Utility Analysis
EXECUTIVE SUMMARY
It is difficult for business leaders to open a newspaper or read a journal without seeing the warning that their only competitive advantage in the world economy is the knowledge embodied in the people they employ. Invest in your people, the gurus say, and your business will survive and profit. Yet when these leaders ask their Human Resource (HR) specialists to present them with proposals to increase the firm’s human capital wealth, these proposals are generally filled with vague claims of increased competitiveness and lower total costs. They frequently fail because these proposals lack a sound financial analysis on which the company can justify a decision. The single most important analysis an HR professional can provide a CFO is a utility analysis for the Human Resource interventions he or she advocates.
The major reason for great concern about utility analysis is that this technique ties human resource interventions to the measuring unit of the business world—dollar value. With the Brogden utility estimation equation one can avoid the laborious effect size indices developed by academic researchers and present to management estimates of the dollar value contribution of human resource intervention.
In this report we discuss several HR interventions, identify the primary measurable benefit that can accrue to the organization from each action, and discuss the ways to quantify these benefits in the field. Utility analysis is a quantitative method that estimates the dollar value of benefits generated by an intervention based on the improvement it produces in worker productivity. The ROI from various HR interventions such as personnel selection, recruitment tests, training and development and various others have been explained with the help of examples.
Introduction
The field of human resource management has been searching for ways to better assess the value of human capital development programs. The general argument is that if the impact that
It is difficult for business leaders to open a newspaper or read a journal without seeing the warning that their only competitive advantage in the world economy is the knowledge embodied in the people they employ. Invest in your people, the gurus say, and your business will survive and profit. Yet when these leaders ask their Human Resource (HR) specialists to present them with proposals to increase the firm’s human capital wealth, these proposals are generally filled with vague claims of increased competitiveness and lower total costs. They frequently fail because these proposals lack a sound financial analysis on which the company can justify a decision. The single most important analysis an HR professional can provide a CFO is a utility analysis for the Human Resource interventions he or she advocates.
The major reason for great concern about utility analysis is that this technique ties human resource interventions to the measuring unit of the business world—dollar value. With the Brogden utility estimation equation one can avoid the laborious effect size indices developed by academic researchers and present to management estimates of the dollar value contribution of human resource intervention.
In this report we discuss several HR interventions, identify the primary measurable benefit that can accrue to the organization from each action, and discuss the ways to quantify these benefits in the field. Utility analysis is a quantitative method that estimates the dollar value of benefits generated by an intervention based on the improvement it produces in worker productivity. The ROI from various HR interventions such as personnel selection, recruitment tests, training and development and various others have been explained with the help of examples.
Introduction
The field of human resource management has been searching for ways to better assess the value of human capital development programs. The general argument is that if the impact that