Human Resources ROI (return on investment) is defined as the present value of the net benefit minus the present value of the initial investment divided by the initial investment. Basically it says, how much more as a percentage do we get back than what we have put into that project, then multiply the result by 100 to convert it to a percentage. Human Resources ROI it's always expressed as a percentage. It is the percentage return you have made over a specific period of time. Think of ROI as the benefits subtracted by the investment then divided by the investment.

An example of human resources ROI focusing on the costs and benefits of training.

Training is always - unless you're talking about hands-on skills training, often difficult to quantify. The first thing to look at is an estimate - looking at all of those components that would be a cost as well as a benefit t. The second step is a needs assessment-why is the company embarking on this project. There’s some design or development cost. There's ongoing delivery cost which assuming it's classroom based training, you're going to have various costs in the materials, in the facilities, in the instructor. You're also going to have some evaluation cost.

Start by saying, what are all of the cost components that may be associated with a training program? Then you also want to look at some of the other benefits that may or may not be quantifiable; people from multiple positions or locations working with one another, changes in performance, learning and behavior changes.

Show the impact in your human resources ROI

Try as much as possible to say, what is it we expect to be different if we do this training program? Will it impact our process? Will it impact performance? Then you want to estimate the training - the benefits. And these are the categories of things that I would like you to think about whenever you look at attempting to quantify the benefits.

Three key data sources in human resources ROI

The previous experience that you had internal to your company, that you have information on. You have history that you can draw on.

There's also benchmarked data, looking at other companies and seeing how that information could be compared to yours. And the closer it is by industry or company type, usually the better able you are to show that it's comparable data for your company. And the results of a pilot test.

So let's take our example of training. If we believe that having a comprehensive training program will have two primary benefits in this case: first of all, reduction of turnover and secondly, reduction of errors in the department with highly rated supervisors. When we look at these training benefits and based on our previous experience, you can now look at your supervisory population and say, compared to the population as a whole, those employees who have attended training on a regular basis have a lower turnover rate. You can start to estimate the turnover.