Utility analysis: A tool for quantifying the value of hospitality human resource interventions

Excerpt In a survey of hospitality managers and executives, the most frequently identified concerns related to issues of human resource management. ’ A major obstacle in the way of improving human resource management is the lack of practical methods for determining and demonstrating the strategic value of human resource interventions. How does one answer questions like, “what is the return from a better performance-appraisal system? , ” “would I be more (or less) profitable if I were to raise wages? , ” or “what is more valuable, spending 10, 000 on a new selection system or on a training program? ” General managers who want to get more out of their human resource systems need to demand that human resource departments identify the returns from human resource investments. Human resource practitioners need to be able to talk about such investments, and be able to make a compelling case for the need to use resources to improve human capital. This article explains a tool for human resource management, known as utility analysis, that is designed to facilitate answering questions such as those raised above. In addition to the mathematics behind the technique, I will also provide two hypothetical examples that should help those interested to better understand the principles behind the technique.