If you purchase a piece of equipment that increases output by 50%, the return on investment (ROI) calculation seems simple. If you invest in a new marketing system that drives a 20% increase in new customers, it’s also fairly straightforward to see your ROI.
But what about initiatives tied to personality assessments?
How do we transition from framing personality assessment as part of the “soft” and “fuzzy” world of HR and organizational development into the concrete, bottom-line world of finance and real ROI?
If your organization is contemplating using personality assessments, it’s important to determine if your initiative will drive enough ROI to justify the resources and investment.
Measuring ROI for personality assessments
To calculate the ROI of personality assessments, we need to know three things:
- The cost of not having insights related to personality assessments
- The investment in the personality assessment initiative
- The business and financial results associated with success from that investment.
FYI: “Better communication” is not an adequate outcome to build a credible ROI calculation.
While personality assessments are not like capital improvements or marketing initiatives, personality assessments are the first link in a measurable, causal chain, including:
- Hiring
- Engagement
- Turnover and retention
- Customer satisfaction
- Shrinkage (theft).
These measures can, in turn, be linked to concrete outcomes with clear financial impact.
To see how we can shift from intangible to tangible ROI, let’s consider two key examples: hiring and engagement.
Hiring
To estimate the cost of a current hiring problem, it’s helpful to start by understanding what will happen if we don’t solve the underlying issues.
The biggest cost, of course, comes from simply hiring the wrong people. Some estimates put the rate of mis-hires at 46%. Given the financial cost of mis-hires together with the lost time to productivity and negative impact on team-level performance, using a Big Five personality to help identify the truly right candidates can help right the ship.
Even if you tend to hire the right people at a better rate than competing organizations, it’s important to also consider the impact of hiring delays if you don’t have the tools to identify the right candidate efficiently and effectively. Without the insights you gain from personality assessments, you might need additional interviews or more time in the evaluation. One immediate consequence is that such delays will undoubtedly lengthen your recruiting process. This increases the cost of recruiting and decreases revenue due to lost productivity in the unfilled role.
Another cost from this chain is the signal of indecision and inefficiency that delays send to the best candidates, increasing the likelihood that you’ll ultimately need to settle for “good enough” by the time you finally make an offer. Then, you must consider the negative impact on current and future team members, who need to make up for the work not getting done by the missing colleague in the meantime.
Thinking through the chain of events tied to hiring and turnover highlights both the direct and indirect costs of hiring problems, helping you see what hiring failures cost in real dollar terms. Estimates vary by organization and role, but even conservative gauges indicate a cost of 30% of annual compensation. Many companies peg the cost as high as 100% or 200% when considering the cost of recruiting.
Engagement
Another opportunity to explore the costly chain of events is employee engagement. Decades of research from Gallup indicates that engagement is correlated with a wide range of measurable outcomes, including productivity, profitability, patient safety, and absenteeism. Engagement is also perhaps the single most powerful leading indicator of employee turnover.
Definitions of engagement vary, but in basic terms, engagement is about sustained focus, voluntary effort, and a sense of purpose and connection at work. The right personality assessment can improve engagement by helping align a person’s individual personality profile with the requirements of the role. When that happens, employees are more likely to feel energized, rather than drained, as they take on daily tasks.
To support engagement through personality insight, you must first identify the traits essential for role success. For example, does the role require high levels of sociability or extended periods of independent work? Do you need someone with high levels of creativity and ideation or someone who enjoys a strong focus on practical tasks and efficiently executing established methods?
Once you have identified the critical traits, you can then compare the ideal candidate profile to your candidate’s personality assessment results. The comparisons will help you determine which candidates are likely to fit the role well and which are likely to face challenges. In addition to providing valuable candidate insights, such careful consideration also demonstrates that you care about the individualized fit between the candidate and the organization, down to the specific role and team. It also enhances team-level engagement because highly engaged top performers want to be surrounded by like minds.
Putting these two together draws a clear line from improved engagement to reduced costs, folding in both reduced turnover and increased productivity, as well as the cascading impact on team performance. The difference between fully engaged and poorly engaged is like the difference between your best and your worst employees multiplied by the number of people at your company.
Define success for your organization
Knowing what it might be costing you to not solve an organizational problem such as hiring or engagement means it’s easier to define what success looks like and how to measure it. Being clear on your target measures of change makes it easier to assess the financial impact and make a more compelling business case for your investment.
If you believe engagement and hiring outcomes will improve after introducing personality assessments, you should also expect to see meaningful changes in your engagement and hiring metrics over time.
For example, engagement can be measured with a survey that includes items such as, “My organization supports my professional development [1-10]?” A relatively simple strategy is to conduct an engagement survey just before the initiative starts and again at regular intervals (e.g., six months) after implementing the personality assessment processes. If the implementation is successful, you should expect to see a corresponding increase in engagement over time.
It’s not enough to say that people seem more engaged. To know that you have been successful, you want to prospectively define what you’ll measure.
The same holds true for hiring, where you can evaluate changes in time to fill, recruitment cycle time, 30-day/90-day retention measures, proportion of top picks hired, and, ultimately, reductions in recruiting costs.
In this process, be sure that the calculations for your ROI fit your organization. Take the time to speak with your finance people and reach an agreement about the costs associated with delayed hiring and low employee engagement. This will help you build consensus about measurements early in the process.
Now that you’ve figured out how to measure for impact, how do you ensure that your personality profile initiative delivers the results that you expect?
Set your organization up for success
Too often, results don’t align with expectations. To prevent this from happening, here are steps to ensure your personality assessment initiative drives your team and your organization forward.
- Establish clear objectives
Identify the current measurable challenges, and then define the plan that will get you to new, measurable outcomes.
- Build the right team
Enlist the help of in-house or outside experts, at least in the first phase. They will have the experience and insight to create a best-fit assessment strategy and define the plans of action to generate results.
- Select the right tool
Though we would love for every organization to fall in love with our WorkPlace Big Five Profile™, we know there are many vendors in the industry that deliver solutions at all three different levels. Be sure the platform and partner you choose can meet or exceed your expectations.
- Identify your first group
Each organization has a group of early adopters. Find that group in your organization who is feeling the pain of their existing challenges and is optimistic about seeing real results. As much as you might want to start big, we find that starting with a relatively small group gives you insight into adjustments you might make before a broader rollout. Once you demonstrate great results, getting broader buy-in will be relatively easy.
If you take the time to measure the impact of what isn’t working compared to the anticipated results of an effective solution, you’ll have a solid business case and a tangible ROI. Perhaps more importantly, you’ll have implemented processes that benefit employees by improving fit, stabilizing teams, and increasing the probability of success for individuals and the organization alike.
Want to give your team the best odds of success? Check out our tools for hiring, development, team dynamics, and leadership — validated by 40 years of research.
