Human Capital ROI

Human Capital indicators provide an organization with an accurate profile of its workforce effectiveness.

Although Human Capital is a crucial asset of any organization, there are no generally accepted principles defining its real value, as well as common strategies to optimize its performance. Therefore, most organizations have to define and develop their own measures for managing HC performance using a limited amount of information.

The Human Capital expense is one of the most significant components of the profit and loss account in the organization. It can reach up to 30-50% of the total business costs. Besides, organizations have to optimize the expenses generated by the Human Capital, and to assess the impact of strategic decisions, not only on sales and marketing but also on the Human Capital. That is why objective measurements of the Human Capital are particularly valuable.

HC ROI

Human Capital measurements cover a wide range of aspects, including compensation and benefits, financial impact, productivity, HR function, absence ratios, resourcing, learning and development, and personnel structure. The core Human Capital measurement is the Human Capital Return on Investment (HC ROI). It is defined as Revenue minus Non-wage expenses, divided by Compensation and Benefit costs.

The Human Capital ROI should be considered as an added-value metric rather than a measure of productivity. Low HC ROI value usually indicates that the organization’s workforce structure is not efficient or the organization has inappropriate product offering or pricing strategy.

In today’s competitive environment, financial Balanced Scorecard should aim to integrate Human Capital metrics. These measurements, similarly to HR indicators, will have a demonstrable impact on business growth.

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