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The current economic conditions and competitive nature of the business world dictate that each and every function or department of the organization prove that there is some return on the investment. While it is easy to prove return on investment of production or sales or marketing or even finance, it is extremely difficult to prove ROI of HR. Understanding the innate difficulties in proving return on investment of HR functions while also trying to find areas where you can see the return is what this article is all about. 

Challenges to proving ROI for HR functions 

Any person who has some experience of selling the need for an HR function in any company will understand the innate difficulties that he or she faces when trying to prove the ROI of HR.

Here are some of the reasons why you face this difficulty.

·       1.  Multiple variables: HR functions deal with multiple variables, of which the employees are at the heart. The functioning of employees, their motivation, and other related performance aspects are     all instrumental in determining the return on investment. Given that you are looking at multiple variables, it is difficult to isolate a single variable and measure its impact with respect to the             overall profitability of the organization.

·      2.  Secondly, when dealing with return on investment, it is essential to note that you are dealing with outcomes. And the best possible outcome listed by you for any HR function may not be the one       that your CEO needs to hear. Under these circumstances, even with the difficulties in pinning a particular return on investment, chances are that you will fail to impress the management on how       valuable your function is.

·      3. Employee engagement is the key to successful HR function. Where companies dismiss this basic aspect, no amount of ROI of HR will make them change their minds. Therefore, it is important to ensure that your company has its basic ideals in the right place before going onto talk about facts and figures relating to return on investment. 

Having said the aforesaid points, it is important to add that there are areas where you can measure the ROI of HR. These are tangible areas, where you can see the difference you have made through your investment. However, as mentioned earlier, it is important to note that this is not a single variable that makes the difference. Rather it’s a bunch of them, each of which has its own importance with respect to the overall scenario: 

·    1. Recruitment: This is one of the important areas where you can determine your ROI. When recruiting people, it is important to understand your exact needs, and ensure that they match the qualification/skill-set/expertise of the candidates who apply. When the match is perfect, the job is done well, which in turn ensures future profits for the business.

·      2.  Training: This is another area where you can measure ROI of HR. this is an important function, which enables you to utilize existing personnel and ensure that they perform better. Training helps motivate, engage and ensure that they stay committed to their jobs. It helps them realize their value to the organization, which is key to their retention. 

From the above discussion, it can be seen that ROI of HR is not completely determinable, given that various factors play a role in its determination. However, this does not mean that the HR department has no role to play in the overall profitability of the company.

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