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How do you measure HR outsourcing ROI?

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HR outsourcing is the practice of delegating some or all of the HR functions to an external provider, such as recruitment, payroll, training, or benefits administration. HR outsourcing can offer many benefits, such as cost savings, efficiency, flexibility, and access to expertise. However, to evaluate the success of HR outsourcing, you need to measure its return on investment (ROI). ROI is the ratio of the net benefits to the total costs of a project or activity. In this article, we will explain how to measure HR outsourcing ROI using four steps: define your goals, identify your metrics, collect your data, and calculate your ROI.

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Crystal Miller-O'Brien

Corporate Counsel - Employment Law @ APL Logistics, North America | HR Strategist | Policymaker | Thought Partner

1 Define your goals

The first step to measure HR outsourcing ROI is to define your goals and expectations from the outsourcing project. What are the main reasons for outsourcing? What are the desired outcomes and benefits? How do you align your outsourcing goals with your business strategy and objectives? By defining your goals, you can clarify the scope and purpose of your outsourcing project, and set the criteria for evaluating its performance.

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2 Identify your metrics

The next step is to identify the metrics that will help you measure the progress and results of your outsourcing project. Metrics are quantifiable indicators that reflect the performance, quality, or impact of a process or activity. For HR outsourcing, you can use different types of metrics, such as financial, operational, strategic, or satisfaction metrics. For example, some common financial metrics are cost savings, cost avoidance, or revenue growth. Some common operational metrics are time savings, productivity, or error rates. Some common strategic metrics are employee retention, engagement, or turnover. Some common satisfaction metrics are customer satisfaction, employee satisfaction, or provider satisfaction.

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3 Collect your data

The third step is to collect the data that will help you calculate your metrics and compare them with your baseline and target values. Data collection can involve various sources and methods, such as surveys, interviews, reports, invoices, or analytics tools. You need to ensure that your data is accurate, reliable, and consistent, and that you have a clear and standardized process for collecting and storing it. You also need to define the time frame and frequency of your data collection, and adjust it according to the changes and developments in your outsourcing project.

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4 Calculate your ROI

The final step is to calculate your ROI using the formula: ROI = (Net benefits / Total costs) x 100. Net benefits are the difference between the benefits and the costs of your outsourcing project. Total costs are the sum of all the direct and indirect costs associated with your outsourcing project. For example, direct costs can include fees, salaries, or equipment. Indirect costs can include overheads, opportunity costs, or risks. To calculate your ROI, you need to assign monetary values to both your benefits and your costs, and compare them over the same time period. You can also use different methods to adjust your ROI for factors such as inflation, depreciation, or discount rates.

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5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Crystal Miller-O'Brien

Corporate Counsel - Employment Law @ APL Logistics, North America | HR Strategist | Policymaker | Thought Partner
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Also, approach your evaluation from a practical standpoint: are you a better organization because of outsourcing? Have you added services to your business that improve the overall customer experience (internally and externally)? Perhaps outsourcing has helped your leadership team focus more on other initiatives. Perhaps your team is relieved of responsibilities that it was struggling to accomplish, even though they were, and the metrics weren’t capable of telling the entire story? Pulse surveys should be helpful for measuring job satisfaction if capturing the quantifiable metrics is required. Otherwise, do not discount the “follow-the-employee-home” benefits of an improved work life balance since you began outsourcing.

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How do you measure HR outsourcing ROI?

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1 Define your goals

2 Identify your metrics

3 Collect your data

4 Calculate your ROI

5 Here’s what else to consider

Human Resources

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How do you measure HR outsourcing ROI?

1

2

3

4

5

1 Define your goals

2 Identify your metrics

3 Collect your data

4 Calculate your ROI

5 Here’s what else to consider

Human Resources

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