Finance for HR: ROI In Practice

We are in a bank serving SME client companies. HR have a proposal for a development programme that will help the staff of the bank’s credit- and deposit-taking departments in assessing the risk of each officer’s loan portfolios, and measuring the performance of each one.

For this, they identify a number of staff and agree their duties. Once they have done this, HR organise meetings with the leaders of the team and other relevant parties in order to:

The deliverables from the project would be:

• Five modules of blended online and classroom training, each module requiring one week in class plus several hours online in flexible time,
• Training to be practical, based on real-life examples and scenaria, with case studies to be solved during the classroom workshops,
• Each module to end with a test which is based on real life scenaria, similar to the ones practiced on,
• Qualitative and quantitative assessment is required for each participant.

Measuring the ROI

If we put ourselves in the HR team’s shoes here, we cannot start without establishing the KPIs (Key Performance Indicators), so that we can assess the effect of the development project on the bank’s business:

• Size of the loan portfolio per Trainee – total Euro value
• Size of deposit portfolio per Trainee – total Euro value
• Percentage of nonperforming loans – out of total Euro value

So how do we go from here to measuring the ROI of our proposed project?

We need to compute variances, i.e., compare the current state (before development starts) with the future state (after development). Specifically:

• Extract the data before the development project and estimate the data after the end of the development project,
• Isolate as far as possible the effects of training and development from other causes – for example, if someone is already trained or possesses the skills due to experience etc., then the related data should be ignored both before and after (i.e., we exclude these people from the project),
• Convert the KPIs to Monetary Values (Euro) and then,
• Calculate the ROI.

Let’s give it a go!

Data per trainee

Calculating the Monetary Value of the Variance observed

Calculating Total Costs

Finally, calculating ROI

You can now go to the Big Bosses and argue with tangible evidence of a ROI of 205% (based on estimates BUT it IS tangible!)!

You can now argue based on numbers that everybody understands, how valuable the investment in training and development can be. Although behind the numbers we had to make assumptions and estimates, as well as decisions based on judgment, the report is clear, neat, based on numbers that all understand and, in the end, very convincing.