The ultimate guide to generating ROI in HR

Successful organisations understand that ROI isn’t only generated by sales, marketing, or finance teams. Generating a return on investment is a priority for all areas of a business — including HR. 

When it comes to managing people, ROI should automatically be factored into your strategies and calculations. After all, it’s your employees who are responsible for creating the products and services that result in either profit or loss for the business — especially in frontline and deskless industries. Unlike in industries that sell physical goods or software products for example, frontline employees deliver services and experiences that translate directly into measurable ROI.  

When looking at things through this lens, every single person employed by a business is an investment. And to ensure the best possible ROI, managers and HR teams need to ensure their employees can perform at their best by applying strategies to reduce attrition, incentivise development, and maximise productivity. 

This guide will offer a practical introduction to help understand how people can generate ROI in different stages of the employee lifecycle, including how you can maximise profits throughout each stage.

What is ROI in HR?

Calculating ROI in HR is as simple as assessing the financial return generated by HR activities in comparison to the time, energy, and resources you’ve invested into them. Although it might seem challenging to put a number on human-based programs and initiatives, it’s now more important than ever for HR to demonstrate their effectiveness and how they impact the bottom line. 

One way of calculating your HR ROI is via your HR software. There are several key HR metrics that can be directly linked to programs, processes and initiatives, allowing you to measure their impact both qualitatively and quantitatively. For example, if you’ve introduced a wellness program, what is the impact on absenteeism? Or do increases in employee satisfaction correspond to increases in business performance?

Understand your break-even point

The first ways that organisations can start to maximise their profit is through greater productivity and output from their workforce. 

Performance naturally peaks and troughs throughout an employee’s tenure. By modelling a typical employee’s trajectory, which consists of three phases (onboarding, performing, offboarding), we can start to understand when new hires start generating returns and when longer-standing employees’ profitability starts to drop. 

Let’s take a look at each of these phases in a little more detail in the next section.

Phase 1: Pre-break even (onboarding)

When an employee starts a new role, they go through a phase that requires investment by the organisation to get them to the point of break-even. Up until this time, the organisation hasn’t profited from this employee because they are investing time and resources into training them as well as paying their salary (and this period can take anywhere up to 12 months, depending on the role). After break-even, the employee will start to generate more value than it costs to employ them. There are several things you can do to optimise and speed up this process.

Perfect the onboarding process

A consistent and high-quality onboarding strategy delivered consistently to all new starters will help limit wasted time at the beginning of an employee’s tenure while also giving them a good first impression of the organisation. 

Where possible, get a head start by kicking off the onboarding process before an employee starts their first day. Most paperwork or compliance tasks can be completed digitally in the lead-up to their start date so the employee doesn’t have to spend time filling out forms when they start work. 

This is just one way you can always be prepared for new starters and ensure they have everything they need to hit the ground running in their new role. Once the new starter has officially joined your organisation, all necessary training should also be provided as soon as possible, allowing them to start productive work sooner.

Build a solid foundation with probation

Probation checkpoints can easily be built into your onboarding process to further set new starters up for success in their first 3-6 months. Using Humanforce’s Onboarding & Offboarding solution, you can created customised onboarding workflows and set up automated check-in forms to go out to new staff during their probation, gathering insights for managers into any areas they may need to provide further support or recognition. This allows managers to deal with potential problems early on, giving the team member maximum opportunity to pass their probation, while ensuring performance-limiting issues are not carried forward into their ongoing employment.

Speed up the learning and ownership curve

One way the onboarding phase can be accelerated is by introducing new starters to their role in a phased approach. By starting them off with information they need to know, and simple tasks they can master fast, and gradually increasing complexity over time, onboarding costs stay low and ROI is achieved sooner. Encourage them to set achievable goals in these areas as soon as possible, so they start to gain personal rewards from achievements more quickly than they would have otherwise.

Phase 2: Post-break even (performing, acceleration, extension)

Performance

Employees are considered to be in the “performing” phase after they have reached the break-even point. Managers should then focus on helping the employee reach and sustain peak performance. It is while an employee is at peak performance they are deriving maximum profitability for the organisation. 

It is possible to take control of this performance curve to accelerate and even extend performance throughout the employee lifecycle. In order to achieve this, managers must be equipped with the right tools, while also understanding what drives performance in their workers.

Drivers of performance
There are a number of important internal and external factors that drive an individual’s performance. We can think of all these factors and how they affect performance using the Performance Equation. 

