The answer to this question is not always clearly understood. An HR program could be labeled a success without converting to monetary values, just by using business impact data showing the amount of change directly attributed to the program. For example, a change in quality, cycle time, market share, or customer satisfaction could represent significant improvements linked directly to a new program. This evidence may be sufficient for some programs. However, many sponsors need the actual monetary value, and more evaluators take this extra step of converting data to monetary values.
Value Equals Money
For some stakeholders, the most significant value is money. Many different types of value exist. However, money is becoming one of the most meaningful values as the economic benefits of programs are desired particularly by executives, sponsors, clients, administrators, and top leaders. They are concerned about the allocation of funds and want to see the contribution of an HR program in monetary values. Anything short of this value for these key stakeholders would be unsatisfactory.
Impact Is More Understandable
For some HR programs, the impact is more understandable when the monetary value is developed. For example, consider the impact of a leadership development program aimed at all the middle managers in an organization. As part of the program, the managers were asked to address at least two measures that matter to them and that have to change or improve for those managers to meet their specific goals. The measures could literally represent dozens, if not hundreds, of different measures. When the program impact is captured, all these measures have changed, leaving a myriad of improvements, difficult to appreciate without a conversion to monetary value. When the first-year monetary value is developed for each of the measures, the results provide the evaluator and sponsors with a sense of the impact of the program. Without converting to monetary values, understanding the contribution is difficult.
Money Is Necessary for ROI
Monetary value is required to develop ROI. A monetary value is needed to compare to costs in order to develop the benefit/cost ratio, the ROI (as a percent), and the payback period. In fact, the monetary benefits become the other half of the equation and are absolutely essential.
Monetary Value Is Needed to Understand Problems
In all businesses, costs are necessary for understanding the magnitude of any problem. Consider, for example, the cost of employee turnover. The traditional records and even those available through an analysis of cost statements will not show the full value or cost of the problem. A variety of estimates and expert input may be required to supplement cost statements to arrive at a particular value, that is, the monetary value needed in a fully-loaded format to understand the problem. The good news is that many organizations have developed a number of standard cost items representing issues that are undesired.
Excerpted from Jack J. Phillips and Patricia Pulliam Phillips, Proving the Value of HR: How and Why to Measure ROI, second edition (SHRM, 2012).
Why Calculate Monetary Benefits of HR Programs?
The answer to this question is not always clearly understood. An HR program could be labeled a success without converting to monetary values, just by using business impact data showing the amount of change directly attributed to the program. For example, a change in quality, cycle time, market share, or customer satisfaction could represent significant improvements linked directly to a new program. This evidence may be sufficient for some programs. However, many sponsors need the actual monetary value, and more evaluators take this extra step of converting data to monetary values.
Value Equals Money
For some stakeholders, the most significant value is money. Many different types of value exist. However, money is becoming one of the most meaningful values as the economic benefits of programs are desired particularly by executives, sponsors, clients, administrators, and top leaders. They are concerned about the allocation of funds and want to see the contribution of an HR program in monetary values. Anything short of this value for these key stakeholders would be unsatisfactory.
Impact Is More Understandable
For some HR programs, the impact is more understandable when the monetary value is developed. For example, consider the impact of a leadership development program aimed at all the middle managers in an organization. As part of the program, the managers were asked to address at least two measures that matter to them and that have to change or improve for those managers to meet their specific goals. The measures could literally represent dozens, if not hundreds, of different measures. When the program impact is captured, all these measures have changed, leaving a myriad of improvements, difficult to appreciate without a conversion to monetary value. When the first-year monetary value is developed for each of the measures, the results provide the evaluator and sponsors with a sense of the impact of the program. Without converting to monetary values, understanding the contribution is difficult.
Money Is Necessary for ROI
Monetary value is required to develop ROI. A monetary value is needed to compare to costs in order to develop the benefit/cost ratio, the ROI (as a percent), and the payback period. In fact, the monetary benefits become the other half of the equation and are absolutely essential.
Monetary Value Is Needed to Understand Problems
In all businesses, costs are necessary for understanding the magnitude of any problem. Consider, for example, the cost of employee turnover. The traditional records and even those available through an analysis of cost statements will not show the full value or cost of the problem. A variety of estimates and expert input may be required to supplement cost statements to arrive at a particular value, that is, the monetary value needed in a fully-loaded format to understand the problem. The good news is that many organizations have developed a number of standard cost items representing issues that are undesired.
Excerpted from Jack J. Phillips and Patricia Pulliam Phillips, Proving the Value of HR: How and Why to Measure ROI, second edition (SHRM, 2012).
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