Return on Investment for Talent Management

World over organizations are concerned about the return on investment (ROI) of talent management. Those who are investing money into the same are searching for efficient means to calculate their ROI. This problem is not unique to talent management only; training and development for example suffers from the same drawback to a certain extent.

Fortunately there are software available and in development process for the same. These software’s help you in calculating your returns on investment for talent management. The software’s span the entire talent lifecycle and are built to automate and track the entire activities including the financial inputs and outputs at each stage. The software’s bring together all parts of the talent management system into a single collaborative environment. The environment may be either web based on otherwise, depending upon the vendor.

An alternate way of doing this would be making calculations manually, hectic but worth doing considering the benefits. ROI is the ratio of money gained or lost on money invested into a particular product, process or a project. Typically these calculations are undertaken over a three year period. Here are the steps to be followed.

The very thought of calculating cost for performance management system appears bizarre, especially for organizations that employee a good number of people. But there is a method to it, a poll. Choose a representative number of managers or employees and enquire about the average time they spend on preparing performance appraisals for a given year on one singe employee.

Now multiply each of these averages by the total of employees in your organization and the average salary for these managers and employees. For example if the managers in consideration spend an average of 4 hours on each employee appraisal and the average pay for the managers is $ 30 (let’s say) and your company has 200 employees. Then the total cost would come up as 4 × 200 × 200 i.e. $ 24000.

Similarly now calculate the cost for employees. Assuming if each employee spends 2 hours on the appraisal process for each employee and the average pay per hour is $ 15, than the total cost for appraisals for employees is 2 × 25 × 200 i.e. 10000.

In addition the staff growth per year has also to be accounted. The average time spent by the HR people administering and managing the process also needs to be taken into account. Finally other labor costs like copying, assembling, mailing and printing etc also need to be taken into account. All these costs added make up for the labor costs. Here in our case, if we do not account for the administration and other labor costs the total cost would be $ 34000.

Then the physical costs are accounted. These include the cost of paper, stationary, copier, printer etc. An increase of 2-3 % of these costs should also be taken into consideration. The labor and the physical costs combined make up for the total costs incurred. The costs which become the investment now, divided by the cost of purchase gives us the return on investment.

The return may give different results under different conditions of measurement. Though it is entirely not possible to calculate the return on investment on intangible assets, however an approximation always gives an organization a fair idea of their profitability.

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