Being able to show the return on investment (ROI) for an incentive program demonstrates accountability for the expenditure, protects the current budget and makes it easier for an HR professional to ask for more.
If HR can go to the C-suite and confidently state the recognition solution is increasing the bottom line, as well as company morale, it will most likely obtain full support for ongoing recognition.
Making that happen is harder than it sounds, but that’s no reason not to complete an assessment.
“To start, you need to be clear about the objectives of your recognition solution so you know what it is that you are measuring,” says Suzanne Schell, president of the ROI Institute Canada in Ottawa.
That means reviewing the current objectives of the recognition solution and determining what business measures it will impact. And be specific — if increasing retention and decreasing turnover are impact objectives of the program, set a goal and a time frame.
Then, ensure the recognition solution aims to fulfill this particular objective. An ROI assessment will determine just how much the recognition solution helped in this regard.
Data for an ROI assessment is collected at the beginning of the process from baseline data. It’s very important to set clear objectives and measure the current state of affairs accurately, so the subsequent measurements are valid.
The more detailed the data collection, the better the assessment will be. If employee turnover is the issue, all expenses directly and indirectly related to the loss and replacement of the employee must be included in the costs column. This would include:
• advertising or employment agency costs
• lost productivity
• onboarding costs
• potential loss of business
• poor customer service
• customer perceptions.
Then, move to diagnosing the causes of the turnover, exploring the range of solutions, matching the solutions to the needs, forecasting the value of the solutions, calculating the ROI for the retention solution and making adjustments to the solution based on what has been learned from the process.
The impact from other influences should be isolated, where possible. Biases must be kept in check — organizations may want to consider using an external facilitator or assessor. A team discussion about other influences, positive or negative, that impacted the outcome must be done before the final ROI calculation, and be credited or debited. In this way, there is more credibility and validity to the analysis. In the end, the ROI calculates the net solution benefits over the solution cost.
Some programs are considered to be a success if they break even. Some programs yield a much higher ROI. The most difficult part of the process is dealing with the intangible benefits of a recognition program. These are not always easily converted to a monetary value, as they are often too subjective and considered less credible. However, outcomes such as increased job satisfaction, improved customer service and improved teamwork and positive attitudes often have as much influence in the workplace as hard data.
6 data points that show success
There are six types of data to show the success of programs, according to the 2010 book Proving the Value of HR: How and Why to Measure ROI by Jack Phillips and Patricia Phillips:
• reaction, satisfaction and planned actions
• the acquisition of knowledge and skills, as well as changes in perceptions and attitudes
• success with application and implementation
• actual business impact measured in cost savings, productivity improvements and time reductions
• the return on investment, showing the monetary benefits versus costs
• intangible benefits, such as employee satisfaction and teamwork.
Reasons for calculating ROI
How can HR know if the organization should be calculating ROI? According to the ROI Institute, the assessment should be done if the workplace:
• conducts a wide variety of training or performance improvement programs
• has large budgets for these programs
• has a culture of measurement
• is focused on establishing measures
• is undergoing significant change
• wants to determine why there is a low investment in activity
• has had programs that were failures
• has new training or performance management programs
• wants to improve the results of programs
• wants to evaluate for change
• wants to show bottom-line results
• wants to establish a permanent budget for recognition or other programs
• wants to increase the budget for a program.
Evaluating results is an integral part of any program. How else will you know how to augment the solution so it keeps adding value?
The use of ROI evaluation is becoming more prevalent and there are many examples of ROI applications at all kinds of organizations. These evaluations can be used to determine success, prioritize resources, enhance accountability, identify strengths and weaknesses, consider cost and benefits, determine who should participate in the program, test validity, identify specific success stories, reinforce use of the program, improve quality, assist in marketing, determine the appropriateness of the solution and establish a database to assist in decision-making for the future.
Rick Clarke is an ROI consultant and president of ADMIRE Recognition Solutions, which is owned by R&D Corporate Services. He can be reached at (888) 752-2238 ext. 222 or email@example.com. For more information, visit www.admireme.ca.