Performance measurement and evaluation: applying return on investment (ROI) to human capital investments

Abstract

Purpose

This study aims to investigate the growing use of financial metrics (such as return on investment [ROI]) to measure performance and evaluate human capital (HC) investments.

Design/methodology/approach

The research employed an embedded case study approach, examining how one ROI approach was applied to evaluating HC investments, across three sectors (corporate, public health and international development).

Findings

Three major findings emerged in this study: First, interpretations of ROI can lead to ambiguity during implementation. ROI is interpreted trichotomously – metaphorically, as a desire for value; literally, as a metric; and procedurally, as a method for planning and evaluating HC investments. Second, understanding, measuring and tracking the domains of people performance (cognitive, affective and psychomotor) is vital to evaluating the impact of HC investments because this is where the change in behavior occurs. Third, although the logic model measures the change in process following an intervention (input-activity-output-outcome-impact), other approaches measure the change in behavior of people in the intervention (people performance).

Practical implications

These findings provide clarity for practitioners about challenges when applying ROI.

Originality/value

This is the first study to explore how the ROI financial metric is applied in a new domain by first examining its interpretation. It elucidates the use of ROI in practice, as well as the different purposes of key ROI approaches.

Citation

Dadd, D. and Hinton, M. (2023), "Performance measurement and evaluation: applying return on investment (ROI) to human capital investments", International Journal of Productivity and Performance Management, Vol. 72 No. 9, pp. 2736-2764. https://doi.org/10.1108/IJPPM-10-2021-0573