Proving the Value of HR: How and Why to Measure ROI (Practical HR Series)

230 Pages·2005·1.29 MB·English

by  Jack J. Phillips PhD

Proving
the Value
of HR
Practical HR Series
Proving
the Value
of HR
How and Why
to Measure ROI
Jack J.Phillips and
Patricia Pulliam Phillips
SocietyforHumanResourceManagement
Alexandria,Virginia
USA
www.shrm.org
Thispublicationisdesignedtoprovideaccurateandauthoritativeinformationregardingthe
subjectmattercovered.Itissoldwiththeunderstandingthatneitherthepublishernorthe
author is engaged in rendering legal or other professional service.If legal advice or other
expert assistance is required,the services of a competent,licensed professional should be
sought.Thefederalandstatelawsdiscussedinthisbookaresubjecttofrequentrevisionand
interpretationbyamendmentsorjudicialrevisionsthatmaysignificantlyaffectemployeror
employeerightsandobligations.Readersareencouragedtoseeklegalcounselregardingspe-
cificpoliciesandpracticesintheirorganizations.
ThisbookispublishedbytheSocietyforHumanResourceManagement(SHRM®).Theinter-
pretations,conclusions,andrecommendationsinthisbookarethoseoftheauthoranddonot
necessarilyrepresentthoseofSHRM.
©2005,2008JackJ.PhillipsandPatriciaPulliamPhillips.Allrightsreserved.
Thispublicationmaynotbereproduced,storedinaretrievalsystem,ortransmittedinwhole
orinpart,inanyformorbyanymeans,electronic,mechanical,photocopying,recording,oroth-
erwise,withoutthepriorwrittenpermissionoftheSocietyforHumanResourceManagement,
1800DukeStreet,Alexandria,VA 22314.
TheSocietyforHumanResourceManagement(SHRM)istheworld’slargestprofessionalasso-
ciationdevotedtohumanresourcemanagement.OurmissionistoservetheneedsofHRpro-
fessionalsbyprovidingthemostcurrentandcomprehensiveresources,andtoadvancethe
professionbypromotingHR’sessential,strategicrole.Foundedin1948,SHRMrepresentsmore
than225,000individualmembersinover125countries,andhasanetworkofmorethan575
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HR:LeadingPeople,LeadingOrganizations
Editedby:KarenEddleman
Indexby:SharonJohnson
Coverdesignby:CarolWilliams
Interiordesignby:ShirleyRaybuck
LibraryofCongressCataloguing-in-PublicationData
Phillips,JackJ.,1945-
ProvingthevalueofHR:howandwhytomeasureROI/JackJ.PhillipsandPatriciaPulliam
Phillips.
p.cm.— (PracticalHRseries)
Includesbibliographicalreferencesandindex.
ISBN978-1-586440-49-7
1. Personnelmanagement.2. Rateofreturn. I.Phillips,PatriciaPulliam.II.Title.III.Series.
HF5549.P45952005
658.3’125—dc22
2004028403
PrintedintheUnitedStatesofAmerica.
1098765432
Contents
Preface xi
Acknowledgments xvii
Chapter1 TheAccountabilityCrisis 1
DefiningROI 2
AboutTerminology 3
MajorInfluencesonHRAccountability 3
AParadigmShiftforHRAccountability 8
IsHRReadyforAdditionalMeasurementandEvaluation? 12
ThePayoffofROI 14
Chapter2 TheROIMethodology 17
TheEssentialMeasurementMix 17
WhyROI? 19
TypesofDataforROIMethodology 20
AnExample 24
TheROIMethodology 27
ROIStandards 31
Chapter3 PreparingforROI 37
WhentoUseROI 37
SelectingtheFirstProjectforROIAnalysis 43
InitialAnalysis—TheBeginningPointofanHRProgram 44
StepsintheAnalysis 46
LinkagetoEvaluation 51
TheRoleofObjectivesforHRPrograms 52
PlanningforROIProjects 57
i
ii • Contents
Chapter4 DataCollectionIssues 63
SourcesofData 63
BusinessPerformanceMonitoring 65
QuestionnairesandSurveys 67
Tests 70
Interviews 71
FocusGroups 72
Observations 72
