Human resource initiatives are sometimes considered a soft target during economic downturns. This happens because the HR department can't always provide quantifiable financial data about its workload, and doesn't typically generate revenue. Although improved morale or greater employee engagement may be part of your hospitality business’ goals, whether that translates to a significant increase in business revenue or improved productivity remains questionable to board members. But calculating the human resource return on investment (HR ROI) provides a way for HR managers to demonstrate the worth of a company's HR initiatives, even during an economic downturn. (1)
In this article, you’ll learn what HR ROI is, and why measuring the ROI of human resource programs is important for your hospitality business. Lastly, we’ll dive into methods for measuring your HR return on investment.
What Is Human Resource Return on Investment (HR ROI)?
Human resource return on investment is a strategic indicator that measures how much (money) employee-oriented programs contribute to a company's bottom line. These programs can include recruitment, reward strategy, talent management, learning and development, etc. HR ROI demonstrates the value that employees individually and collectively bring, and also accurately reflects how valuable human capital is to a company.
Measuring human resource ROI is not as straightforward as it can be with other programs. This is because there are numerous factors that affect employees, making it challenging to determine the precise impact of HR policy. For instance, you can implement a new recruiting approach to improve your hospitality staff retention rates.
While retention can improve as a result of your new recruiting strategies, it can also be due to changes in your leadership team, company culture, or the general state of the economy. The latter is precisely what makes this metric hard to measure.
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Why Is Measuring HR ROI important?
In times of inflation, businesses tend to increasingly hold all staff-support activities financially accountable, especially when approving budgets. By calculating the ROI of an HR initiative and then presenting the results to hospitality decision makers, HR can portray itself as a business-oriented department.
Moreover, the value of HR services, which are sometimes viewed as incidental to the company’s core goal, is increasingly questioned during lean economic times. As a result, it is even more crucial for HR to demonstrate how HR services directly impact the bottom line while identifying and dismantling unproductive programs. The use of quantifiable indicators enables senior management to pinpoint the concrete, quantifiable benefits of HR services to the business.
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How to Measure HR ROI for Your Hotel Business
The following steps will help you easily measure your hotel’s HR ROI:
1. Collect Current Data
If you don't have precise information about your current situation, it can be challenging to show the ROI or effectiveness of an HR program. Make sure you're gathering as much information as you can about your current performance to enable you to calculate the ROI of your HR initiatives. Conducting an audit of your existing HR initiatives allows you to benchmark against hotel industry standards and enables you to identify weaknesses in your HR strategy.
2. Use Diverse HR metrics
Human resource initiatives can have multiple and far-reaching outcomes, some of which can be discerned immediately, while others may take time to mature. For example, if you spend some of your budget on an employee wellness initiative, you won't instantly generate ROI like you would if you’d spent that money on a marketing campaign. The impact of HR initiatives, such as improved employee morale, take time to play out. It is advisable to calculate your HR ROI using a more comprehensive methodology to give you a profound understanding of the impact of the initiative.
3. Set Clear KPIs
Setting key performance indicators can help you measure the ROI of HR more accurately. KPIs assist in defining your HR initiatives' objectives, and the metrics you will use to determine whether you succeed in achieving them or not. KPIs also provide you with the measures you need to assess an HR program's effectiveness and, from there, determine your ROI and provide a basis for continuous improvement.
How to Build a Business Case for Your HR Initiatives
HR departments typically struggle to show the ROI of their initiatives. These measures typically rely on staff wellbeing surveys and employee retention rates, unlike marketing and sales, which use revenue data. Here is how to convince the board to keep investing in people even during an economic crisis:
- Outline the Problem. First, establish the need for the initiative in order to make the case for senior leadership to invest in it. This entails recognising business constraints, processes that could be improved, or opportunities to introduce change. Outlining the problem allows you to craft the HR initiative's value proposition, and offers a crucial background that can help your audience understand the rationale for investing in the initiative.
- Describe the Solution. Secondly, describe your idea and why what you are proposing is the best answer for the issues you have identified. Indicate what will be modified, added, and removed, along with how it will be done. Outline the resources you require, how you will distribute them, and how each step will advance the solution for each problem. This will make it easier for you to justify your HR expenses and give all stakeholders a clear cost-benefit analysis.
- Demonstrate Desired Results. At this level, you’ll need to visualise how your hotel’s HR initiatives will impact the identified challenges, including the company’s performance and financial health. Outline how the initiatives will enhance efficiency, productivity, profitability, or other company goals, whichever they may be. Develop a picture of how the business will look after the initiative. Cap this step off with concise insights that will resonate with the decision-makers.
A key takeaway when building a business case for HR initiatives is to always show how they align with the broader business strategy. For instance, if a company wants to offer new products to different regions, you’ll need to demonstrate how training employees can help the business achieve this goal. Doing so can persuade company leadership that HR initiatives are actually an investment rather than a cost, regardless of global financial crises.
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