How to calculate workforce management ROI
Key takeaways:
Workforce management is not just an administrative cost. It directly affects capacity, productivity, retention, and scalability.
When leaders spend less time untangling preventable people issues, they have more capacity for strategic, revenue-driving work.
Even small productivity improvements can create meaningful ROI when they’re multiplied across the whole team.
Better workforce management helps protect the investment you’ve already made in recruiting, onboarding, training, and retaining good employees.
The ROI of workforce management doesn’t have to be theoretical; it can be estimated using leadership capacity, productivity gains, retention value, and faster onboarding.
Workforce management isn’t a cost center. It’s a revenue driver
Skeptical? A lot of business leaders are. Traditionally, workforce management has been treated as one of those back-of-office functions that you can’t run a business without, but you sure wish you could.
That outlook can be costly, though. Decisions that make sense if you’re just trying to minimize the cost of your workforce look strategically unwise if you see workforce management for what it actually is: an opportunity to increase revenue and scalability.
The way a business manages its workforce directly affects how much work gets done, how consistently it gets done, the quality of the work, how much time leaders have available for strategic tasks, and how long employees stay.
When you make good workforce management decisions, you reap a huge return. Make bad ones, and your business will suffer.
Not convinced yet? Keep reading, and we’ll walk you through the math.
How to calculate workforce management ROI
Estimating workforce management ROI is more straightforward than you might imagine. Let’s start with this basic formula:
Workforce management ROI = (value created by workforce management improvements - cost of investment) / cost of investment x 100
Now, let’s define our terms:
Workforce management investment
When we think about the cost side of workforce management, we’re largely thinking about the financial and people hour costs of
Building better systems
Hiring outside consulting support
Creating more robust onboarding procedures
Simplifying documentation workflows
Improving employee communications
Workforce management value
The value created by good workforce management usually shows up in these places:
More leadership capacity
Higher employee productivity
Less churn / higher retention
Faster, more effective onboarding
Less employee friction
You might be thinking that it seems much easier to put dollar values to the investment than the value. But that’s actually not the case. We don’t have to estimate down to the penny to be able to see the larger picture around workforce management ROI.
Leadership capacity has real value
Leadership capacity is one of the biggest ROIs on workforce management investment. When your workforce isn’t managed effectively, managers and company leaders are thrown into reaction mode. They’re forced to answer the same questions over and over again. They have to step in to solve issues that could have been prevented. They redo work. They chase missing information. They become the default solution for every people-related problem because ultimately the buck does stop with them.
Their wasted time has value. Here’s as simple way to estimate it as an annual total:
Annual leadership capacity value = hour regained per week x leadership hourly value x 52
Let’s look at an example. If a better workforce system gives leadership back just five hours per week, and that leadership time is worth $75 per hour, the annual value gained by workforce management improvements is
5 x $75 x 52 = $19,500.
That doesn’t mean that $19,500 is suddenly sitting in a bank account somewhere, but it does mean that $19,500 worth of leadership capacity can be redirected toward higher-value, strategic work, like improving operations, building relationships, managing growth, or further developing the team.
This is the bit that many business and nonprofit leaders miss: the cost of weak workforce management isn’t just the actual time spent on unnecessary chaos, it’s the opportunity cost of what leaders can’t do because they’re stuck dealing with preventable tangles.
Better workforce management boosts employee performance
Even small improvements in workplace management can produce ROI in employee performance. Team members work faster and produce better results when they know what’s expected, where to find information, how decisions get made, and how success is measured.
A simple productivity formula might look like this:
Employee productivity value = annual payroll x productivity improvement percentage
So, lets say your business has $1,000,000 in annual payroll, and small changes in workforce management produce a small, 2% increase in productivity.
$1,000,000 x 2% = $20,000
Again, that’s not money in the bank, but it’s the real value of productivity that otherwise could only be achieved by hiring more employees to work at the less productive rate caused by poor workforce management.
Churn is expensive. Retention protects your investment in employees.
Every employee represents an investment made by your organization, not just in their salary, but in the cost of recruiting, interviewing, hiring processes, onboarding, and ongoing training. And, employees naturally build institutional knowledge the longer they stay with the company, which makes them more productive.
When a good employee leaves, the business loses all of the investment they made in them. And worse yet, they lose momentum, because velocity drops to zero while recruiting, onboarding, and training happens all over again.
Good workforce management creates an environment that builds employee loyalty, reducing churn.
Think about it like this:
Retention value = turnover reduction x average compensation x replacement cost percentage
Say, for example, that a business typically loses 8 employees per year. The average annual compensation is $50,000, and replacing an employee (recruiting, interviewing, onboarding, etc.) costs an estimated 30 percent of the role’s compensation.
That means each replacement cost of one employee can be calculated as
$50,000 x 30% = $15,000
If better workforce management helps retain just 2 of those employees, its estimated value would be
2 x $15,000 = $30,000
And that’s not even quantifying the value of maintaining momentum and institutional memory!
Faster, more robust onboarding gets new hires productive faster
Every new employee faces a learning curve in their new role. Rushed, poorly developed, or badly managed onboarding can lengthen that curve, lowering productivity for new hires.
Strong workforce management, on the other hand shortens the curve, decreasing the time between new hire status and fully functioning team member status.
We can calculate the value like this:
Onboarding value = new hires per year x weekly compensation value x weeks saved x productivity factor
Let’s say a business hires 10 people per year. Their average annual compensation is $52,000, or $1,000 per week. Robust onboarding saves 2 weeks of ramp-up time per hire. If those saved weeks are valued at 50% productivity (because new hires are less productive that fully trained employees), the value of onboarding improvements is
10 x $1,000 x 2 x 50% = $10,000
Calculating total workforce management ROI
Let’s go back to that first formula we put together to calculate the total ROI of workforce management improvements.
Workforce management ROI = (value created by workforce management improvements - cost of investment) / cost of investment x 100
Using the above formulas, you can easily put together your own workforce management ROI estimate. Here, we’ll use our examples above.
Leadership capacity value: $19,500
Productivity improvement value: $20,000
Retention value: $30,000
Faster onboarding: $10,000
Total estimated value: $79,500
Now, we need to calculate what you invested in workforce management improvements. Let’s say you spent $36,000 on an expert consultant.
Now we can plug our numbers into our formula:
($79,500 - $36,000) / $36,000 x 100 = 121%
Another way to think about it is that for every $1 invested in improving workforce management, our hypothetical business is estimated to see $2.31 in ROI.
That number, of course, will be different for every business. But there’s real workforce management ROI available for most businesses.
Need some help calculating your workforce management ROI?
Aerial’s team of experienced HR professionals can help you decide which workforce management improvements to invest in to boost your ROI. From onboarding protocols to HR policies to capacity requirement planning, we’ll help you find opportunities for valuable improvement. Schedule a call here.
