What is ROI and how does it affect HR?
Return on investment (ROI) measures the financial benefit from money spent on a particular project. Basic variables in a ROI calculation are the cost of capital to be used, payback period, and length of time before any benefits are realized. Finance departments traditionally use ROI to help measure savings associated with investments.
When an HR department wishes to purchase e-HR applications or new technologies, usually a business plan and justification for the investment is required. In the past, the HR business plan included the cost of the new technology and the estimated savings in the HR department from automation - period! In today''s world of limited capital and limited expense money, such a business plan is not adequate. In addition to focusing on administrative savings, HR should also consider corporate strategy and corporate business needs.
In many companies, HR is joining with IT to determine the viability of e-HR applications in light of company wide programs. HR & IT increasingly are jointly funding workforce technologies. This collaboration should help quantify the benefits enjoyed not only by the HR department but also by all the departments utilizing the new technology.
To ensure the acceptance of your HR business plan, also elicit the help of the finance department. Ask them for assistance when building your business case and ROI calculations. Using the company''s business methodology will speed the approval process.
How should we go about measuring ROI for international assignments?
First and foremost, are you able to quantify the total cost of each international assignment? Determining the cost of an assignment is difficult and complex but there are software programs available that help gather all the necessary information. The good news is that it is possible to estimate the total cost of each assignment. This satisfies the first part of ROI - determining the cost of capital to be used.
Now the difficult part - how do you measure the benefits realized from an international assignment and the payback period? A procedure should be developed that helps measure qualitative goals. A few questions to get the process started:
- What is the business value of the assignment and how will you measure the value?
- Are the assignment objectives aligned with the company''s objectives?
- If knowledge transfer is part of the assignment''s objective, how is success measured?
- How will you assess the strategic value of the assignee including employee development, succession planning and performance measurement?
- How are future contributions by the assignee taken into consideration?
- Are your assignees leaving the company soon after repatriation? If so, the assignment''s ROI will be close to zero or even a negative.
Being armed with the answers to the above questions will help HR develop a business plan that answers the basic question: "Should we send a US employee on international assignment or, as an alternative, use a local hire." We know that US assignees are more costly than local hires. However, by effectively measuring the tangible and intangible benefits to the company and assignee, a business case can be made to send a US employee on an international assignment.
