How much does Diversity, Equity and Inclusion really cost?
Hi! Before you read this blog, I want to tell you that my new book Diversity, Equity and Inclusion: How to Succeed at an Impossible Job is now available in eBook, paperback and hardcover on Amazon.com, .Amazon.de and Amazon.co.uk! Read more about it here!
Now, back to the blog!
I get a lot of questions that boil down to What is a reasonable budget for a DEI team in my company? Typically the question comes from companies that are just beginning their DEI journey and are trying to wrap their minds around budget allocation for internal DEI activities such as mentorship programs, events, or training initiatives. This is a really interesting question to try to answer. It seems pretty straight forward, but let’s step back from the task of estimating budgets and think about the broader costs of DEI beyond invoices and credit card statements. By broader costs, I’m referring to the time, energy, resources and visibility that DEI requires in order to succeed. All of this has a cost in some way or another. Interestingly, among all of these costs budget may be the easiest to resource. The other costs are much more expensive because they force an organization to make tough decisions on prioritization, revise their processes or adjust targets. These costs are much more complex and more difficult to estimate.
But before we explore more, let’s address how DEI is often discussed. There is a lot of discussion around the ROI (Return on Investment) of DEI. Leaders often ask What’s the business case for DEI? How much money will it save us or make us? Consulting firms have been touting the message that DEI saves businesses money for a decade. Some leaders need to hear this argument to feel convinced that they should invest in DEI. But this is a slippery slope. When a DEI team must constantly demonstrate how they have saved their company money, it forces their measure of success to be quantifiably financial. The reality is that it is very difficult to quantify all the ways that DEI initiatives increase productivity, improve retention, attract better talent, help build better products and connect with your customers. And frankly, some DEI initiatives will result in no profit or budget saved, but that doesn’t mean they aren’t worth doing.
So, if an executive team is not convinced that DEI is a critical strategic initiative of their organization (unless it saves them money), then they are not fully bought in. When the executive team isn’t bought in and they are not actively championing the DEI work, it’s very difficult to make tangible progress. (Read more: Why DEI teams fail).
I’d humbly suggest a different framing for business executives. Instead of asking how will DEI save us money, ask yourselves:
What kind of company do you want to build?
What kind of company are you proud to put your name on?
What kind of testimonials do you want to see in glassdoor reviews?
What kind of relationship do you want with your employees?
Do you care to build a company with an inclusive culture, equitable processes, diverse workforce and strong sense of belonging for its employees?
I’ve seen organizations who are bought in and organizations who are not bought in. Their work culture is remarkably different. This is not meant to pressure business leaders into a certain way of thinking. Honestly, it’s a very personal choice to decide how to build your own business and it’s your prerogative to do so. I’m just trying to shift the conversation from the ROI of DEI to a more personal decision of how a founder or executive team wants to run their business and how DEI fits into that vision. To learn more about the introspection required to make a DEI commitment on behalf of your organization, this blog has some practical advice, it is geared towards investment funds, but applicable more broadly.
Now, back to the question of What does DEI cost? As mentioned, this is a complex question. When you think about the cost of DEI, it’s not just budget allocation. It’s the entire cost of an authentic strategic approach to DEI. This includes: hiring or allocating staff, the cost of revising processes, the cost of collaborating across stakeholders and most importantly the cost of prioritizing DEI alongside other strategic initiatives. Here are some of the costs, both obvious and not-so-obvious, required for the success of DEI.
Leadership Buy-in
I’ll start with this the most critical. In other blogs I’ve talked about how the support of the executive team is absolutely necessary for the success of DEI work. In particular, it’s imperative to have one or two DEI executive champions that are ultimately responsible for DEI. In order to give the proper importance to DEI efforts across the organization, the champions should be willing to put their time, energy and visibility behind the work. This functions like an executive endorsement and ensures that employees throughout the organization also consider DEI to have a high strategic importance. Ideally, this also pulls DEI away from a purely HR domain and sets it alongside other business critical efforts. Having an executive champion of DEI also role models the behavior to other executives and offers them a peer to talk to.
What does this cost? The time of an executive is expensive, of course. But also their time is finite. They can only focus on so many topics at once. Having their focus on DEI means they are not focusing on something else, so of course this comes with a cost. This cost varies depending on many things but will be highest during times of crisis. An additional cost associated with this is the time and energy needed to upskill the executive champions and make sure they have sufficient awareness on DEI to speak confidently and competently. Oftentimes an executive coach is needed for this.
Hiring or Allocating Staff Resources for a DEI Team
For a smaller organization (less than 1,000 employees) it’s probably possible to kick off DEI by allocating responsibilities to existing staff, such as 50% of an existing employee’s role (HR project manager, for example). For a larger organization, it’s important that there is clear ownership of DEI with a dedicated role or team.
Positioning of the DEI team is a crucial element of success. Sometimes a DEI role is positioned three or four levels away from the executive team, each level adding more hierarchy to manage and mangle the efforts. The DEI team’s leader should report as directly as possible into the executive team. They should have a clear line of communication and a trusted relationship. The DEI team should be positioned in such a way where the exec team can reach out directly when they have questions or need guidance whenever needed.
How much does this cost? Salaries vary widely globally, so check Glassdoor for locally relevant information. The positioning of the team can also have a cost if it requires re-structuring of teams or if it challenges a very hierarchical system to create a new approach.
