Show me the money Estimating the ROI of performance management
If you didn t have to calculate ROI for your email system then you shouldn t have to calculate ROI for your performance management system - it s just another part of every day business. If you absolutely must come up with some numbers though, here are a few things that might help.
Save Time and Reduce Errors Make reviews quicker and easier to complete and you immediately save time for managers and employees. HR then requires less time to coordinate reviews and wrangle review data, and the exec team can immediately access accurate data for forecasting. ROI: time saved per person * number of people * average hourly wage Efficiency and Compliance
Legally Defensible Employee Management By collecting objective, detailed performance data, you reduce the chance of legal action for undocumented decisions about compensation, termination or promotion. Not only do you save the potential costs associated with legal action, you save the time that would have been required to deal with it. ROI: (cost of legal action + cost of time lost to legal action) * chance of legal action Efficiency and Compliance
Compensation Optimization Ad-hoc decisions lead to overspending on salary and bonuses. Setting clear goals up front creates a culture where there is less obligation to pay arbitrary bonuses. Identifying stars helps focus spending on retaining key staff, instead of applying increases across the board. ROI: % reduction in salary increases + % reduction in bonus payment Efficiency and Compliance
Increased Employee Retention Reduce costs associated with losing top performers - the fewer people leaving, the less you need to spend on recruiting replacements. Data from Cornell University and Hewitt Associates suggests that losing staff costs 30-150% of annual salary in downtime and replacement costs. ROI: reduction in (good) employee churn * % of annual salary Improved Staff Engagement
Hire Right and Address Underperformance Quickly With a performance management system in place, your competencies are in your job descriptions and you hire the right people. And because you re reviewing the same competencies you hired for, it s easy to see how people measure up. If you make a hiring mistake or experience performance-related problems, you ll be able to take action before it costs you in productivity. ROI: cost of unproductive employees Improved Staff Engagement
Improved Training Spend Collect detailed information on employees skills and development needs, roll them up to organization level and you ll know where the training dollar is best spent. Organizations typically spend 2-4% of the salary budget on training, but Bersin research suggests that a clearer understanding of organizational strengths and weaknesses can help reduce the training budget by up to 20%. ROI: 20% * (2% * salary budget) Improved Staff Engagement
Workforce Goal Alignment Kaplan and Norton research suggests that less than 30% of things that people were working on actually contributed to achieving the business strategic plan. Collecting data on individual goal achievement and rolling that up to track achievement of strategic goals is a major system benefit; you can make sure employees are doing what a) they re hired to do and b) what benefits the company. ROI: increased probability of achieving strategic plan Increased Business Performance
Improved Leadership Pipeline Having your review data in one place makes it easier to find and develop your future stars. Use the data to identify areas of potential weakness (eg key skill shortages) & plan to correct them before the potential problem becomes a real headache. If you can identify future leaders and fill critical roles in advance, you ll avoid the cost of finding replacements and the risks associated with leaving strategic roles empty. ROI: savings in search fees, less risk Increased Business Performance
Increased Productivity Implement a system that s usable and makes reviews worthwhile and more employees will engage with it (and so actually use it). Use SMART objectives, transparent reviews, solid development plans and a logical rewards system to encourage engagement - which means greater productivity. ROI: a 2% increase in your average productivity = 2% total salary saving Increased Business Performance
Long-Term ROI All of the above measures deal with short to medium-term returns. But don t ignore the competitive advantage of a strong talent strategy. For many industries in the knowledge economy the really limited resource is talented people: the businesses that do the best job of attracting, managing and retaining star performers will reap the rewards. ROI: efficiency & compliance savings + improved staff engagement savings + increased business performance Cornerstone is committed to helping small to medium-sized businesses develop an engaged workforce to drive higher performance and revenue. smb.cornerstoneondemand.com North America Global HQ 1601 Cloverfield Blvd. Suite 600 South Santa Monica, CA 90404 888-365-CSOD Europe, Middle East, Africa (EMEA) 4 Coleman Street London, EC2R 5AR +44 (0) 203 700 2900 Asia Pacific Japan (APJ) Level 1, North 29 Union St. Auckland 1010 Australia: +61 (2) 8667 3178 New Zealand: +64 9 968 2133 Stay connected: 2017 Cornerstone OnDemand 888-365-CSOD