Three Basic Assumptions

Finding ROI is terribly difficult for a lot of HR initiatives. But if we can all agree to a few simple assumptions, we can get past the wailing and gnashing of teeth of ROI and get to work on improvements.

1) People are worth more to the organization than they are paid. Tough to admit, but its a natural rule of business. Companies should have revenues exceeding their costs, and should far exceed their payroll. Simple. You can extrapolate that to determine how much a position is paid per day will be less than it is worth per day, and calculate cost of time to fill from there. Not accurate, but representative. And low.

2) When you can’t verify the accuracy of a number, we can often verify the validity of a trend. That’s good enough in some cases. Again, weight the cost of getting accuracy against the value of knowing the “real” number. Headcount comes to mind. It’s not the absolute number that matters, its the trend over time that you have to watch. If you aren’t likely to take a specific action when the number shifts month to month, then you want trends, not discrete data points.

3) Flat line cost changes are, in most cases, not sustainable. You can’t set a target of reducing costs 10% each year and expect to eventually reach a zero cost process in most cases. You need to have something with which to compare your costs, like headcount, revenue or production. You can’t always reduce flat line costs, but you can always work to reduce relative costs.

It’s not everything you will need, but it’s a place to start.

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  1. […] This post was mentioned on Twitter by Michael Carty and Kenexa HR Institute, Dwane Lay. Dwane Lay said: New at LeanHRBlog: Three Basic Assumptions. http://bit.ly/cu3DMQ Having trouble with ROI? Maybe this can help. […]

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