ImprovingtheResponseRateforDataCollection 73
SelectinganAppropriateMethod 78
Chapter5 DataAnalysis 81
DataTabulationIssues 81
UsingIsolationTechniques 93
ConvertingDatatoMonetaryBenefits 94
Chapter6 HRCostandROI 105
CostIssues 105
CostMonitoringIssues 107
MajorCostCategories 109
CostReporting 112
ROI:BasicIssues 114
ROIInterpretation 116
CautionsWhenUsingROI 124
Chapter7 MeasuringIntangibles 129
KeyConceptsaboutIntangibles 129
TypicalIntangibleMeasures 136
Chapter8 CommunicatingandUsingEvaluationData 147
PrinciplesofCommunicatingResults 147
SelectingtheAudienceforCommunications 149
DevelopingtheInformation:TheImpactStudy 152
SelectingtheCommunicationMedia 155
CommunicatingtheInformation 157
AnalyzingReactionstoCommunication 161
UsingEvaluationDatatoDriveImprovement 162
UsingtheStrategies 165
ProvingtheValueofHR • iii
Chapter9 TakingaSensibleApproachtoROI 167
TheBasisforResistance 167
FearlessImplementation 168
Appendix:ROICaseStudies 181
Index 185
References 193
AcknowledgmentsandAttributions 195
AdditionalResources 199
AbouttheAuthors 203
Illustrations
Figures
1. ShifttoQuantitativeMeasures 10
2. ReadinessforAdditionalHRMeasurementandEvaluation 13
3. TheRecommendedHRMeasurementMix 18
4. ChainofImpactofanHRProgram 24
5. TheROIMethodology 26
6. LevelsofNeedsAnalysis 46
7. CriticalLinkages:LinkingNeeds,Objectives,andEvaluation 47
8. LinkingNeedsAssessmentwithEvaluation 51
9. SampleDataCollectionPlan 58
10. SimpleROIAnalysisPlan 60
11. TheChainofImpact 83
12. PosttestOnly,ControlGroupDesign 85
13. SexualHarassmentComplaints 87
14. CalculatingtheCostofaSexualHarassmentComplaint 99
15. RelationshipbetweenJobSatisfactionandTurnover 102
16. TypicalHRProgramCycle 108
17. IdentifyingIntangibleMeasures 132
18. TangibleversusIntangibleAssets 135
19. TableofContentsforanImpactStudyReport 154
20. One-PageSummaryofImpactStudy 160
21. WhatDoYouThinkaboutROI? 168
22. EstablishingEvaluationTargets 170
23. SelectionToolforROIImpactStudy 172
iv
ProvingtheValueofHR • v
Tables
1. SomeKeyTerminology 4
2. HRMeasurementTrends 9
3. ParadigmShiftforaResults-BasedApproach 11
4. TypesandLevelsofEvaluationData 21
5. ExamplesofTypesandLevelsofData 25
6. ProgramsSuitableforROIorBusiness-LevelAnalysis 40
7. ExamplesofHardData 48
8. ExamplesofSoftData 49
9. ExamplesofObjectivesforHRPrograms 54
10. OriginalandRevisedObjectives 56
11. QuestionnaireDesignSteps 68
12. TypicalReaction/SatisfactionQuestions 69
13. TypicalContentAreasforPost-ProgramQuestionnaires 70
14. ObservationMethodsforDataCollection 73
15. MethodsofCollectingData 78
16. StepstoIsolateHRProgramEffectUsingParticipants’Estimates 90
17. ExampleofaParticipant’sEstimationofImpact 90
18. ImpactandAnalysisQuestions 92
19. AnExampletoIllustrateStepstoConvertDatatoMonetaryValues 97
20. HRProgramCostCategories 110
21. LeadershipDevelopmentProgramCosts 113
22. MisuseofFinancialTerms 118
23. TheChainofImpactDrivesROI 119
24. TypicalIntangibleVariablesLinkedwithHRPrograms 129
25. ComparisonofTangibleandIntangibleAssets 130
26. CharacteristicsofData 131
27. TestforConvertingIntangiblestoMonetaryValue 134
28. CommunicationPlanningQuestions 149
29. KeyQuestionsforSelectingAudiences 150
30. RationaleforSpecificTargetAudiences 151
31. StepstoProvideFeedbackduringProgramImplementation 158
32. CommunicatingImpactStudiestoSeniorManagement 159
33. MatchingStrategiestoLevels 166
34. EvaluationTargetsforWachoviaBank 170