High Performance = (ability + motivation + opportunity) culture 

For the best chance of success in controlling performance, organisations must plan for and manage all influences:

ABILITY

• Current performance

• Discretionary effort

• Obstacles impeding daily tasks

• Ability to pay bills

MOTIVATION

• Expectations

• Sense of feeling valued

• Personal life

• Pay increase over time, relative to others

OPPORTUNITY

• Development

• Training

• Resources

• Autonomy to make decisions their role can impact upon

• Context of how their role supports organisational direction

CULTURE

• Engagement

• Pay equity

• Existing work relationships

• Changes to work relationships

• Language and tone in performance reviews

• Rating scales

Essential tools to take control of the performance curve

The following tools play a vital role in managing the drivers of performance throughout the Employee Lifecycle Curve. It’s important to note, these tools are effective as together they serve to empower employees to be self-led, and take control of their role. 

Probation 

Continuous feedback 

Performance improvement 

Feedback 

Self review 

Termination 

Goals 

Performance review 

Diary notes 

Training 

Goals 

Exit interviews 

Policy compliance 

Achievements 

Induction 

Recognition 

Diary notes 

Organisation chart 

Training

Acceleration

Now that we’ve looked at some ways to get people performing during onboarding and after break even, we can now explore how to minimise or offset the cost of attrition by speeding up time it takes to progress from onboarding to performing — and extending performance over time (rather than allowing it to decline). 

The faster you can accelerate an employee to peak performance, the greater cost savings you can achieve and the higher profit generation you can assist the employee to contribute. It truly is a win-win. 

Role-design 
Rejecting static position descriptions 

The perfect role needs to fit your organisation’s needs as well as the skills and talents of the employee who fills it. It pays to keep things flexible and adapt individual roles to changing needs on both sides, to derive maximum productivity and returns. A constantly evolving role that develops with an employee and the needs of the business, allowing them to self-manage, grow and stay engaged better than a static position description can. 

Goals (which we expand upon shortly) are an important component in place of a static PD, they can be used to align expectations but also keep the focus of employees agile and dynamic. Leaders can focus team activities in alignment with individual talents, interests, and development challenges. 

Continuous feedback 
Keep two-way communication flowing with check-ins 

With Humanforce’s HR suite, forms can be customised so organisations can set simple check-ins that can  be distributed to new starters automatically by email at designated intervals. These can be tailored to the needs of your business, so think about what you want to know to help new starters have a good experience and get performing as soon as possible. Some good questions you could start with include: 

• Do you feel your role is consistent with the position described to you in the recruitment process? 

• Do you have everything you need to do your job? 

• Is there any additional knowledge or training that could help you take next steps? 

• Have you been given an office tour and introduced to your colleagues? 

• How can we help you? 

This signals to new employees that they should feel comfortable asking for help if they need it and that support is available. Managers receive an email notification to access responses and can act on any potential problems in real-time before they escalate. 

Self-managed goals 
Give new hires a sense of purpose and direction from the start 

With self-managed goals, employees can set their own goals, or have collaborative goals cascaded to them from their manager or other team members from day one. This provides them with a sense of purpose and an actionable target they can work towards all while being able to track their progress and communicate with their manager all within the platform. 

Performance Reviews 
Complement continuous feedback with a formal annual review 

Once self-managed goals are being set and tracked, this record of goal progress can be used to inform annual performance reviews. Achievements are captured in the continuous feedback forms and then automatically feed into your performance summary reports in Humanforce’s Performance Management solution. This way, staff can monitor how they are doing throughout the year and know what to expect when performance review time rolls around. Most importantly, staff have a chance to proactively improve throughout the year, rather than wait 12 months to hear about improvements they need to make. 

Organisational chart 
Helping employees find their fit 

An automated organisational chart available to everyone in the business will help new starters find where they fit in. The chart should update automatically to reflect any changes to reporting lines or position titles while also adding or removing employees as they enter or exit the business. This way, new employees will always be visible to the rest of the business and know where they stand from day one. 

This also means all employees have visibility over the structure of the company they work in, and with names and profile pictures added to each staff member, can get to know their colleagues quicker and feel right at home. There is complete transparency and no confusion over who is who.

Extension

Performance reviews 
Beyond checking in on progress, formal performance reviews are an opportunity to reflect on an individual’s role and reassess where their talents can best be applied in the future. For example, if you have two sales people in the same role, but one is excelling in lead generation, while the other gets less leads but has a better close rate — it might be worth redesigning their roles to cater to their unique skills. By having more flexible position descriptions or staff and allowing for role adaptation, the performance curve can be extended over time, compared to dropping off if each staff member was forced to continue working on tasks that did not align to their strengths. 

