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3 Reasons You Should Be Measuring HR Costs

Allie Kelly

Proper evaluation of spending in each business department is essential to any organization. Measuring HR costs is particularly beneficial for determining how the department impacts overall business goals. In demonstrating the efficacy of its department, HR can change its traditional reputation as a cost center. When the results are showcased through cost measurement, the influence of HR can be fully recognized.

Consider these three reasons for measuring HR costs:

1. Cost efficiency

Perhaps one of the key reasons your company should measure HR spend is to ensure the effectiveness of your recruiting, hiring, and training spend, Analytics in HR Blog and Academy explained. In nearly all business instances, success and results cost money – they require different levels of investments. When your company is actively recruiting and bringing in top talent that drive your company’s bottom line, those HR costs are critical. If money is being allocated to candidate sourcing that fails to hire qualified employees, however, or towards workplace training that doesn’t improve productivity, the system is not working as it should. The goal of any HR department is to reduce cost and time spent on remedial tasks. They must do this all while improving strategic efforts. Measuring the impact of systems and processes can give a clear indication of cost-efficiency.

2. Measuring success

As The Balance explained, measuring HR cost is a quantifiable way to demonstrate to leadership and C-level executives that current strategies are helping to improve business goals and company growth. Metrics such as cost-per-hire and the impact of recruitment on revenue are some of the best ways to establish the position as a value center. This can be done through showcasing high quality hires – employees who have made a measurable change in sales, revenue, or elsewhere, as well. If your current data doesn’t highlight metrics and success as a direct result of HR initiatives, it is time to review your practices and find new methods. To evaluate, consider ranking the various factors of HR using key performance indicators, The Balance advised. These can serve as insightful benchmarks for modifying or revamping recruitment and hiring practices.

3. Predict future costs and calculate ROI

Planning and budgeting can only be achieved through accurate calculations of spend. This means that attention to detail when it comes to reporting, tracking, and measuring HR costs is essential for predicting future costs, the Society for Human Resource Management explained. Using advanced cost models is the best way to get accurate projections of upcoming program costs. This makes planning for the distribution of spend that much more effective. Calculating overall ROI is the basis for evaluating the effectiveness of your HR department. Measuring ROI for individual strategies or platforms serves as an indicator for future investments. And as SHRM notes, there needs to be strong attention to detail when calculating indirect costs to make sure the data is credible. Without accuracy, time and resources can be easily misspent. To effectively measure the aforementioned HR costs, it is essential that accurate record keeping is followed. Use cost evaluations to your advantage. As a result, be taken seriously by your executive team. They’ll see a valuable asset to the growth and bottom line.

Allie Kelly

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