforward to show financial impact.

In an ideal world, you might track sales or revenue amongst those on the receiving end of any people-focused interventions. However, control groups are rarely feasible. Plus, fluctuations in financial figures could be caused by many different factors and can’t be reliably attributed to the intervention itself.

The good news? We can be creative and indirectly establish financial benefits. We can track HR measures and then translate changes in these metrics to predict financial impact. 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’s 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

We can use these relationships to quantify the ‘hard’ impact of ‘soft’ people interventions. As a worked example:

  • Let’s imagine you’ve run a development programme for your front-line managers that equips them with skills to engage and retain talent.
  • There are 200 people who report into these managers. The average annual salary amongst this group is £30,000 and attrition in this group has 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, likely due to your programme. Estimates range from 16% to 75% of someone’s annual salary.
  • By multiplying these percentages by the number of people retained and their salaries, we are left with estimated savings.
  • The most conservative estimate would be £96,000 through to an ambitious estimate of £450,000 saved, thanks to your development programme.

These calculations are inevitably imperfect, and they require you to explicitly state the assumptions made. They do, however, equip HR with the ability to speak the same language as Financial Directors and other commercially savvy leaders. They allow you to say, “You spent £X, and our calculations suggest the financial benefits are £Y.”

How have you seen the ROI of HR interventions demonstrated?

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