It is entirely wrong to say that the economic value of a company is dictated only by its physical and tangible assets. Other factors like business performance and an organization's human resources also directly impact its value and the personnel and industrial relations.

Many business owners calculate the human capital ROI to understand these intangible assets and their impact on the company. Using the proper template, the human resources department can evaluate and calculate the impact of human capital inside the company, as well as its risks and benefits.

ROI has always been a decisive factor in companies’ decisions, and for human capital initiatives, this is no different. We will show you how to craft the perfect document for calculating ROI in physical and human assets.

But before we see how you can calculate the human capital return on investment, it is important to understand some basic concepts. With this, you can better tell the impacts of human capital expenses and how they can impact basic HR department activities.

If you are a beginner in the investment world, there is a possibility that you don’t know what ROI is, but don’t worry. We got you covered.

The return on investment (or ROI) is basically how much profit you make over an investment.

It considers the amount of money invested into something minus all expenses and divides this value by the cost of the investment. The final result of this calculation is how much this specific investment has generated in return for what you spent.

The higher the number of your ROI, the better this investment was. It is a simple calculation done by business leaders of all kinds.

The formula is: ROI = (Value Gained - Value Spent) / Value Spent

There is a reason why calculating ROI is such a common practice in any business enterprise. This data can tell what steps a company should take to increase its performance and profit.

Moreover, any business owner will face critical challenges along the way, and knowing which investments are not delivering the desired results is an essential task. It is a practice that will follow any investor through simpler or more complex challenges, regardless of the business type.

Many companies started using the traditional return on investment but are now migrating to the human capital calculation. But what is the difference between these two methods?

The traditional way is more straightforward and is based only on numbers. You will consider only the profit made and how much you spent, ignoring any other aspect of the investment or business itself.

On the other hand, the human capital ROI focuses way more on the organization’s effectiveness and talents. Here you won’t be ignoring the profit or money spent but use them as a complement to other aspects of the business performance.

As we mentioned, it is common to observe organizations migrating to human capital instead of the traditional economic value measurement of the investment. There are numerous reasons for this.

The first one is that the leading human resources issue when using traditional methods is that you ignore most of the factors involved and restrict everything to only numbers returned. With this, you might be making an excellent investment that generates numerous positive impacts, but the monetary return is not expressive, so it would not be considered a good investment.

Moreover, the human capital ROI also gives the company a better overview of the entire business's health, not only regarding money but also the relationship and work quality. Human capital management is becoming a standard and replacing the traditional evaluation methods focusing only on financial value.

Although calculating human capital might look like a challenge, there is a simple formula you can use to evaluate your human leverage and employee performance.

This is the traditional HCROI formula and only requires two main pieces of information: Net benefits and cost.

After gathering this data, you just need to apply the following formula:

HCROI = (net benefits - cost) / cost

If you don’t know what the net benefits or costs are, don’t worry. We will explain each one of them.

Net Benefits

The net benefits of a business are the sum of all benefits generated, whether financial or of any other kind, minus the costs generated by the project. Of course, some of the benefits will not have a monetary value attached to them since they are intangible.

In those cases, you must evaluate these benefits and assign a monetary value to them based on how much you think they are worth. For example, you can assign a value to a new partnership or idea generated for a new project.

This way, you can sum up all the elements to calculate the net benefit.

Costs

The costs in a human capital ROI can also be tangible or intangible. Just like the net benefits, they are everything that impacts the project directly or indirectly.

Items like the purchase of equipment, training employees, and manufacturing process improvement expenses are some of the most common examples of costs in a project. Make sure to list all of them correctly for a more precise result.

Creating human capital ROI documents might be complex, but with the right tool, it becomes much easier. From known software to specialized tools, each one has its own features to make the entire process more efficient and optimized.

Among all the options you can find, we highly recommend using Microsoft Excel for this task. It not only has the best tools and features available, but it is also an industry standard. This means you won’t need extra software for other business tasks.

If you don’t have a Microsoft Office activation key, you can find one at RoyalCDKeys for a lower price. This way, you can access all the necessary tools and save money.

If you don’t want to create a human capital ROI template from scratch, there is no problem. Here are some examples you can download and edit using Excel to best fit your needs.

Make sure to choose a template that contains the main categories for your business type and size. Here are some downloadable templates:

Template #1

Simple human capital calculation template. Features the main categories necessary for precise calculation of the HCROI.

Get this template

Template #2

Automated human capital ROI template. Document featuring multiple automation processes to make the process more optimized.

Get this template

There is no doubt that human capital is becoming a standard metric for calculating investments, more than just labor costs and financial expenses. It is the next natural evolutionary step for companies of all sizes and kinds that want to make quality investments.

To calculate this workforce and better understand the growing strength, you must have a good template. The ROI of human capital is the perfect tool for these cases, generating insights and strategies that go far beyond just financial performance.

If you’re managing organizations and are looking for the proper process to make industry benchmarks regarding your investments and performance, the HCROI is the right way to go.

Now that you know everything you need, it is time to start creating your template for human capital. Don’t forget that financial data is not the only reality; the more complete your template gets, the better you’ll be able to plan effective strategies.