How to Finance Human Capital Projects

People are constantly investing. Much more so of their own feelings and emotions that their own money. When people invest of themselves, they prefer their human investment to be returned at some stage. If you are supportive of a friend or peer, you would like to think your investment in them will at least be acknowledged, appreciated or possibly returned some day. Altruism exists but is rare.

Money Is Cold

Money is also constantly invested. But money demands that it not only be acknowledged or appreciated but that its investment be significantly multiplied. If financial capital could be your friend then it would be a highly demanding friend. Investment money knows no altruism (people are charitable, money isn't) and absolutely insists on not just being repaid with interest but on being repaid several times over in a very short timeframe.

The Human Capital Business Case

Any Human Capital investment decision must therefore act in two ways. It has to satisfy the people who are the subjects of the initiative, the workforce, something that can be discovered by asking them retrospectively. And it must satisfy the finance manager, by measuring the financial impact of the initiative, also retrospectively. Assuming it's all good in hindsight, how is it possible to make it all work with foresight ?

In a nutshell, the Business Case must determine the financial benefit along the lines of :

"If you spend one dollar on this Human Capital initiative, and it improves the effectiveness of the workforce, each dollar will be returned NNN times within 12 months. (and MMM more over the next two years)"

Constructing this is not as daunting as it might look. How many dollars would be saved if recruitment was cut by 10% next year while still holding onto your most valuable workers and managers ? If you could improve leadership effectiveness by 5%, how many times over would the cost be repaid in the next 12 months and how ?

The HR department are the unrealised heroes of todays knowledge workforce. Who else can increase organisation output and at the same time help reduce organisation costs overall ? Someone needs to tell finance."


BUSINESS CASE WORKSHEET

Organisation Data:
- Number of full time and part time staff
- How much we spend each year on salaries, wages, overtime

How much we spend each year on bonuses and Incentives:
- If we cut misdirected bonuses by 10% next year, this will add up to $BBB

How much we spend each year on contractors:
- If we identify 10% of roles which can be converted to full time, this will save us $CCC

How many people we expect to resign this year:
- If we stop key employees from leaving, we will save $EEE on recruiting cost and at least $20,000 each to bring each new hire up to 100% effectiveness in their new role.

How much production or service delivery in $’s we lose each year because of injury or illness:
- If we cut injury rates by 5% and illness rates by 2% each year, we will gain production for those days we have saved at about $1,000 per day

If we can increase employee engagement by 10%, how much can we increase production $’s

If we increase employee performance by 2%, how much can we increase sales margin by ? Reduce defects by ? Improve client satisfaction ratings by ?

People Are Warm

People are constantly investing. Much more so of their own feelings and emotions that their own money. When people invest of themselves, they prefer their human investment to be returned at some stage. If you are supportive of a friend or peer, you would like to think your investment in them will at least be acknowledged, appreciated or possibly returned some day. Altruism exists but is rare.

Money Is Cold

Money is also constantly invested. But money demands that it not only be acknowledged or appreciated but that its investment be significantly multiplied. If financial capital could be your friend then it would be a highly demanding friend. Investment money knows no altruism (people are charitable, money isn't) and absolutely insists on not just being repaid with interest but on being repaid several times over in a very short timeframe.

The Human Capital Business Case

Any Human Capital investment decision must therefore act in two ways. It has to satisfy the people who are the subjects of the initiative, the workforce, something that can be discovered by asking them retrospectively. And it must satisfy the finance manager, by measuring the financial impact of the initiative, also retrospectively. Assuming it's all good in hindsight, how is it possible to make it all work with foresight ?

In a nutshell, the Business Case must determine the financial benefit along the lines of :

"If you spend one dollar on this Human Capital initiative, and it improves the effectiveness of the workforce, each dollar will be returned NNN times within 12 months. (and MMM more over the next two years)"

Constructing this is not as daunting as it might look. How many dollars would be saved if recruitment was cut by 10% next year while still holding onto your most valuable workers and managers ? If you could improve leadership effectiveness by 5%, how many times over would the cost be repaid in the next 12 months and how ?

The HR department are the unrealised heroes of todays knowledge workforce. Who else can increase organisation output and at the same time help reduce organisation costs overall ? Someone needs to tell finance."


BUSINESS CASE WORKSHEET

Organisation Data:
- Number of full time and part time staff
- How much we spend each year on salaries, wages, overtime

How much we spend each year on bonuses and Incentives:
- If we cut misdirected bonuses by 10% next year, this will add up to $BBB

How much we spend each year on contractors:
- If we identify 10% of roles which can be converted to full time, this will save us $CCC

How many people we expect to resign this year:
- If we stop key employees from leaving, we will save $EEE on recruiting cost and at least $20,000 each to bring each new hire up to 100% effectiveness in their new role.

How much production or service delivery in $’s we lose each year because of injury or illness:
- If we cut injury rates by 5% and illness rates by 2% each year, we will gain production for those days we have saved at about $1,000 per day

If we can increase employee engagement by 10%, how much can we increase production $’s

If we increase employee performance by 2%, how much can we increase sales margin by ? Reduce defects by ? Improve client satisfaction ratings by ?

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