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The Challenge of Measuring Return on Investment

A company that is expanding its global mobility program may be surprised at the overall cost of sending employees abroad for either short or long term positions.  International assignments can be 2 to 3 times more expensive than a similar position in the home country, with one estimate for a 30- month assignment exceeding US$1 million total.

With this type of expense, measuring return on investment would seem like a priority, yet many companies either do not use any ROI metrics or are unsure of what to measure for an accurate figure.

The Lifecycle of an International Assignment:  Measuring Return on Investment

In the first three articles covering international assignments, we examined the pre-assignment steps of cost evaluation during the initiation stage, setting goals in the objective setting stage and determining assignment cost / benefit for the value assessment stage.

Assuming that the decision to move forward with an assignment has been made, the next step is to establish a reliable and consistent method of measuring return on investment that can also be used across a broad spectrum of current and future assignments.  The core challenge is in structuring a ROI formula that corresponds to overall business objectives, and accounts for the unique costs and benefits of a foreign assignment.

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How to Define Success of an International Assignment?

A PriceWaterhouseCoopers survey found that only 9% of the companies that responded actually measure the ROI of international assignments.

This reiterates a similar study that showed a majority of foreign assignments are ‘reactive’ and are not driven by strategy or expected return.

However, the same respondents said that measuring ROI for assignments is a high priority for the future. The challenge lies in identifying key metrics to use for assessing return, and the method for accounting for the variables present in overseas assignments.

Key Metrics to Track ROI

The classic metric, or standard of measurement, used in ROI analysis is to weigh the monetary benefits of an expenditure against the cost, or most simply the profit against the investment.  However, an ROI formula for international assignments will also have to take into account costs for both the assignee as well as the company’s presence in the host country.

To reach a meaningful result, the maximum number of possibilities should be included. For an international assignment, many of those costs are HR related and will be evaluated against the value and benefits of the assignment.

“Using quantifiable metrics improves the credibility of HR as a profession, and allows upper management to identify specific, measurable ways that HR services benefit the organization.”  

The areas of cost for an assignment can be divided into four areas, each of which can be separately managed and evaluated but should each be included in the overall cost measurement.

1.     Pre-Departure / Relocation:  Cultural and language training, shipping, transportation

2.     Assignment Costs:  Salary, benefits, taxation, housing, family support

3.     Destination Costs:  Immigration, compliance, payroll, incorporation, infrastructure

4.     Repatriation Costs: Transportation, relocation, integration

These costs will need to be compared to the monetary benefits of an assignment, which in many cases will depend upon the purpose of the assignment.  There are two distinct sets of benefits data that can be used to calculate ROI for international assignments: 1) monetary or financial return and 2) non-financial or ‘human capital’ benefits.

1.     Achieving Assignment Purpose

2.     Increase in Overall Business Presence in the Host Country

3.     Concrete Business Objectives: Sales Volume, Market Share, Customer Satisfaction

So, the most basic ROI calculation will add up all of the costs of the assignment and then compare that amount to quantifiable benefits.  However, this may not always be so simple since assignment value could be incremental, or may not show a return until after repatriation.

Beyond the Numbers: ‘Human Capital’ Variables That Can Influence ROI

There are also subjective and hard to measure variables that come into play with foreign assignments, that may affect ROI beyond simple calculations of monetary return.  This may be part of the reason that an easy ROI formula has eluded many global mobility strategies, since there are many non-monetary benefits that can result from an assignment. Given that many of the metrics for international assignments are HR based, the impact on ‘human capital’ has to be considered when measuring return on investment.

Value of Skills Acquired

Assignees that return from a foreign posting will have gained valuable skills and experience, which can be an asset to a company either at home or for other assignments.

Training Local Staff in the Host Country

Sending experienced employees on assignment can allow for in-country training of staff, especially locals who may be unfamiliar with company procedures of methodology.

Leadership Development

Companies will often send executives on assignment as part of leadership development strategy, and to familiarize the assignee with key foreign markets and personnel.

Reporting ROI

Calculating ROI for assignments is only useful if the information is used to guide future global mobility strategies.  This brings up the issue of ROI reporting, and who in the organization can use the ROI information.

Ideally, the data collected and evaluated using the ROI metric should be available to those making decisions about international assignments. If this can be shared with human resources, it could help with setting compensation levels that can be sustained across multiple assignments. Other areas, such as destination costs can also be managed for maximum savings, especially where there are many employees in one foreign location.

The GEO Local Employer of Record: Minimizing Enterprise Risk for Assignments

One excellent method of managing the enterprise risk of doing business in a foreign legal environment is the use of a GEO local employer of record to maintain compliance.  The GEO, through its local partners, handles all aspects of immigration, employment and payroll, and saves the client the expense of setting up a local corporation.  In essence, the GEO becomes the employer in the host country, and eliminates problems with overuse of business visa and potential misclassification of independent contractors.

A company can manage its destination and repatriation costs by enlisting the GEO before an assignment begins, and focus time and energy on achieving the business objectives of the assignment.

Get in touch to find out more about how an Employer of Record Solution can help your company

The information in this article is subject to changes in local legislation.

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