Dear all,
On one of the WA groups of HRs, Administrator of the groups, Mr Rajaram Thorve, has raised the following topic for discussion:
Is it necessary to have the thought of ROI for every penny spent in the organization?
How would you justify the penny spent especially on recruitment training & retention by way of ROI formula?
I have given replies to the questions. These are as below:
+++++
Dear Mr Rajaram Thorve,
The replies to your questions are as below:
Q. 1 Is it necessary to have the thought of ROI for every penny spent in the organization?
Reply: - If we start measuring ROI for every penny spent in the organisation then there it will be micromanagement. For example, many companies subscribe newspapers and these are kept at the front office. How to measure ROI on the money spent on newspapers? Is it necessary to do that? Please note that the measurement of ROI should not promote culture of stinginess!
Therefore, it is better to restrict ROI measurement to the top 80% of the organisation’s spend. Within this spend also, some spend is there where calculation of ROI is not possible. For example, suppose company spends Rs 25 Lakh in beautification of the front office or lobby of the company or spends Rs 10 Lakh in the celebration of Foundation Day. In both the cases, will it be possible to measure ROI?
ROI predominantly measured while purchasing capital equipment. Evaluation techniques of the purchase of the capital equipment are (a) Payback Period (b) Net Present Value (c) Accounting Rate of Return and (d) Internal Rate of Return (IRR). Of these the most important technique is IRR.
While purchasing capital equipment, many companies just calculate estimated IRR but do not do variance analysis on projected Vs actual IRR. Learning caused of this variance has no parallels.
Q. 2 How would you justify the penny spent especially on recruitment training & retention by way of ROI formula?
Reply: - After the training, effectiveness of the training is measured on the following counts:
a) whether any cost was reduced
b) whether consumption resources was reduced
c) whether turnaround time of some process was reduced or
d) some ratio was increased or decreased
Measurement of ROI on recruitment is a big challenge. While directly it may not be feasible to measure ROI on the recruitment, some measurement can be done on the following parameters to assess its effectiveness:
e) Number of hires terminated because of the poor performance within or completion of their probationary period
f) Their total KRA score on a scale of 100 in the first year of their tenure
Challenges in Measurement of ROI on Recruitment: - If the person is hired for a specific task then it is possible to measure the ROI. However, bosses change the job profile just after 5-6 months since the person is capable of doing that task. Because of these changes, it becomes difficult to measure the ROI.
Final Comments: - Measurement of ROI is part of scientific decision-making process. In many companies the decisions are based on hunch. “Gut-feeling” is a dear word in India’s business world. Therefore, to promote culture of ROI measurement, a culture scientific decision-making has to be promoted.
Thanks,
Dinesh Divekar
From India, Bangalore
7879On one of the WA groups of HRs, Administrator of the groups, Mr Rajaram Thorve, has raised the following topic for discussion:
Is it necessary to have the thought of ROI for every penny spent in the organization?
How would you justify the penny spent especially on recruitment training & retention by way of ROI formula?
I have given replies to the questions. These are as below:
+++++
Dear Mr Rajaram Thorve,
The replies to your questions are as below:
Q. 1 Is it necessary to have the thought of ROI for every penny spent in the organization?
Reply: - If we start measuring ROI for every penny spent in the organisation then there it will be micromanagement. For example, many companies subscribe newspapers and these are kept at the front office. How to measure ROI on the money spent on newspapers? Is it necessary to do that? Please note that the measurement of ROI should not promote culture of stinginess!
Therefore, it is better to restrict ROI measurement to the top 80% of the organisation’s spend. Within this spend also, some spend is there where calculation of ROI is not possible. For example, suppose company spends Rs 25 Lakh in beautification of the front office or lobby of the company or spends Rs 10 Lakh in the celebration of Foundation Day. In both the cases, will it be possible to measure ROI?
ROI predominantly measured while purchasing capital equipment. Evaluation techniques of the purchase of the capital equipment are (a) Payback Period (b) Net Present Value (c) Accounting Rate of Return and (d) Internal Rate of Return (IRR). Of these the most important technique is IRR.
While purchasing capital equipment, many companies just calculate estimated IRR but do not do variance analysis on projected Vs actual IRR. Learning caused of this variance has no parallels.
Q. 2 How would you justify the penny spent especially on recruitment training & retention by way of ROI formula?
Reply: - After the training, effectiveness of the training is measured on the following counts:
a) whether any cost was reduced
b) whether consumption resources was reduced
c) whether turnaround time of some process was reduced or
d) some ratio was increased or decreased
Measurement of ROI on recruitment is a big challenge. While directly it may not be feasible to measure ROI on the recruitment, some measurement can be done on the following parameters to assess its effectiveness:
e) Number of hires terminated because of the poor performance within or completion of their probationary period
f) Their total KRA score on a scale of 100 in the first year of their tenure
Challenges in Measurement of ROI on Recruitment: - If the person is hired for a specific task then it is possible to measure the ROI. However, bosses change the job profile just after 5-6 months since the person is capable of doing that task. Because of these changes, it becomes difficult to measure the ROI.
Final Comments: - Measurement of ROI is part of scientific decision-making process. In many companies the decisions are based on hunch. “Gut-feeling” is a dear word in India’s business world. Therefore, to promote culture of ROI measurement, a culture scientific decision-making has to be promoted.
Thanks,
Dinesh Divekar
From India, Bangalore
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