Return on investment

1. Return on investment calculation

So far you have focused on building a model to predict turnover in order to intervene and retain the employees. In this lesson, you will calculate your return on investment for all the strategies you used to retain the employees.

2. Total cost of employee turnover

To quantify the benefits of retaining employees, let's understand the cost of employee turnover. As per the research by SHRM (Society of Human Resource Management) replacing an employee can cost between 50-60% of that employee’s salary with overall costs ranging anywhere from 90% to 200%. Turnover cost includes the cost of offboarding an employee, and other hidden costs such as the transition of work, training, and bringing performance up to scale and business loss, which can be also termed an opportunity loss.

3. Understand the cost implication of high turnover rate

The table here represents sample turnover cost comparison between the two scenarios. Scenario 1 is the case where turnover rate is high and no proactive retention strategy is designed by HR or employer. In scenario 2, assuming you take proactive actions in trying to retain employees, it results in a lower turnover rate. As you can see here, taking preventive actions to contain employee turnover results in significant cost-savings.

4. Calculating ROI

Return on investment is the ratio of program benefits to the program cost. In your final model, percentage salary hike was one of the key drivers of turnover, hence it is imperative to reconsider the salary increments given to employees.

5. Turnover rate across salary hike range

This plot which you will create in one of the following exercises shows the turnover rate of employees at analyst level for three different levels of salary increment. Let's assume that if employees are given a better salary hike it is highly likely they will stay longer in the organization, thus resulting in an overall cost saving to the organization. However, giving an extra salary hike is the cost which the organization has to incur to retain employees.

6. Let's practice!

Based on these assumptions, you are going to calculate the return on investment in the following set of exercises.

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