It's easy to measure the ROI on tangible expenses, but how do you measure ROI on your human capital expenditures? The New ROI: Return on Individuals, an excerpt of a longer article published in the Harvard Business Review by Loren Gary, asks this question in this week's Working Knowledge newsletter.
Unfortunately, there is no one formula firms can use to determine human capital ROI, but, as Gary suggests, you can choose a key driver in your business, such as corporate strategy, to help measure the value of your employees' contributions. One argument suggests that the more aligned an employee is with corporate strategy, the more ready and able the employee is to transform that into corporate earnings. As Gary notes: "When the big corporate picture is clear, it helps you make decisions about where to spend specific dollars. Not all jobs are equally important—focus your resources where they'll give you the greatest return."
Considering that, by some accounts, the employee investment can run upwards of 60% of a business's expenditures, finding a way to measure your human capital ROI could really pay off.
For further reading on the topic check out Jac Fitz-Enz's book
The ROI of Human Capital: Measuring the Economic Value of Employee Performance. It's received a few stellar reviews at Amazon.com.