Myth or Reality: HR ROI

If you are in Human Resources, at some point you will be challenged about the value of your activities. Business operates according to the laws of limited resources; and not everything an organization does is worth doing. Every activity should be open to assessment and questioning. If there is a better, more efficient, more productive or meaningful approach available adjustments should be made and new directions should be taken. But how does the organization assess and measure value? Is there a double standard in place for HR activities compared to, for example, what is done through marketing or finance?

Instead of calculating ROI the traditional way, HR must learn how to determine and articulate how its work adds value to the business in economic terms. It must honestly assess whether the HR’s ROI processes or activities impact the business, or whether they are merely in place for the sake of tradition.

This paper explores the meaning of Return On Investment as it applies to the Human Resources function. It defines ROI, describes how ROI has been traditionally applied to Human Resources, and supplies alternative definitions that might be more suitable. In doing so, this paper will stimulate thinking about the questions HR needs to ask of itself, and ultimately align those ideas with a clarified and rejuvenated rationale for measuring the ROI of HR.