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Labour ROI : Analysis and Forecasting

Economically productive people result in better wealth maximization. Monetary and non-monetary benefits are necessary to retain and motivate people within the organization. With the cost on increasing and retaining manpower is on the rise, proper analysis must be conducted to analyse their impact on the organization. Labour ROI and forecasting can be employed to judge their impact on the company’s earnings.

Labour ROI studies the cost-benefit analysis of the human capital. Labour costs include expenses incurred on recruitment, training, motivation, labour overheads, absenteeism, idle time, retrenchment cost etc. Changes in the technology demand updated knowledge and key skills to face the challenges directed by them. Training is inevitable to groom the employees to improve their efficiency and productivity. Training should aim at increasing productivity, resulting in better quality of work and customer satisfaction. Training costs include cost of experienced trainers, basic infrastructure for providing quality training, and other general overheads. Cost of remunerating a new employee who adds nothing to productivity during the initial training days is a cost to the company.

Return on investment is the study of the employees’ contribution to the profit of the company in relation to the initial investment incurred by the company. It gives a picture on how effective the training had been in improving employee efficiency and productivity. It is calculated by dividing benefits by costs. Costs include the direct and indirect cost incurred on the employee to make him fit to meet the challenges of changes in the working environment. The efficiency can be measured by taking into account the time taken to pay back the cost on initial human capital investment. Improved knowledge can reduce the chances for errors, thus guaranteeing better quality goods within lesser time leading to customer satisfaction and more business to the concern through better goodwill.

Labour ROI includes labour forecasting. The quantity of labour who can meet the objectives within a time span requires labour forecasting. Historical data, analysis of future trends on the basis of demand and supply assists in getting the number of employees required to complete a job. Time is a crucial factor in labour forecasting. Labour forecasting add up the maximum productivity of an average individual in a given technical and social environment backed by appropriate training, taking into consideration the idle time, absenteeism and working days in the restricted time span. Historical data provides information regarding absenteeism, idle time and production capacity of the factors of production. Cushion to overcome the impact in the change in the technology must be given importance while forecasting to reduce the blow to the quantity and quality of work. Sometimes the cost to meet immediate training requirements that are necessary for meeting the sudden changes will be high. This should be added to the expected labour costs in future to decide on how long it takes to break even the labour cost incurred. Cost on labour attrition and reasons for the same to minimize labour attrition must be considered while forecasting.

Effective forecasting improves the chances for smooth flow of activities with increased productivity. Normally training is what that bears the impact of a substandard forecast. To negate the chances for a wrong budget, conscious effort is required. ROI, based on a good forecast, helps to know the monetary benefits the corporate can enjoy on the basis of the foundation laid by a good forecast.

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