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Have Trouble Calculating The ROI Of Your Performance Management?

9 December, 2021
4 mins

If you think that creating a robust performance management system is the toughest part, hold on, there’s more. Calculating the ROI of the performance management is where CEOs remain on the back foot for years. An overwhelming amount of research goes into calculating the ROI of your performance management; thus, we have decided to lighten a little burden of yours by providing you with the ultimate guide through this blog.

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Performance Management is CRUCIAL

We have said multiple times that in order to succeed, your performance management system needs to be future-proof and full-fledged, aligning with your company’s mission and vision. As we have approached the modern way of doing business, traditional performance management techniques have become a thing of the past. Performance management is a key business process that ensures that team efforts conjoin into the organization’s common goals. The process that ensures that outputs and activities meet an organization’s goals effectively makes performance management more necessary for the changing business landscape. And, as a business leader, you know the values of assets and resources that go into making performance management leave a positive impact on business outcomes.

Now, if you’re still not sure why performance management is asking for a revamp, here are some stats to stick by. 

• As per HBR, 65% of employees of any organization want more feedback.

• A survey by Gallup found that 98% of employees fail to be engaged when managers give little or no feedback.

• Another Survey by Gallup claims that Disengaged employees have 37% higher absenteeism, 18% lower productivity, followed by 15% lower profitability.

All these stats are enough to establish the importance of Performance management as one of the indispensable pillars of modern businesses. However, performance management processes cost time and money. Thus, it needs to have a high ROI for it to be worth it. A survey by Gallup says that performance reviews cost companies with 10,000 employees between $2.4 million to $35 million per year whereas, another study by Gallup found that only 14% of employees admit that reviews inspire them to improve their performance. Thus, to fill this stark gap between the two, you need to first analyze what works best for your organization in order to reboot your performance management system in a way that gives the maximum ROI. For this, we have opened the playbook below consisting of the parameters you should capture in order to calculate the ROI on your Performance management.

• Are you spending a lot of time during Performance Reviews? 

This is for you to answer at the very beginning; if yes, then try and save some time on your performance reviews. A study reveals that managers spend 210 hours a year on performance management, and employees spend 40 hours per year. This makes the process monotonous and slightly ineffective. As a CEO, you should understand that time is money, and great performance management (that takes less time) can streamline the administrative hassle, make employees work more productively, and make things easier on the managerial front as well. 

The best practice, in this case, is automating the performance management process by taking things over a platform that helps leaders reduce their time-consuming and administrating tasks

• Your employees are not Engaged Enough

Unengaged employees are the biggest red flag that no company can afford to overlook. If your employees are not engaged, you’ll end up spending more than anticipated on your performance management- resulting in less ROI. A survey by Gallup in the American Workplace report found that disengagement of employees costs $3,400 for every $10,000 of salary. Thus, in order to calculate the ROI, and increase it substantially, make your employees engaged at the workplace. Conduct Pulse Surveys and take note of what makes them motivated, proactive, and productive at the workplace. Moreover, conduct surveys to know how your employees feel about the overall management system. 

• Are your employees getting proper Feedback?

Employees love to receive feedback, both negative and positive, because they believe that feedback helps them grow. Even if it’s verbal feedback, employees take it as a push to grow further. Even saying “good job” can work pretty well. In addition to this, kudos given publicly by the top-level managers will act as a big positive. Feedback, both continuous and constructive, motivates employees to perform to the best of their capacity. 

• Usage of Performance Management: 

A major aspect that C-suite executives can’t overlook while calculating the ROI for their performance management is the usage and adoption. If your performance management platform is easily accessible and the employees like the software, they will use it no matter what. 

• Increased Employee Retention: 

Rapid employee turnover is one of the costliest things that companies face over a year. In order to maximize your ROI of employee performance management, you need to pay close attention to the retention rate. Rapidly increasing turnover rate is any company’s worst nightmare. Research by SHRM reveals the turnover cost for companies can go as high as 50% to 60%, with overall costs of somewhere around 90% to 200%. At the same time, the suggested cost of replacing an employee should be only 21% of their annual salary

Thus, in order to maximize the ROI on your performance management, it’s important that people have a clear idea of what their managers expect and how their contribution will help in their career growth. When these parameters are clear, employees are more likely to stick around for a longer period of time. By effectively deploying people in the areas where they are needed the most, managers can easily demonstrate the ROI of the performance management software