In today’s diverse, dynamic work world, employers increasingly recognize the transformative power of diversity, equity, and inclusion. Still, concerns often arise about the cost of DEI initiatives. The best answers consider benefits as well as costs. In other words, if you want to build a compelling case, focus on business value. But what exactly does that look like?
To make sense of it all, let’s dig deeper into DEI’s true value. This article sheds light on the remarkable return on investment you can achieve with a wholehearted commitment to DEI.
The Benefits of DEI
Consultants at McKinsey have conducted extensive research on the impact of gender and ethnic diversity on financial performance. They found that companies with diverse executive teams are 25% more likely to experience above-average profitability. This finding demonstrates a clear link between DEI and financial success.
Another example underscores the impact of diversity on customer experience. Salesforce, a leading customer relationship management platform company, is known for its strong commitment to DEI. But this didn’t happen by accident. In 2020, Salesforce revamped its talent acquisition strategy and training programs to reduce bias and expand minority employment opportunities.
Within a year, the company more than doubled its hiring rate among marginalized communities. In addition, internal research revealed that employees from these diverse groups became more engaged and contributed to higher customer satisfaction ratings.
How much should your organization invest to become more ethical and profitable? Let’s explore….
The Cost of DEI
Diversity budgets come in all shapes and sizes. They range from a modest $10,000 to a mind-boggling $216 million. But the sweet spot lies at a median budget of $1.2 million.
When allocating funds to increase workforce diversity, you can prioritize specific business activities (training programs, recruitment, recognition) or functions (HR, Marketing, Community Relations).
For smaller organizations with fewer than 1,000 employees, it is feasible to initiate DEI efforts by assigning specific responsibilities to existing staff members. For example, you could allocate about 50% of an existing employee’s role (such as an HR project manager), to oversight of DEI initiatives. This makes it possible to integrate DEI responsibilities into your workflows without creating a dedicated role or team.
However, in larger organizations, it’s crucial to establish clear ownership of DEI with a dedicated role or team. This ensures that DEI efforts receive the necessary focus and resources to drive meaningful change.
At the average Fortune 1000 company — with a workforce of 34,000 people and revenue of $15 billion — the DEI budget is significantly larger than other companies require. For a smaller organization — with 2,ooo-10,000 employees — a reasonable estimated budget for establishing a DEI program is likely to range from $50,000 to $300,000.
But no matter what your company size or DEI budget, the key is to spend that budget effectively. How should you allocate available funds? Let’s look closer…
Structuring a DEI Budget
The range of DEI expenses varies, depending on numerous factors, such as an organization’s size, industry, geographic location, and scope of DEI initiatives. It’s important to note that there is no fixed or universal standard for DEI budgeting. Each firm faces unique financial realities and priorities.
Now, let’s break down ways to distribute your budget across key areas:
1. Personnel Expenses
This includes any costs associated with hiring and maintaining a dedicated diversity and inclusion team. It may include salaries and benefits for DEI professionals to develop your strategy, implement initiatives, offer guidance, and provide support.
2. Training and Education
This covers expenses for design, development, and delivery of diversity and inclusion training programs, workshops, and seminars. It can include the cost of external trainers, development of training materials, e-learning platforms, or subscription fees for diversity and inclusion training resources. Investment in engaging, transformative training programs varies widely, from $30,000-$150,000.
3. Recruitment and Branding
To promote diversity and inclusion, budgeting for recruitment and hiring initiatives is essential. This may include expenses for advertising on diverse job boards, attending job fairs that target underrepresented groups, engaging with recruitment agencies that specialize in diverse talent, or implementing software and tools that help reduce bias in the hiring process. Companies usually set aside $10,000-$30,000 for DEI-focused recruiting and branding initiatives.
4. Employee Resource Groups
Employee resource groups can foster a sense of belonging and provide a platform for underrepresented employees. But you’ll need a budget to establish and sustain these groups. This can include funding for ERG events, activities, resources, and initiatives that promote DEI within your organization. Employers often allocate $10,000-$30,000 for this line item.
5. Policy Development and Implementation
This ensures that your organization’s policies align with DEI principles. It may involve expenses for external experts, legal consults, or HR DEI specialists to review, update, and create relevant policies. However, you can manage this process without extra expenses. These tips can help:
- Review your existing policies and practices to identify potential biases or barriers.
