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How to Calculate Diversity Return on Investment (DROI): An Overview

by Dr. Edward E. Hubbard

Diversity performance is challenging to measure for the following reasons:

  • It is not always obvious what results should be measured. Many diversity organizations will not use any measures at all or they will use the obvious measures without asking what results they should be producing and how they will know when they have done a good job.
  • Even if you know what to measure, it is often not clear how the measurement process should be conducted. Not everything can be easily measured with numbers, thus the diversity practitioner may give up when faced with measuring something like "creativity" or "diverse work team productivity" or "innovation".
  • Diversity impacts individuals, teams, the organization, customer markets, and communities at large. Therefore measurements must be done at all of these levels, which has an exponential effect on the size of the measurement task. Portions of this measurement task can be complex and difficult without direction.

This approach will:

  • Provide a road map for this difficult measurement task. It is easy to get lost when the task is as hard as measuring the impact of diversity on organizational performance. If you have a process, you can focus on getting to the goal instead of deciding on what steps are the best to take next.
  • Help you reduce the cycle time to create diversity measures and perform a diversity measurement study. Organizations have spent months and virtually years trying to create measures and processes to evaluate the contribution of diversity to the bottom-line. This process will help you cut that time down into weeks or days.
  • Provide a way to measure the "difficult to measure" work. It will also suggest ways to acquire and create performance standards for diversity.
  • Help you link diversity goals to the goals and objectives of the organization. Line of sight helps motivation, but it can be difficult to achieve. Employees and stakeholders must be able to see how diversity activities and results will help the organization achieve its goals and objectives. The process must also help employees know whatís required of them to reach the organizationís goals.
  • Provide a way to combine diversity and organizational measures such that they support each other and do not work at cross-purposes.
  • Provide options for varying the process, given the type of organizational work or process being measured.

Because there are many different aspects of diversity applications in organizations, the diversity measurement process is not always linear. Youíll need to have a clear understanding of the organizationís business operations, its strategic focus and challenges, and where you want to end up. As you proceed with the diversity measurement study, you must make choices along the way to find the most efficient path to help reach your goal.

For most diversity organizations, the goal is to demonstrate diversityís contribution to the organizationís bottom-line and utilize a measurement system that everyone involved can understand. It must delineate what is expected of them in the process and provide tools and helpful hints along the way to achieve a successful outcome.

To that end, this process will help you:

  • Build a business case for a specific diversity initiativeís contribution.
  • Create a roadmap of consideration made along the way.
  • Utilize tools that support consistency in analysis and performance tracking.
  • Show value-added results with diversity measures and performance standards.

The example shown below highlights a portion of a diversity value chain that reflects value-added results, standards, diversity metrics and their impact that may be suggested.

Results/Weight Diversity Performance Standards Diversity Metric(s) / Target Organization Impact

Business Unit Diversity Teams (25%)

  • Diversity Best Practices mirrored at the business unit level
  • Diversity Best Practices mirrored at the business unit level
  • At least a 25% increase in customer satisfaction due to diversity intervention
  • Improved Customer Service

Staffing (20%)

  • Diversity source cost reduced
  • Diversity hire retention by group is increased
  • Diversity hire performance impact and quality is tracked
  • Less than 20day Time-to-fill Rate
  • Reduction in Source cost per diversity hire
  • At least a 95% Diversity hit rate
  • At least a 90% Diversity hire performance impact
  • 90% Diversity survival rate
  • Diversity stability factor
  • Target increase (#/%) of minority and women promoted by category and level
  • Cost/Benefit of Turnover Reduction
  • Diverse workforce reflective of customer and local population demographics

There are seven steps to calculate Diversity Return-on-Investment:

1. Know what you want to know. This step will help you:

  • Identify a Business Problem Related to the Organizationís Strategy
  • Formulate Research Questions
  • Begin with the End in Mind -- Your Report
  • Create the Diversity Measurement Study Objectives

2. Prepare and Collect data. This step will help you:

  • Identify Data Collection Measurement Areas to Check
  • Review Historical Data
  • Conduct Interviews
  • Conduct Focus Groups
  • Analyze data using the Hubbard Diversity 9-S Framework
  • Create or Purchase Evaluation Instruments
  • Survey the Organization

3. Isolate diversityís contribution This step will help you:

  • Select a Method to Isolate Diversity's Contribution

4. Convert the contribution to money This step will help you:

  • Identify the Hard and Soft Data Contained in the Diversity Contribution
  • Select a Method to Convert the Hard Data Contribution to Dollars

5. Calculate the costs, benefits and DROI This step will help you:

  • Identify the Major Cost Categories
  • Identify the Major Benefits
  • Calculate the Benefit-to-Cost Ratio
  • Calculate the Diversity Return-on-Investment (DROI %)
  • Identify the Intangible Benefits

6. Report it to others This step will help you:

  • Identify the Report Timing / Other Needs
  • Identify Reporting Vehicle(s)
  • Create Report
  • Deliver Report
  • Evaluate Feedback

7. Track and periodically assess progress This step will help you:

  • Provide follow-up data for analysis and benchmarking purposes
  • Introduce new automated Diversity Measurement Software Systems for monitoring, tracking, and reporting results
  • Introduce a companion survey development software tool and its statistical analysis capabilities.

This article is a chapter excerpt from the book: "How to Calculate Diversity Return on Investment (DROI)" by Dr. Edward E. Hubbard, President & CEO of Hubbard & Hubbard, Inc.

Dr. Edward E. Hubbard, President and CEO of Hubbard & Hubbard, Inc., and author of the books: "Measuring Diversity Results" and "How to Calculate Diversity Return on Investment", can be reached in Petaluma CA, at phone† 707-763-8380; fax (707) 763-3640. Other books by Dr. Hubbard to be released soon include: "Building a Diversity Measurement Scorecard", "Diversity Strategic Planning: How to build a measurable framework for diversity"

Hubbard & Hubbard, Inc., headquartered in Petaluma, California, is a privately owned, International Organization and Human Performance Consulting corporation. Our sole business is to assist private and public organizations to strategically manage their human and other resources to obtain maximum performance and measurable results to meet their business plan objectives.

Our researched-based consulting, training and education systems strategically address the unique needs of each client using practical, comprehensive methods as well as providing the highest quality customer service.