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ROI in HRD Workshop Handouts

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					Show Me the
  Money
 Jack J. Phillips, Ph.D.
                     Agenda
   Explore implementation of a balanced set of
    human capital measures
   Examine the various ways to place value on
    human capital
   Identify five strategies for determining the human
    capital investment level
   Describe a comprehensive process to measure
    ROI
   Identify key issues surrounding ROI utilization
    Human Capital Perspectives
    Traditional View             Emerging View
Expenses are considered     Expenditures are viewed
costs                       as a source of value
Function is perceived as a Functions is perceived as
support staff              a strategic partner
Involved in setting HR      Top executives involved in
budget                      budget
Metrics focus on cost and   Metrics focus on results
activities
Metrics created and         Top executives involved in
maintained by HR alone      metrics design and use
                                                  . . . and
     Human Capital Perspectives
     Traditional View             Emerging View
Little effort to understand   ROI has become an
the ROI in HC                 important tool
Measurement focuses on        Measurement focuses on
the data at hand              the data needed
Measurement is based on Measurement is based on
what others measure     organization needs
Programs initiated without Programs linked to
a business need            specific business needs
Reporting is input-focused Reporting is output-
                           focused
  Increased Interest in the Value of
          Human Capital
DRIVERS:
   The increasing cost of human capital
   Consequences of improper or ineffective HR
    practices
   Linkage of human capital to strategic
    initiatives
   Increased accountability of all functions
   Top executive requirement for HR
    contribution, and human capital ROI
         Profitability
ROI

      BOTTOM LINE CONTRIBUTION
     Three Journeys
1.   The need to change the HR
     measurement mix
2.   Setting the investment level for
     human capital
3.   Valuing human capital
                    HR Accountability
                                                               ROI Methodology
                    Progress                                 HR Profit Center
                                                          Balanced Scorecard
                                                    HR Macro Studies
HR Accountability




                                                Human Capital Measurement
                                            Competitive HR Benchmarking
                                        HR Satisfaction Surveys
                                     HR Cost Monitoring
                                HR Key Indicators
                              HR Auditing
                          HR Case Studies
                      Feedback Surveys
                    MBO in Personnel

1960’s                 1970’s     1980’s      1990’s        2000
 Leading Edge Approaches to
Measuring the HR Contribution

   Balanced Scorecard
   HR Profit Center
   Human Capital Measures
   HR Macro Studies
                             Most promise as
   ROI Process              an immediate
                             tool
       Measurement Categories

Select an approach in each of these categories

     Attitudinal Data
     Comparative Data
     Human Capital Measures
     Benefit/Cost Analysis (ROI)
Setting the Investment Level


              Let
           Others Do
              It!
Motivating Forces       Approaches
• Cost control       1. Hire fully
• Lack of               competent
  infrastructure        employees
• Instability        2. Use contract
                        employees
• Access to
  expertise          3. Outsource major
                        functions
• Short-term focus
• Survival
Setting the Investment Level


            Invest the
            Minimum!
Motivating Forces           Approaches
•   Low cost industry    1. Pay minimum
•   High labor use          wages
•   Strong competition   2. Provide few
                            benefits
•   Employees are
    dispensable          3. Keep training
                            simple
                         4. Expect turnover
                            and address it
Setting the Investment Level


              Invest
             with the
               Rest!
Motivating Forces           Approaches
• Desire to have best    1. Locate existing
  practices                 reports
• Benchmarking is        2. Participate in
  acceptable                existing projects
• Benchmarking is        3. Create a custom
  used in all parts of      project
  organization           4. Search the
• Benchmarking can          literature
  be low cost
• Benchmarking is
  low risk
Setting the Investment Level


              Invest
              Until it
              Hurts!
Motivating Forces         Approaches
• Fad chasing          1. Pay above-market
• Happy employee          wages
  dilemma              2. Provide above-
• Quick fixes             market employee
                          benefits
• Retention concerns
                       3. Implement most
• Competitive
                          new fads/
  strategy
                          programs
• Union demands
                       4. Provide all types
• We can afford it!       of employee
                          services
Setting the Investment Level


             Invest as
              Long as
             There is a
              Payoff!
Motivating Forces         Approaches
• Need to show HR      1. Measure success
  contribution            of each HR
• Increasing cost of      program
  human capital        2. Collect up to six
• Secure funding          types of data
• Business partner     3. Use ROI routinely
• Improve processes    4. Involve
                          stakeholders
                       5. Use the data
        Valuing Human Capital:
          Three Approaches

1.   What we know from Logic and Intuition
2.   What we know from Macro Level
     Research
3.   What we know from ROI Analysis
         1. Logic and Intuition
   Automation has limitations
   People are necessary
   Stock market mystery
   Accounting dilemma
   Last source of competitive advantage
   Superstar Phenomena
       2. Macro Level Research
   HR Effectiveness Index
   Gallup Studies
   The Service Profit Chain
   Watson-Wyatt Studies
   Deloitte & Touche Studies
    . . . . and many others
             3. ROI Analysis
   Micro Analysis Tool
   3-5,000 studies per year
   41 Countries / 25 Languages
   Variety of Applications
   ROI Certification (2,500)
   ROI Networks
   ROI Standards
   ROI Best Practices
          The ROI Process
…Generates six types of data:
1. Reaction to an HC project or program
2. Learning skills/knowledge
3. Application/Implementation progress
4. Business impact related to the project or
   program
5. Return on Investment
6. Intangible Benefits
   …..and includes a technique to isolate the
              effects of the program
            ROI Dilemma
             70-80% of organizations
Wish List                              Use List
             want to use ROI
  ROI         HIGH                       -----