- Make necessary adjustments to ensure inclusivity across various functions and responsibilities, such as hiring, promotion, and performance evaluation.
- Encourage transparency and accountability in decision-making to prevent bias and discrimination.
6. Data Collection and Analysis
Investing in data collection and analysis tools enables organizations to track DEI progress effectively. Budgeting for these resources may include expenses related to software, surveys, and data analysis tools. It may also include the cost of consultants to conduct audits and assessments.
7. Community Partnerships
To build external relationships and demonstrate a commitment to DEI beyond the workplace, employers often allocate a portion of their budget to community engagement and partnership programs. These are common steps:
- Look for external organizations or community groups that align with your DEI goals.
- Consider how these efforts can open doors for additional expertise, resources, and networking opportunities.
- Collaborate with appropriate groups to define joint initiatives, such as workshops, panel discussions, or mentoring programs.
A budget of $5,000-$50,000 can help drive effective partnerships or sponsorships.
8. Ongoing Evaluation and Measurement
Budgeting for ongoing evaluation and measurement is crucial because it ensures that you can determine the impact of DEI initiatives. This may include funds to conduct surveys, audits, or focus groups. It may also include the cost of hiring external consultants to evaluate your company’s progress.
Meanwhile, you can save money on evaluation activities by regularly measuring DEI ROI.
The ROI of DEI
To showcase the value of your DEI efforts, you’ll want to estimate ROI. Follow these steps:
1. Identify Measurable Objectives
Start by defining clear objectives for your DEI initiatives. These objectives should align with your organization’s overall goals and values. For example, you may aim to increase employee retention, enhance innovation through diverse perspectives, or improve customer satisfaction and loyalty.
2. Determine KPIs
Select specific key performance indicators (KPIs) that align with your objectives. These metrics should be quantifiable and trackable over time. For instance, you could measure employee satisfaction and engagement, diversity representation at various levels of the organization, or customer feedback related to diversity and inclusion.
3. Establish a Baseline
Before implementing DEI initiatives, establish a baseline measurement for each selected KPI. This provides a starting point, so you can measure subsequent progress. The easiest way to do this is to gather and analyze available data from existing HR and business systems and programs. You may also want to collect and analyze relevant data by conducting preliminary surveys, assessments and interviews.
4. Track Progress and Impact
As you implement DEI initiatives, regularly monitor and track the selected KPIs. They may include minority hiring rates, promotion rates, turnover rates, employee satisfaction scores, customer satisfaction scores, or other relevant metrics. As you measure change in each metric over time, you can follow your organization’s overall DEI progress. This trend analysis will also help you quickly identify unexpected issues that should be researched and resolved.
5. Assign Monetary Value
By assigning a value to improvements in selected KPIs, you’re taking a vital step forward in justifying the cost of DEI initiatives. This step can be challenging, but it will help you demonstrate the tangible benefits of your efforts. For example, you could estimate the cost savings associated with reduced turnover, or the potential increase in revenue resulting from improved customer satisfaction and loyalty.
6. Compare Investments and Returns
Next, estimate ROI by comparing tangible DEI costs (financial resources, time, and effort) with the monetary value you’ve assigned to improvements you’ve observed. In other words, subtract actual costs from tangible benefits. Ideally, the result of this calculation will be a positive value (benefits – costs = net benefit).
7. Consider Qualitative Impacts
While ROI calculations often focus on quantifiable metrics, it’s also vital to consider qualitative outcomes. In other words, for some business endeavors, the overall positive impact can far exceed the result of a straight cost/benefit equation. Look beyond the numbers to consider the importance of qualitative benefits such as a more vibrant work culture, improved employee morale, enhanced brand reputation, and stronger relationships with diverse communities. Goodwill may be intangible, but it is a powerful business asset.
A Final Note on the Cost of DEI
Some companies have struggled to demonstrate the value of their DEI initiatives. However, with thoughtful planning and an ongoing commitment, it is possible to develop an effective working budget and successfully demonstrate ROI.
Although the upfront cost of DEI initiatives may seem steep, organizations can experience tangible benefits in the long run. But the true value of diversity, equity, and inclusion actually goes beyond financial success. DEI has the potential to elevate your work culture, customer relationships, and brand position in ways that can transform your organization for the better.