Analyzing programs and projects to demonstrate financial pay-back has long been standard practice for marketing, sales and operations departments. Human resources can apply the same tactic to show management its bottom-line contribution and justify funding requests. By using cost-benefit analysis, HR professionals can compare the cash outlay needed for an initiative against the savings it can produce. A basic cost-benefit analysis can help small companies with one-person HR departments manage their workforce expenses better.

Strategic Perspective

Cost-benefit analysis serves two purposes: It allows HR to determine the feasibility of investing in a program from a financial perspective and to compare alternatives. Expenses related to employment have a strategic impact on an organization's success. If you just landed a new client, for example, an HR cost-benefit analysis can indicate the most profitable way to have enough available manpower to handle the account, such as contracted freelancers, reassigning workloads or new hires.

Cornering Costs

HR needs to collect facts and figures to calculate the direct and indirect costs of a program in order to conduct the analysis. Direct costs can include equipment, outsourcing and supplies; indirect costs may consider lost production time, prorated compensation of people involved in program assessment and design, and facility use. For example, a computer-security training program has potential direct costs of a trainer, presentation material, facility use, travel and meals for participants, plus indirect expense of lost time on the job to attend. The legwork your HR professional does shows how you can keep the price affordable while guarding your company's proprietary information and minimizing downtime from computer viruses.

Uncovering Ways to Save

The benefit aspect of the analysis involves selecting performance metrics where savings can occur, such as reduced printing costs, less time on error corrections and lower overtime. According to the ROI Institute, Inc., the monetary value of HR initiatives always relates to improved quality, productivity, cycle times and efficiency, or to increased profits from higher sales. Work-related accidents cost money and time that few small businesses can afford. A cost-benefit analysis of a proposal to reduce on-the-job injuries would show how the program can eliminate increases in worker's compensation premiums, and lower costs such as legal fees.

The Road to Take

A cost-benefit analysis for a new or current program compares alternatives, each with its own cost-benefit study. This gives the small business owner more options to consider and allows HR to demonstrate the ramifications of each alternative, including the choice to maintain the status quo. HR could, for example, want to expand its recruitment net to fill vacant positions in your factory more quickly. Its cost-benefit analysis might lead you to approve hosting a job fair, introduce an internship program through the local vocational-technical school or advertise on the radio.