Calculating Return on Investment for your talent: How to save your organization thousands of dollars.

Apr 13, 2015 | Management and Leadership, Philanthropy Journal, Resources

Save your organization thousands of dollars by taking the time to calculate the Return on Investment for investing in your talent.

Calculating Return Headshot 1Calculating Return Headshot 2 Special to the Philanthropy Journal

By Heather Carpenter and Tera Qualls

Return on Investment is a trending topic right now in the nonprofit sector. Organizations have been using ROI to measure the cost benefit of a purchase, a grant request, or a piece of technology. We started using ROI to measure the cost benefit of nonprofits investing in their talent and have helped organizations to save thousands of dollars.

What does investing in your talent look like? It involves assessing and maintaining your learning culture, developing and maintaining accurate job descriptions, providing living wages, creating professional development opportunities that are tied to strategic goals and the job learning, mentoring and training, and evaluating your talent development efforts. Yes, each of these talent investment activities take a significant investment, but the old adage, you reap what you sow, will come true. You will see many monetary and non-monetary rewards of your talent investment efforts. We’ve worked with organizations that have saved thousands of dollars by investing in their staff and volunteers.

For example, we worked with a small grassroots organization that had a wonderful mission of helping refugees within a specific community. They had five staff members who were extremely busy with their day-to-day responsibilities. Even though employees were deeply committed to the mission, the organization struggled to pay their employees a living wage, and as a result, the organization suffered from high turnover. When the ED took some time to assess the learning culture of her organization, as well as assess the professional development needs of her staff, she saw improved staff morale and reduced employee turnover.

In this article we’ll walk you through how to calculate the Return on Investment for investing in your talent in those ways.

Step 1: PJ_Article_Pull_Out_Image-03

The first step in calculating ROI is determining the benefits of investing in your staff and volunteers. There are two types of benefits: intangible and tangible benefits.

Intangible benefits are hard to measure but important to the organization. 

Tangible benefits are monetary benefits to your organization. Often organizations focus on the tangible benefits of an item without considering the intangible benefits but intangible benefits make a huge impact on the organizational culture and ultimately lead to tangible benefits for the organization. Intangible benefits for investing in your talent include: increased staff and volunteer satisfaction, new skills learned on the job, and a stronger learning culture. Staff will be happier, want to do their jobs, and be in a more positive and supportive work environment. Tangible benefits include reduction in employee turnover, reduction in hiring costs, reduction in consulting costs, increased productivity, and increased programmatic outcomes. When employees and volunteers feel they are supported, they are more likely to stay. They are more productive, they are more likely to produce more units of service for the organization and they are less likely to leave the organization.

In the case of our small grassroots organization, by investing in their talent they reaped intangible benefits of improved staff morale and a more cohesive team. They also determined tangible benefits of reduction in employee turnover (between $9,750 to $19,500), increased volunteer recruitment (six volunteer tutors $27,000 for one year), increased financial acumen and reduced CPA costs $3,000.

Intangible and Tangible Benefits Small Grassroots Organization

  • Turnover Savings $9,750 to $19,500 (for one employee)
  • Reduction in CPA cost $3,000
  • Value of New Volunteers $27,000
  • Total Benefits $39,750 to $49,500

Step 2:

The next step is calculating costs. Even though there are many monetary and non-monetary benefits to consider when calculating ROI for talent investment, there are several different costs to consider when investing in talent. The first cost to consider is the monetary cost of salary increases. You can’t think of your staff salaries as a stand-alone item within your budget, you need to consider the repercussions of low salaries. Although there is an actual monetary cost to increase staff salaries, there is also a monetary benefit that we discuss above – the reduction of employee turnover.

There are also monetary costs of investing in strategic professional development. In our book, The Talent Development Platform we outline how to go through a systematic process of reviewing and revising job descriptions, mapping competencies (knowledge, skills abilities and other characteristics) to those competencies, assessing staff and volunteers professional development needs, and implementing professional development that is tied to the strategic goals of the organizations. As a result, professional development isn’t an additional effort; it is integrated within your daily work. There is a cost associated with planning for the talent development platform and implementing talent development. The planning process includes, staff time to plan and take the talent development assessment, time to review and develop professional development goals and objectives. And, the implementation costs includes the cost of the actual on-the-job learning activities and staff time for the on-the-job experience, mentoring, and training experiences. In order to make these staff time calculations you need to know the hourly rate of each employee and estimate the time they are investing in planning and implementing the professional development.

In our small grassroots nonprofit example, they determined the costs of planning for and implementing the Talent Development Platform. The planning costs included staff time to take the various assessments. Some of the implementation costs were also included. They also determined the costs of increasing staff salaries, so their staff members would have living wages. 

  • Planning Talent Development Platform $2,874
  • Implementing Talent Development Platform $4,414
  • Increase in Staff Salaries $30,560
  • Total Costs $37,848

Step 3:

This is the easiest step, determining your net benefits. Benefits minus costs equals net benefits.

  • Total Benefits $39,750 to $49,500
  • Total Costs $37,848
  • Net Benefits $1,902 to $11,652

As you can see the small grassroots refugee organization saw a net benefit between $1,902 to $11,652. So, take the time, calculate your ROI for investing in your talent. You’ll end up saving your organization thousands of dollars.

Heather L. Carpenter, Ph.D., is assistant professor of Nonprofit Management at Grand Valley State University in Grand Rapids, Michigan. She teaches graduate and undergraduate courses in Nonprofit Management, Human Resources, Financial Management, Fundraising, Technology, and Volunteerism.
Tera Wozniak Qualls, M.P.A., is founder of Momentum, a nonprofit consulting firm focused on community engagement and talent development for nonprofits. Tera also serves as an adjunct professor of Nonprofit Management at Grand Valley State University in Grand Rapids, Michigan, where she teaches Introduction to Nonprofits and Volunteerism and Human Resources.

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