By John O’Brien, Vice President, Employee Performance Group, BI Worldwide
“What’s our return on investment?”
If you can’t answer the question, your recognition budget could be the first thing on the chopping block when budgeting time comes around. Depending on the size of your organization, you can be spending an average of $125 to $175 per person per year on award costs and another $50 to $75 per person per year on administrative costs. For an organization with 10,000 employees, that’s an investment of up to 2.5 million dollars.
Following this simple six-step process will help you determine the ROI of your recognition program…and give you the answers you need the next time the CEO and CFO want to know what they’re getting for that kind of money.
1. Start by defining your recognition objectives. Recognition can be viewed simply as a “warm fuzzy” that is impossible to measure if you don’t first assign specific objectives for the program. In order to create a meaningful ROI, first determine what the real business need is for instituting a program.
One of the biggest mistakes you can make is to try and set too many objectives and not focus on what really matters. What are the one or two most compelling needs that you feel recognition can impact? What is leadership most concerned about? Your program may also positively impact other objectives, but if you focus on one or two, you’ll find it easier to create a defensible ROI.
2. Identify the key metrics that already exist in your organization that align to your objectives. How do you currently measure morale? Employee surveys perhaps. What about productivity or rework costs? Use measurements you already have in place. First, this gives you a baseline. Second, you don’t have to come up with a new measurement system that can be costly to implement and delay the start of your program.
As previously stated, using generally accepted, credible and existing corporate metrics or your business objective will always provide more validity to your data. Senior leadership will understand your ROI logic when you can tie it to measures they have come to rely upon and trust. New metrics can invite skeptics to challenge your information – clearly a position you don’t want to find yourself in.
3. Establish a control group. Analysts will tell you that without having a control group – those not participating in your program – your data really isn’t reliable. The ability to see change among those who use recognition and those who can’t (as opposed to those who won’t) is important. Having a credible control group is crucial to demonstrating a program’s ROI.
The control group can be a selected segment of employees who will not have an option to participate. Or, the control group can be a baseline period to use for comparison. Either way, be sure to ask leadership and your analytics teams for help in selecting and developing the control group. This adds credibility to your final ROI calculations and results.
4. Clearly define and communicate what specific behaviors you want employees to recognize each other for that can impact your one or two key objectives and metrics. Too often recognition programs offer vague advice on what to recognize. It’s common to see things like “going above and beyond” or “demonstrating our values” or “leading the way.” Employees need more specific direction. If you can’t specify actions for the entire company due to the variety of work being done, then charge your management teams with defining those things that can impact change within their departments.
Localize the program as finitely as you need to so you can measure its impact. If turnover is your number one objective, ask each department to define why they believe turnover is too high in their group. Of course you’ll get responses about poor pay and bad benefits, but help lead the discussion beyond those reasons.
5. Set realistic expectations when defining a measurement schedule. Recognition programs can take a long time to get going in a company. Some departments will get on board right away and in others you’ll be herding cats. It’s natural to want to have “great numbers” to share with management on a frequent basis. You should reasonably expect not to see any significant change for at least six months against your key metrics and it could be as much as 36 months.
It’s important to measure the tactical components to help identify if there are areas of the program that may require attention. You may discover that certain departments aren’t participating at all while others are very active. Use this data to see what you can learn from the active groups to develop communications and training initiatives to help get non- or low participating groups to get engaged.
6. Calculate all your program costs to protect the validity of your data. In addition to awards costs and the administrative and communication fees you pay to your recognition vendor, you likely have other labor and materials costs that you are absorbing within your budget. Your staff is training managers, running kick-off meetings, fielding questions, making presentations, traveling to other sites and so on. While including these costs will lower your ROI, it will increase your credibility when management understands that you are being completely transparent.
Be conservative when reporting your ROI to senior leadership. Consider reducing your ROI by a percentage factor such as 30, 40 or 50 percent. Remember, other things going on in the company likely had some impact on the metric too. For example, if you can demonstrate a positive ROI by only claiming 50 percent of it is directly related to your program, you are sure to have more credibility with leadership.
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