HR leaders and CFOs often see their roles as diametrically opposed and even in conflict with each other. Finance professionals can be frustrated by a perceived lack of ROI and measurability in HR, while HR leaders sometimes see their finance counterparts as narrow-minded and too focused on details. But the truth of the matter is that CHROs and CFOs need each other, and both can do their job better when they work with the other.
HR manages the people side of business success, and people power is ultimately responsible for a company’s performance and its bottom-line. The finance department manages the company’s resources to avoid waste and maximize return on investment, and the CFO is responsible for the financial side of business success. Since these two departments are responsible for the two sides of the same coin, business success, it only makes sense for them to work together whenever possible.
That being said, the relationship is not without its difficulties. That is why it is important for HR leaders to learn how to speak the CFO’s language and help the CFO understand their language in turn. Let’s take a look at how you can have a more productive relationship with the CFO as an HR leader, including:
- Why you should foster better communication between your departments
- How to build an effective business case for HR initiatives
- How to prove ROI to the CFO
- How to measure the success and impact of HR activities
Why Communicating with the CFO Matters
CFOs hold the company’s purse-strings, and nowadays they are holding them tighter than ever. That means that if you want to get the financing you need to lead effective HR initiatives, you’re going to have to learn how to understand the CFO’s language and how to speak to their pain points. The good news is that you actually are working towards a common goal, you just need to put in the work to help each other see it. On your end that means developing effective business cases, displaying ROI, and measuring objective HR metrics.
Do you need more convincing? Companies with a high level of collaboration between HR and finance see an increase in top-line revenue, an increase of 10% or more in operational cash flow, and an increase in employee performance and engagement.
Perhaps most importantly, learning how to track key metrics, build business cases, and discuss budgets, investments, and ROI are all necessary skills for you to be taken seriously by your company’s entire leadership team, not just the CFO, and for you to become a credible decision-maker on the C-suite.
Build Business Cases for HR initiatives
One of the most important steps to creating productive communication with your finance team and obtaining the financing you need to achieve your HR goals is to build an effective business case for each HR initiative and requisition request.
A business case is an outline of the proposed initiative, including its goals and the reasons why it is good for the company as a whole. Creating compelling business cases will not only streamline your interactions with the CFO, it will help you communicate better with the CEO and other internal stakeholders as well.
So how do you create a business case? There are many in-depth guides that you should draw upon, but let’s take a quick look at some of the key components of an effective business case.
The first step is to set the stage for your initiative by presenting the business trends and challenges that provide the context of the initiative. This will help you frame the initiative as well as its goals and impact on the company. Essentially, this is the “why” for your initiative.
The next step is to identify the key goals of the initiative. This part outlines what you hope to accomplish as a result of the project. Try to limit the number of goals to a handful so that your messaging stays clear. You do not have to list every benefit you think the initiative will bring to the company, just outline the specific personnel-related results you wish to achieve through the initiative.
Then lay out how you plan to achieve the goals. Keep it simple and big-picture but provide a concrete plan to reach each of the goals you outlined in the step above. This includes each major component of the initiative and how it contributes to a specific goal or goals. When possible, you should include time-frames and cost breakdowns to appeal to the CFO and CEO alike.
Finally, and perhaps most importantly, you should communicate the impact of the initiative on the company’s bottom-line and overall success. Think about what matters most to the stakeholders who will review the business case, particularly the CEO and CFO. Show them which of their pain-points the initiative will address. And if you can frame the impact in terms of revenue generated or costs cut, all the better.
This last part will be much easier and more effective if you develop a consistent strategy for proving ROI on HR investments, so let’s take a look at that next.
Showing ROI for Investments in HR Initiatives
When it comes to developing effective communication with the company’s CFO, the single most important thing you can do is to start thinking in terms of return on investment, or ROI. CFOs operate almost entirely in terms of ROI – they need to in order to effectively manage the company’s finances.
Presenting your initiatives and justifying your activities becomes a whole lot easier when you frame it in terms of ROI, and you make the CFO’s job easier at the same time. That being said, this isn’t always an easy task.
One reason is that you may have to fight an uphill battle. The unfortunate truth is that almost two-thirds of CFOs do not believe that HR affects the company’s bottom-line! The good news is that they couldn’t be more wrong, the trick is proving this to them in a way that they will understand.
Because the truth is that HR is responsible for an enormous portion of a company’s success or failure. The challenges of attracting, retaining, and engaging top talent are some of the main drivers of business performance and how HR handles these challenges has a measurable impact on a company’s financial well-being.
This means there can be significant ROI for investments in HR initiatives, you just need to think about what objective metrics you can measure and use to prove ROI. To better communicate ROI to the CFO, try to attach a dollar-value to each metric whenever possible. For instance, do not just show how an initiative will increase productivity. Instead, show how much revenue that productivity will generate.
Once you start tracking key HR metrics and framing them in terms of financial impact, it will become easier to show how your activities solve financial issues that the CFO may be struggling with.
Measuring HR Impact and Performance
Measuring and tracking metrics is the key to fostering productive communication with the CFO, and not just when it comes to justifying HR expenses. Collecting and sharing the right data can make it easier for the CFO to do their jobs, and the CFO may be tracking metrics that can shed light on the performance of your HR initiatives in turn. Think of metrics as the common language that you need to master in order to communicate with the CFO. Communication isn’t a one-way street, there’s plenty that you can learn from the CFO once you speak the same language.
In order to develop metrics to measure HR impact and performance, you should start collecting and analyzing data. Think about what you can track, and start recording it methodically. Some information, such as turnover data, is easily tracked in an objective and measurable manner. Other data is trickier, but not impossible to record. Employee engagement is a perfect example, since it can seem entirely subjective. However, anonymous surveys asking employees to rank key metrics on a numerical scale can easily generate measurable data that can be tracked and can produce trends over time.
Some examples of useful metrics to track to measure your performance, as well as the impact of HR initiatives, include:
- Revenue per employee
- Revenue lost due to position vacancy
- New hire failure rate
- Applications per employee
- Spend on HR costs vs HR revenue production
- Financial impact of preventable turnover as identified in exit interviews
- Dollar impact of turnover in specific positions
When it comes to tracking HR impact and performance, you don’t have to do it alone. You can enlist the CFO as an ally in your efforts. You may complain that CFOs live and breathe metrics and data, but that is exactly why they can be so useful. Instead of seeing their obsession with numbers as a challenge to your authority, enlist that expertise to help you craft meaningful metrics.
Learning how to communicate effectively with your CFO can not only help you convince them to give you the funding you need to achieve your HR goals, it can also help you do your job more effectively. Creating a clear and compelling business case and measuring ROI allows you to form better strategies based on real-world impacts and proven trends and performance. That means that you can be more strategic in your own decisions. It also can help you earn your rightful place in key strategy discussions. Just remember to:
- Create an effective business case for any major initiatives
- Think in terms of CFO pain-points
- Show ROI by framing results in terms of key metrics, particularly financial metrics
- Track the performance and impact of HR initiatives through objective metrics, perhaps even enlisting the CFO to help