Performance improvement 
After expectations have been clearly communicated in the performance review process, if there is still room for progress, a performance improvement plan can be enacted. This is a positive, not a disciplinary process, and should provide the employee with clear guidelines on expectations going forward and milestones that must be achieved to get back on track. 

Diary notes 
Beyond the performance improvement plan, diary notes can be used to monitor performance over time and take note of cause for recognition or continuation of problems. If problems persist over time and performance does in fact decline, the next step is offboarding.

3. Post-performing (offboarding) 

Offboarding 
While the above steps will help to maximize performance and engagement as much as possible to deliver ROI in HR, there will always be some cases where offboarding becomes necessary. Declining performance, if not identified, managed or turned around, will ultimately lead to a business-initiated termination as the cost of employing the staff member becomes greater than the value they create. 

Proactive offboarding 
If staff are non-productive or disengaged, their impact on your business can only be defined at best as ‘sunk wages’, and at worst they can also have a negative impact upon other team members. If low productivity or disengagement have been identified and corrective action has not been effective, it is best to initiate processes to help these employees find alternative employment options (set them free) as soon as possible to minimise lost productivity and wasted wage costs. 

Again, Humanforce’s Onboarding & Offboarding solution can help ensure any exits from the business are smooth – leaving a good impression in case re-hiring takes place down the track. 

Reduce attrition

When it comes to generating ROI through your people, maximising performance and reducing attrition go hand in hand. While it is important to offboard (and fast) if a hire just isn’t a good fit, it’s ideal if this can be avoided in the first place by better recruitment and onboarding processes. 

Understanding the real cost of employee turnover 
Hiring and retaining the right employees doesn’t just increase ROI by improving performance, it also increases ROI by reducing turnover costs. 

We often think about the visible costs of hiring a replacement staff member, like advertising the position online or recruitment agency fees, but what about all the hidden costs? Imagine a current employee is job hunting and it takes them four weeks to secure a new job. They take sick days to attend interviews and eventually give their two weeks’ notice of resignation. By the time they exit the business that is six weeks of reduced capacity your organisation will never get back. 

Considering the known and hidden costs of attrition, let’s look at what costs your organisation may incur in obtaining a new hire: 

Position advertising costs 

– Advertising on job boards 

New employee’s salary in onboarding period 

– Minimum two weeks 

Wage costs of time spent completing mandatory learning and development “on the job” 

– Minimum one week of new employee salary 

Lost revenue during new employee’s onboarding phase 

– Minimum two weeks’ wages *3 

Recruitment Agency Fees and Commission 

– 10-15% of position salary 

Other employee overheads in this time 

– Normally 30% of salary (payroll tax, insurance etc.) 

Salary of current staff members being paid to provide training 

– Minimum one week of trainer salary 

Lost productivity during resigning employee’s job hunting and notice period 

– Minimum two weeks notice period, sick days taken for interviews etc. 

Recruitment administration 

– 3-7 days’ work 

Cost of mandatory courses and qualifications 

Wage cost from time spent conducting interviews 

– Minimum 10 hours of time taken from senior staff members 

Average per-person training budget 

– Normally $3000+ 

Readiness for work environment 

– Payroll administration, IT systems set up, medical examinations etc. 

Now, multiply all these costs by how many employees leave your business each year. The numbers quickly add up. 

Looking at the cost of this turnover each year, it is easy to see that a small percentage decrease in attrition can equate to millions of dollars in savings per year.

Final note on ROI in HR

There is plenty that can be done to help support and optimise your people’s performance for the best possible ROI on your HR activities — from onboarding to the engagement phase, to goals and performance reviews, and more. 

With Humanforce, fostering and tracking your HR ROI is fast, accessible, and intuitive. Discover more by visiting the product page.

About Humanforce 

Humanforce is the all-in-one platform for frontline and flexible workforces, offering a truly employee centred, intelligent and compliant human capital management (HCM) suite – without compromise. Founded in 2002, Humanforce has a 2300+ customer base and over half a million users worldwide. Today, we have offices across Australia, New Zealand, the US, and the UK. 

Our vision is to make work easier and life better by focusing on the needs and fulfilment of frontline workers, and the efficiency and optimisation of businesses. 

To learn more about how Humanforce’s solution can help automate people processes in your business, please contact us.