Need to know: HR’s exact value

What is the total cost of the HR function? What is the cost per employee?

When looking at the cost of the HR function, the important thing to consider is not simply what the HR function costs, but how much value the business gets from HR.

So rather than simply asking yourself: “Have we come in at the projected budget?”, consider: “Has HR assisted the company to the value (or better, above the value) of what we spent?”

Some companies, depending on how their HR works, and the projects they have been involved with, might be able to show that they saved more through HR initiatives than the actual division cost the business. In other companies, the costs might be less tangible, but you can still demonstrate good service and good value to the company as a whole. Even if these are percentages rather than precise numbers, it is handy to have one or two figures up your sleeve when you are faced with sceptical managers.

You’ll also need to be able to demonstrate the cost of the HR function compared with other key functions such as finance, marketing and operations. The number itself may not be nearly as important as that comparison. If you consider HR to be relatively inexpensive, but analysis shows it costs far more than another function, that is something you should be aware of, and may be called on to justify. Likewise, if your function turns out to be a fifth of the cost of that other function, that’s something you may be able to use as leverage.

This is something you can use as an internal monitor when you make decisions about HR strategy and whether it appears to be good value for the business.

When it comes to understanding the cost per employee, essentially this is a way of getting ratios for comparison with other areas, but you might want to break those down in different ways – for example, by different types of employee. And you can use this information for benchmarking across different divisions. This might be something you look at across different parts of HR so you can internally analyse your value.

As HR changes its role, it is only natural that its value will be called into question. And the more you are able to demonstrate it, the better you will be respected and listened to when it comes to implementing new strategies and initiatives.

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