Measuring Return-on-Investment in Government: Issues and Procedures

Article excerpt

Much has happened in the human resources (HR) world since the 1980s, when trends such as total quality management (TQM) led many organizations to shift toward a performance-oriented approach to business practices. (1) The TQM movement spread rapidly throughout both public and private sectors, reinforced by national quality awards (e.g., the Baldrige National Quality Award). TQM was credited for turning many companies around, increasing market share and growth rates, as well as producing top-quality products while increasing profitability. In the early 1990s, TQM was followed by re-engineering/restructuring trends and drastic downsizing within the private sector. (2) The advent of TQM and similar programs of organizational change, not only transformed traditional corporate culture, but also foreshadowed a great and positive change in the way the public sector did business as well.

In 1993, the Vice President's National Performance Review--now the National Partnership for Reinventing Government (NPR)--mirrored this movement with the ultimate goal of creating a government that worked better and cost less. At the same time, an Executive Order on Customer Service Standards was issued, which reinforced the new focus on quality in performance and customer service. Notwithstanding, Congress passed the Government Performance and Results Act of 1993 (GPRA), which required government agencies to submit strategic plans and performance measures to justify their budgets. Such developments have resulted in an increased demand for government agencies to become more accountable and measure performance. The trend toward improving the way the government does business does not seem to be changing in the near future. In particular, much has been written about the need for the HR function to become more accountable, create better HR practices and tools, and measure its contribution at all organizational levels. (3)

The federal government has been creative and diligent in its evaluation efforts, despite facing persistent budgetary concerns. Under the auspices of the U.S. Office of Personnel Management, several research and development efforts have been undertaken to assist various government agencies to develop procedures and models for evaluating their HR function. (4) This work has provided a systematic approach for formulating and implementing an overall evaluation plan. One key method has been to measure return-on-investment (ROI) to assess the value of the HR function.

The application of the ROI process is a particularly useful HR tool in the federal government, since many of its agencies are mission oriented, but their organizational goals are not necessarily captured as cost savings or profit. Many agencies' strategic plans, for instance, include specific goals to increase customer service, develop the professional skills of its workforce, reduce costs, as well as improve efficiency. Documenting and reporting HR benefits through cost-benefit analysis methods, such as ROI, can help an agency meet its goals for positive change. Unfortunately, few agencies have embarked in a systematic evaluation of their HR function and its organizational impact. This article examines the basic issues concerning ROI and its applicability in the federal government.

The Return-on-Investment Process

Perhaps the best-known framework for evaluating areas of HR function (e.g., training) is Kirkpatrick's Four-Level Evaluation model (5). Kirkpatrick's approach recognizes value in: (1) the participant's reactions to the program, (2) evaluating learning, (3) measuring behavioral improvements on the job, and (4) monitoring organizational improvement, such as cost savings, work output changes, and quality changes. The classification of evaluation measures as different levels is both helpful and instructive in understanding how to best capture program impact. Although Kirkpatrick's model is widely used, research (6) has revealed some shortcomings, including relatively weak systematic evaluation of organizational impact and transfer of learning. …