Utility Analysis Essay Example

Introduction The field of human resource management has been searching for ways to better assess the value of human capital development programs. The general argument is that if the impact that human resource programs have on the financial bottom line could be evaluated, the company's decision makers would be more willing to allocate resources to further develop these programs.

With this idea in mind, researchers have devised several utility analysis techniques which can help translate traditional HR measures, such as validity coefficients and statistical distributions, into estimates of monetary profit.

Utility analysis has become an established quantitative method of evaluating human resource programs. It can make a valuable contribution to judgments and decisions about investment in human resource management. Utility analysis provides managers information they can use to evaluate the financial impact of an intervention, including computing a return on their investment in implementing it.

It was introduced as a method for evaluating the organizational benefits of using systematic procedures (e. g. , proficiency tests) to improve the selection of personnel but extends naturally to evaluating any intervention that attempts to improve human performance.

Utility analysis of human resource intervention has emerged as a focused topic of research in the 1980s. The major reason for great concern about utility analysis is that this technique ties human resource interventions to the measuring unit of the business world—dollar value.

With the Brogden utility estimation equation (Brogden 1946, 1949), one can avoid the laborious effect size indices developed by academic researchers and present to management estimates of the dollar value contribution of human resource intervention. The classical model of utility analysis, called the BCG-utility model after its originators

Brogden,Cronbach and Gleser ?U = N T SDy dt – C The value of the selection program is measured in dollars and is represented by the symbol ? U. N is the number of accepted applicants who remain with the organization for a time period T.

SDy represents the standard deviation of job performance (in Dollars) in the applicant population The part of the utility function to the left of the of the subtraction sign estimates the return produced by the intervention.

From this sum the costs of the measures (C) are subtracted. The first assumption of utility analysis is that human performers generate results that have monetary value to the organizations that employ them. This assumption is also the basis on which people claim compensation for the work they do.

The second assumption of utility analysis is that human performers differ in the degree to which they produce results even when they hold the same position and operate within like circumstances. Thus, salespersons selling the same product line at the same store on the same shift will show a variation in success over time with a few doing extraordinarily well, a few doing unusually poorly, and most selling around the average amount for all salespersons.

This assumption is broadly supported in common experience and in research.

It is, for example, the basis on which some performers demand and receive premium compensation. The direct implication of these assumptions is that the level of results produced by performers in their jobs has different monetary consequences for the organizations that employ them. Performers are differentially productive and the productivity of performers tends to be distributed normally.

How Utility Analysis

Builds on These Assumptions The approach of utility analysis asserts that the utility of any intervention can be valued by determining how far up the productivity distribution the intervention moves the performer.

The distance the performer is moved is translated into a productivity gain and the dollar value of that productivity gain is what is termed the utility (U$) of the intervention. What Is Needed to Complete a Utility Analysis? In completing the analysis, the performer needs to generate the following: * A method for measuring role productivity, * A way to assign monetary value to role productivity, * The distribution of productivity among performers of the role, * The dollar value of a one standard deviation difference in role productivity (SD$), and * A method to measure the intervention's impact on role productivity.

With these elements of information, the analyst can compute the utility of the intervention in dollars. To accomplish the analysis, the analyst must be skilled in the methods of quantitative analysis in general and utility analysis in specific. This person needs to be aware of the variety of ways one can measure human productivity, determine its monetary value, and gauge the affects of interventions on participant performance.

Given that there are a variety of methods for computing utility, the exact resources needed for the task will depend on the method the analyst selects.

The least set of resources anyone will need are: * Access to the people who will be using the results of the study to make decisions; * The identity of the intervention whose utility you will measure; * A subject matter expert who is knowledgeable of the intervention; * A

description of each affected role including its duties, outputs, and success criteria; * The compensation scale for each affected role; and * A subject matter expert who is knowledgeable of the role(s) affected by the intervention. Getting Ready for the Analysis 1. Understand the people whose decision-making the study will support.