Supporting Staff Resources
In addition to a dedicated team, there are many stakeholders who are critical to the success of an organization’s DEI efforts. This includes HR professionals (learning & development roles, business partners, talent and performance, data analysts), Communication professionals (internal and external comms), Events team, legal professionals, and many more. It’s important that these stakeholders recognize DEI as a strategic priority and are willing to support with their working time. Practically this looks like: a communication professional supporting on internal DEI communication, a HR data analyst providing reports on employee data or a legal team advising on GDPR for diversity data collection. Everyone from the executive team down to the managers of these individuals needs to perceive DEI projects as a critical strategic priority for the organization, not a passion project or an add-on. If a DEI team always struggles to get the necessary stakeholder support they need for success, then ultimately the projects of the DEI team will not be successful because they are not recognized as important by the organization.
How much does this cost? Stakeholders will likely support on DEI projects as needed and this can vary in time from a few hours a week to longer stretches of time, depending on the project.
And what about the work of Employee Resource Group organizers? How to account for this? Many organizations consider this purely volunteer work (to be done in employees’ “free time”). But it’s clear that this work greatly contributes to the culture of the company. Often times organizations use the work of their ERGs to externally communicate how they value DEI. So it’s absolutely obvious that this ERG work should be properly recognized as WORK.
How much does this cost? It’s reasonable to allow ERG organizers to spend 5–10% of their working time in support of their network. Many organizations have similar policies for research projects or learning and development. Acknowledging ERG work in the same way is appropriate. This has a practical cost because if there are several ERG organizers within one team, it may make sense to add an additional role in the team to cover the same amount of work or adjust targets in an equitable way. This blog explores all the ways you can acknowledge and reward the work of ERG organizers.
Process Changes
This is a big one: the cost of changing internal processes. The work of a DEI team often focuses on creating positive change in the organization. This could include developing new processes to remove bias in hiring or promotion processes. It could include new processes for establishing governance bodies or committees (to make sure they are diverse). It could include introducing inclusive language as a standard in the organization. Developing these processes is step 1. Actually implementing them and ensuring compliance is step 2 through ∞.
For example the DEI team develops a HR Diversity Recruiting Checklist to support better, less biased decision making during the hiring process, ideally to result in more diversity in new hires. But simply developing the checklist is just step 1. The crucial part becomes making sure all hiring managers use the checklist by tracking its use and then further developing it based on feedback.
What does this cost? Using the above example: to ensure adoption you will need top down communication to show that this new process is necessary and required. This has a cost because it requires buy-in and visibility from senior leaders. Once the new process is adopted, it will probably result in slower hiring because of additional steps. This will be expensive in terms of productivity for a team that wants to grow rapidly. It could also result in increasing salaries to attract diverse talent or considering a new approach such as an apprentice program.
If your organization is not willing to accept the cost of putting new processes in place, it’s incredibly difficult to actually make change. As mentioned above, without champions high up in the organization that role model the new processes and encourage adoption, it’s impossible to put them in place.
Budget
Now back to the question people always want to know: how big should your DEI budget be? This is difficult to answer and it can vary drastically. When estimating your own budget, first start with your strategy. If you don’t yet have a strategy, then stop thinking about budgets and take the time to create one. Once your strategy is created and aligned with the executive team, your budget estimates should be linked directly to programs that are in your strategy. It should also be clear what impact or outcome you are trying to achieve with each expense.
There is a ton of variability in DEI budgets (depending on organization size, industry and location). It’s difficult to say what a “typical” budget is. For example tech companies will likely spend much more on DEI because they have a bigger challenge recruiting in such a male-dominated field and are often combatting toxic work environments. But we can make some general estimates. “A recent study released by the Society of Human Resource Management (SHRM) reported diversity-department budgets at Fortune 1000 companies average around $1.5 million per year. The range for diversity department budgets was $30,000 to $5.1 million. When diversity was housed in Human Resources, the average annual diversity budget was $239,000” (source).
Fortune 1000 companies have an average workforce of 34,000 and average revenue of 15 Billion. So they are quite a bit larger than the companies probably trying to figure out what their (first) DEI budget should be. For organizations with 2,000–10,000 employees who are just beginning their DEI journey, I’d estimate a budget of somewhere between 50k and 300k. Here’s a rough distribution of such a budget among workstreams:
Support of Employee Resource Groups: 10–30k
Training (unconscious bias, anti-racism, inclusive leadership): 30–150k
Recruiting and Branding: 10–30k
Other DEI Programing (including external consulting): 10–30k
Partnerships or sponsorships: 5–50k
Budget costs will greatly depend on whether you are managing projects internally (such as developing an inclusive leadership training program in-house) or are working with external consultants which can have very high price tags (5k daily rate for instance).
It’s very clear to me that DEI within a for-profit organization should not be asked to function with ZERO budget. And in some ways, the amount of budget allocated is an indication to how important the organization perceives the topic. But with that said, do not be discouraged if your organization has only a small budget for DEI (let’s say 25k per year). More money does not always equal more impact. A lot can be achieved with a combination of leadership buy-in and willingness across the organization to prioritize DEI. Managing a smaller budget simply boils down to strategically allocating money to projects that have the most impact.
Final thoughts
DEI teams may think that a big budget is how they will achieve their goals. But practically, the other elements discussed in this blog are more critical for success. If you have a limited amount of leverage or social capital to use to advocate for DEI resources within your organization, it’s better to focus on staffing, recruiting executive champions, getting key stakeholders on board and getting buy-in for process changes.
Those structural and organizational advantages will put you in a much better spot than if you were to instead only advocate for a large budget.
