Strategic Analysis Cost-Benefit Analysis
To do a cost-benefit analysis, you must find, quantify, and add up all the positive factors or the benefits. Then, to find the costs, you must identify, quantify, and subtract all the negative factors or limitations, including missed opportunity costs. The difference between the two indicates whether the planned action is advisable or worth pursuing. The real challenge is to be able to not only determine the real benefits and the real costs, but also to properly quantify them. When managing people, that has and will continue to be a particular challenge for HR professionals.
Some calculations can be fairly straightforward. For example, should we hire an additional salesperson? If the total compensation of a salesperson is $100,000 per year, but the average sales of our current sales staff is only $80,000 on a good month, it may not be worth the cost at the present time. This seems fairly straightforward until the picture is complicated. Suppose there is a performance driver to build a more qualified sales department, and suppose that the marketing staff is projecting business to increase in the last 6 months of the year. Taking time in March through May to find highly talented salespeople might then make sense from a strategic perspective.
In this Discussion, you will consider cost-benefit analysis and how it can contribute to strategic decision making.
With these thoughts in mind:
Post a cohesive and scholarly response based on your readings and research this week that addresses the following:
Do you think it is necessary for HR professionals to have financial competency? Explain why or why not.
Discuss the benefits and limitations of conducting a cost-benefit analysis for an HR initiative in general.
Determine how a cost-benefit analysis and HR Scorecard might complement each other in strategic planning.
Explain the organizational costs and benefits that are most critical for HR professionals to be familiar with, and why.
Strategic Analysis Cost-Benefit Analysis
Do you think it is necessary for HR professionals to have financial competency? Explain why or why not.
Organizations use financial resources to invest in people, and in return, these people are expected to contribute to the financial success of the company. The success of the company through efforts of the employees will be realized if the cost of acquiring human capital does not exceed the corresponding benefits. As such, HR professionals need to have financial competency. Jayne (2003) uses the scenario of HR professionals in New Zealand to illustrate the importance of the human resource department in understanding the Return-on-Investment (ROI) ROI on their human capital expenditure. Further, the discussion by Gurchiek (2011) points out that HR professionals should be finically strategic by understanding businesses’ operating cycle as well as drivers of revenues and costs to make sound financial decisions. 
Discuss the benefits and limitations of conducting a cost-benefit analysis for an HR initiative in general.
Benefits
- The cost-benefit analysis enables human resources to look for the best talent that will address the organization’s human capital needs. This is because the organization view potential candidates as an investment and for it to reap the maximum benefits, it should look for the candidate that will contribute to the highest financial success of the organization.
- It is difficult to determine the financial performance contribution of the human capital in the organization. However, with cost-benefit analysis, the company can tell how human resources are contributing to the revenue generation or profitability of the company.
- Cost-benefits analysis shows the potential cost drivers associated with the human capital and how they can be minimized. For example, with increased legal fees and insurance costs due to work-related issues, the company will use cost-benefit analysis to compare safety training program costs to insurance premium and litigation fees.
Cost-Benefits will help the organization to identify and capitalize on performance metrics.
Limitations
- All human resource benefits cannot be quantified; as such, when the cost-benefit analysis is used, these benefits are ignored.
- The cost-benefit analysis might not put into consideration the trends in human resource management since it relies on past data.
- The identification and quantification are usually subjective and might not be accurate, leading to wrong evaluations.
- The present value miscalculations might lead to inaccurate analysis.
Determine how a cost-benefit analysis and HR Scorecard might complement each other in strategic planning.
Cost-benefit analysis is used to calculate ROI for HR management (Burkett, 2005). While developing a cost-benefit analysis, a firm’s strategy and operational goals are considered (Becker, Huselid, & Ulrich, 2001). HR scorecard is based on the organization’s strategy and operations. As such, cost-benefit analysis complements the development of the HR Scorecard. Also, Niaz (2016) argues that in developing the HR Scorecard, the HR should have in place HR analytics such as cost-benefit analysis. HR Scorecard, which is based on cost-benefit analysis, will help the business to flourish cost-effectively.
Explain the organizational costs and benefits that are most critical for HR professionals to be familiar with, and why.
HR professionals should be concerned with both HR costs and non-HR costs within the organization. Some of the costs which HR professional should be familiar with are recruitment cost, training and development costs, outsourcing costs, and operational costs. Understanding these costs increases the HR professional business acumen knowledge and places them in a better position to contribute to the organization’s strategic goals. It will also help the HR team to understand how costs are changing and their impact on the organization.
HR professionals should be familiar with organizational benefits such as an increase in performance, production, sales, revenue, profits, and competitive advantage. Understanding these benefits helps the HR professional to assess how the human resource is contributing to their achievements or suitable HR practices to enhance the achievement of these benefits.
References
Becker, B. E., Huselid, M. A., & Ulrich, D. (2001, February 8). Cost-Benefit Analyses for HR Interventions. Retrieved from Harvard Business Publishing Education: https://hbsp.harvard.edu/product/1529BC-PDF-ENG?itemFindingMethod=Other
Burkett, H. (2005). ROI on a shoe-string: strategies for resource-constrained environments. Industrial and Commercial Training, 37(2), 97-105.
Gurchiek, K. (2011, June 27). Knowing the Numbers a Critical HR Skill. Retrieved from SHRM: https://www.shrm.org/hr-today/news/hr-news/pages/knowingthenumbersacriticalhrskill.aspx
Jayne, V. (2003). Measuring ROI: Return on Individuals Investing in people has a feel-good ring to it – but what impact do human resource initiatives have on the bottom line? And how easily can that impact be measured? New Zealand Management, 34, 1-5. Retrieved from https://ezp.waldenulibrary.org/login?qurl=https%3A%2F%2Fsearch.proquest.com%2Fdocview%2F201648343%3Faccountid%3D14872
Niaz, A. (2016). How to Implement an HR Scorecard in a Business Organization. Retrieved from HR Analytis : https://www.hrcsuite.com/hr-scorecard/