Return on Investment (ROI) measures the financial gains or losses generated from HR initiatives in relation to the costs incurred. It quantifies the effectiveness of HR activities in contributing to organizational success.
Suppose a company invests $100,000 in a training program for its employees aimed at improving productivity. After implementing the training, they experienced a 20% increase in productivity, resulting in an additional $200,000 in revenue. The ROI for this HR initiative can be calculated as follows:
ROI = (Net Gain from Investment / Cost of Investment) x 100
ROI = (($200,000 - $100,000) / $100,000) x 100
ROI = ( $100,000 / $100,000) x 100
ROI = 100%
In this example, the ROI for the HR training program is 100%, indicating that for every dollar invested, the company gained an additional dollar in revenue.