   -----                                 -----

   -----              15-20% of          -----
              organizations are
   -----    currently using ROI          -----

   -----                  LOW            ROI


            Why the gap?
             Why Use ROI?
Reactive
 Show contributions of selected HR
  programs
 Justify/defend budgets

 Identify inefficient programs that need to
  be redesigned or eliminated
           Why Use ROI?
Proactive
 Aligns HR to business needs
 Earn respect of senior management/
  administrators
 Improve support for HR
 Enhance design and implementation
  processes
 Identify successful HR programs
               Applications
• Employee Relations      • Organization Development
  Programs                • Orientation Systems
• Career Development      • Recruiting Strategies
  Programs                • Safety & Health Programs
• Competency Systems      • Self-Directed Teams
• Diversity Programs      • Skill-Based/Knowledge-Based
• E-Learning                Compensation
• Executive Coaching      • Technology Implementation
• Executive Education     • Total Quality Management
• Gain Sharing Programs   • Wellness/Fitness Initiatives
• Global Leadership
Private Sector Organizations
  Government Organizations
 US Department of          European Patent Office
  Defense                   Government of New
 US Department of Labor     Zealand
 US Department of          Singapore
  Veteran Affairs           Italy
 US General                Australia
  Accountability Office     Canada
 US Office of Personnel    England
  Management
 NASA
            Basic Elements

An Evaluation                            Case
Framework                         Applications
                                  and Practice

                Implementation


                                     Operating
A Process                        Standards and
Model                               Philosophy
              HC Evaluation Levels
       Level                Measurement Focus
1. Reaction &        Measures participant satisfaction with
   Planned Action    the HC project and captures planned
                     actions, if appropriate
2. Learning          Measures changes in knowledge,
                     skills, and attitudes related to the HC
                     project
3. Application       Measures changes in on-the-job
                     behavior or actions as the HC project
                     is applied, implemented, or utilized
4. Business Impact   Measures changes in business impact
                     variables
5. Return on         Compares project benefits to the costs
   Investment
                     The ROI Process
      Evaluation
       Planning                     Data Collection



                               LEVEL 1: REACTION,   LEVEL 3:
                               SATISFACTION, AND    APPLICATION/
                               PLANNED ACTIONS      IMPLEMENTATION



  Develop        Develop           Collect            Collect Data
Objective of    Evaluation       Data During             After
 Solution(s)    Plans and         Solution          Implementation
               Baseline Data   Implementation

                               LEVEL 2:             LEVEL 4:
                               LEARNING             BUSINESS IMPACT
                                   Tabulate
                                   Costs of
                                   Solution

              Data Analysis                         Reporting



                  Convert          Calculate         Generate
  Isolate         Data To         the Return          Impact
the Effects       Monetary            On               Study
                   Value          Investment

                                 LEVEL 5: ROI



                                   Identify
                                  Intangible
                                  Measures


                              INTANGIBLE BENEFITS
Intangible Benefits
     Teamwork



      Commitment
                   Stres
                     s

                      Customer
                       Service
         Cost-Saving Approaches
•   Plan for evaluation early in the process
•   Build evaluation into the training
    process
•   Share the responsibilities for
    evaluation
•   Require participants to conduct major
    steps
•   Use short-cut methods for major steps
•   Use sampling to select the most
    appropriate programs for ROI analysis

                                               . . . and
       Cost-Saving Approaches
•   Use estimates in the collection
    and analysis of data
•   Develop internal capability to
    implement the ROI process
•   Utilize web-based software to
    reduce time
•   Streamline the reporting
    process
            Evaluation Profile

Level                                        Target
            οοοοοοοooooooooooooooooοoοοοοοοο
    1       οοοοοοoooooooooooooooooοοοοοοοοο  100%
            οοοοοοοoooooooooooooooooοοοοοοοο
               οοοοοοοoooooooooooooooooοο
        2      οοοοοοooooooooooooooοοοοοο   75%
               οοοοοooooooooooooooοοοοοοο
                  οοooooooooooooooοοοο
                  oooooooooooooooooooo
             3    oooooooooooooooooooo 30%
                     oooooooooooooo
                     oooooooooooooo
                4    oooooooooooooo   20%
                        oooooooo
                        oooooooo
                   5    oooooooo   10%
Criteria for Selecting Programs for
     Levels 4 and 5 Evaluation
• Expected life cycle of the HC project
• The importance of the project to strategic
  objectives
• The cost of the project
• Visibility of the project
• The size of the target audience
• Extent of management interest
      What Happens If We
    Maintain the Status Quo?

 Budget?

 Influence?

 Support?

 Other Issues?
                   ROI Reality
   ROI is desired by clients/executives
   The ROI methodology provides a balanced,
    credible approach with six types of data
   All types of organizations are routinely using ROI
   The ROI methodology can be implemented
    without draining resources
   The ROI methodology is a long-term goal for
    many organizations
      What Next?
Action Items to Implement a
Comprehensive ROI Process
 Supplemental Materials

Additional Resources and Information

				
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posted:3/4/2012
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