In some of our other blog posts, we talk about the importance of arming yourself with data. And as an HR professional, you should always be compiling useful, relevant data to help drive forward your programs. But you should also be using that data to help you create and present an ROI (return on investment) and VOI (value on investment) to your board. Whether it’s for a new benefit, a recognition program, an HRIS system or a communications portal, presenting these can help you get your board on board. They answer the key ‘why’, as in, why spend the money, time and effort on this new HR program?
So what is the difference between these measures and which is better? The simple way of explaining them is that ROI focuses on tangible measures (e.g. sales, revenue) and VOI focuses on intangible measures (e.g. engagement, turnover). As to which is better, I believe that in order to answer the question ‘why’ you need to present both. Some say that you should shake off ROI and embrace VOI, but I believe they both have an important and significant part to play, and should be mixed together for the perfect recipe for success.
By calculating both the ROI and the VOI of your programs, you’ll present business-focused evidence on the positive returns on investing in people and HR programs, which is ultimately the recipe we are trying to present and serve to our board and our business.
Here’s why you should develop a methodology process for ROI and VOI:
- You’ll take out what some call the ‘fluff’ from HR, showing that we in HR can use a widely accepted business approach and tool.
- These terms are easily understood and accepted, as they are used throughout the business. In fact, in some companies where I’ve worked it’s a non-negotiable, as it is expected (and demanded) by the business.
- They reduce subjectivity, presenting credible and tangible data which is easier for business partners to understand and react to.
- It forces us to think things through in a logical non-emotional way. In fact, sometimes when going through this exercise it’s actually convinced me not to present a program for approval.
Now let’s calculate…
In theory, calculating the ROI and VOI for an HR program is pretty straightforward. You basically look at the cost of the program and compare it to the savings (either tangible or intangible) which the program would return, thus showing the return/value on the investment for the program. The cost is usually quite easy to calculate, but the savings, especially intangible savings, can sometimes be a challenge.
You sometimes need to ‘think outside of the box’, finding ways to quantify what you believe or estimate the savings will be. For example, about 10 years ago I was asked to present the ROI for allowing our employees to work from home. This was when it was still uncommon to do this, so when I asked our consultant to share with me figures on these savings they told me that there were no such numbers. As one who never walks away from a challenge, I found a way to quantify these intangible savings, looking at factors such as savings on office space, office equipment, power, etc., and went on to show how employees would be more productive working from home. It wasn’t perfect, but it did the trick to answer the question ‘why.’ (And yes, we did provide more teleworking at a result!)
Prep your ROI and VOI data properly…
- Present the ‘right’ data
It’s important to present what I call the ‘right’ data. What I mean by this is: Make sure it is data which is credible, so your business partners won’t pick it apart and question it. Make sure it can easily be explained and understood, or your business partners will either lose interest or not get what you are trying to say. Make sure it is relevant, so it has a direct relationship to the points you are making, or again, your business partners will not take it seriously.
- Show total and ongoing costs
It’s absolutely critical to present the entire story or picture. I’ve made the mistake before in presenting ROI or VOI when I haven’t included total costs and/or ongoing costs. It’s not only embarrassing, but frustrating as you have to go back and re-do, making it that much harder to get approval the next time around. Think through every possible cost as well as every possible benefit, and include these when determining your ROI.
- Don’t present too much data
Data is great, but too much data can be disastrous. Try to get the balance between having the right data and too much, taking the timeto consider this before presenting to business partners. I often try out presenting my ROI and VOI data and approach with my husband, and if he as the expression goes, loses the will to live, I know that my business partners also will be overloaded with what I am presenting.
- Understand your audience
In the marketing world they talk about the need to understand your audience. The same holds true when it comes to presenting your ROI and VOI data to business partners. It’s important to understand and consider their perspective, their understanding of the situation and even the language they are familiar with.
For instance, when I was presenting data for putting in place a salary sacrifice program to my colleagues in the U.S., I had made the wrong assumption that my U.S. colleagues would be familiar with it as it’s a common term and program in the UK. I was so wrong! It took me two rounds of presentations to get it approved, and this was completely down to me not understanding my audience. By understanding and accepting this, I was able to change my approach, putting forward a proposal that spoke their language and looked at it from their perspective, and ultimately getting it approved.
- Present in a meaningful way
Related to the point above, it is critical to present your data in a meaningful way, one which will resonate with whomever you’re presenting to. An example is an approach I used when I worked for a retailer when I would convert the cost of a new benefit to the cost of selling jeans. For example, I would say that the cost would be equivale
nt to each store selling one more pair of jeans a week to put in place the new benefit. This made the cost more meaningful and more acceptable for when I next presented the savings, and thus the ROI or VOI of the program.
By paying attention to the ROI (and VOI) of your programs, you’ll ultimately be able to answer that all-important question of "why." Your board, your CEO and your business partners will take your programs more seriously as a result, and you’l
l have the flexibility to expand upon your great ideas. You’ll also be able to pinpoint - without emotion - what’s working, and what isn’t. And that’s key to implementing any HR program.
What other factors are you considering when you measure your ROI and VOI?