By Dr. Serena H. Huang
Demonstrating the return on investment (ROI) of diversity, equity, and inclusion (DEI) and wellbeing initiatives is crucial for securing executive buy-in and funding. This article provides a three-step framework for calculating ROI, including identifying the specific metric to improve, quantifying the impact of the change, and calculating the net return on investment. By aligning initiatives with financial outcomes and running DEI and wellbeing initiatives as a strategic business function, leaders can effectively make the case for these initiatives and drive business success.
“I need to show a positive ROI on this program, can you help me?”
Every year around budget planning time, I’d receive this request from department heads and HR leaders who were under pressure to demonstrate the financial impact of their initiatives.
After years of responding to these requests, I’ve distilled my approach into a repeatable, three-step framework that guides F100 companies in quantifying the ROI of their programs. This framework has been battle-tested to provide a clear, data-driven narrative that showcases the value of their programs.
The first step is to determine the specific metric that the program intends to improve. This could range from employee retention rates to productivity levels to promotion rates.
Once the metric is identified, the next step is to quantify the impact of the change in that metric post-program implementation. This involves collecting data before and after the program’s launch, analyzing trends, and isolating the program’s effect from other variables.
The goal is to present a clear story that demonstrates how the program impacted the metric of choice. Sometimes, there are too many other factors that can contribute to metrics like retention, and organizations choose to demonstrate impact with post-program surveys instead. For instance, a global CPG company’s Speaker series, which provides employees with exposure to external knowledge and expertise, uses a post-event evaluation to assess behavior change through effectiveness and value.
The final step is calculating the net return on investment. This is done by subtracting the cost of the program from the financial impact of the change in the identified metric. Let’s walk through an example for illustrative purposes.
An Example: Women in Engineering Leadership Development Program
Consider a Women in Engineering program designed to retain female engineers within the organization. The program aims to create a supportive community, provide mentorship opportunities for female engineers. The process begins with understanding current female engineer retention rates as a baseline. After the program is implemented, we monitor the retention rates over the next several months.
Let’s assume the program costs $150,000. Post-program, we observe a 30% reduction in turnover among female engineers. If the average cost of replacing a female engineer is $100,000, and the department historically loses 30 female engineers per year, the annual turnover cost is $3,000,000.
A 30% reduction in turnover translates to retaining 9 more female engineers (30% of 30), saving $900,000 annually (9 x $100,000).
The net ROI calculation would be:
- Financial Impact: $900,000 (cost savings from reduced turnover)
- Program Cost: $150,000
- Net ROI: $750,000 (500% return on investment)
Aligning Initiatives with Financial Outcomes
This illustrative example highlights a lesson I saw in the interviews I conducted for “The Inclusion Equation – Leveraging Data & AI for Organizational Diversity and Well-being”: the importance of aligning any initiatives with financial outcomes. Several leaders shared in our conversations that their CEO or CFO would simply not accept proposals without a clear ROI within 6–12 months. Quantifying ROI is not merely an exercise in number-crunching, it is also how these DEI and Wellbeing leaders are able to expand their teams and increase their impact.
Running DEI and Well-being Initiatives as a Strategic Business Function
One theme from my interviews with leading organizations was the importance of running DEI and wellbeing as a strategic business function, rather than a mere feel-good exercise or one-time public relations stunt. The top leaders who have seen the most significant impact consistently approach their work like the P&L owner. They set clear north stars for their functions, defining a measurement strategy so they know the progress over time.
“ERGs are not just nice-to-have programs. We have hard data to show that ERG participation improves the career outcomes for individual employees and that drives overall business success,” said one of the leaders I interviewed, Lani Hall, Global Diversity and Inclusion Leader.
Connecting with Tangible Business Metrics
The traditional DEI and wellbeing measures, such as representation data and employee engagement scores, while important, do not tend to get the attention of the C-suite. The most effective leaders go beyond these measures and connect with tangible business metrics such as absenteeism and productivity.
Thinking Beyond Existing Data Systems
Another common theme among the leaders I interviewed was a willingness to think beyond the constraints of existing data systems and proactively collect new information or come up with creative solutions as a proxy to answer critical questions. I know firsthand what it’s like to stare at the HR database and wonder why some important data elements are missing. Rather than being limited by what is available in the systems, these leaders take a courageous and business-focused approach to identifying the data points that matter most and finding ethical ways to obtain them.
Conclusion
Demonstrating the ROI of DEI and wellbeing initiatives is crucial in securing executive buy-in and funding, especially in times of uncertainty. By following a three-step approach, aligning initiatives with financial outcomes, running DEI and wellbeing initiatives as a strategic business function, and thinking beyond existing HR data systems, leaders can effectively make the case for these initiatives and drive business success.
Dr. Serena H. Huang
