Quantifying the Return on Your People Investment  

By Dr. Jeff Facteau and Dr. Jay Janovics

What if you had the opportunity to streamline your company’s talent acquisition process and at the same time substantially improve quality of hire? “Sounds promising,” you might say. What if you could also demonstrate cost savings, productivity gains, or a measureable return on your investment? “Then I’d be a hero!” you might exclaim, imagining your executives lavishing you with praise and promotions.

Many companies are doing exactly this by implementing assessment tools in their recruiting and hiring processes, and then quantifying the impact on measurable outcomes like retention, sales revenue, productivity, and quality. Assessments can take on a variety of forms, including ability tests, personality and biographical inventories, simulations, and knowledge or skills tests. Regardless of the type of assessment, it is possible to quantify their value by linking candidates’ scores to the outcomes the organization values and is trying to affect.

Consider the example of a broadband communications company that integrated assessments into its hiring process for Customer Service Representatives (CSRs). They found that CSRs who scored high on the assessment resolved inbound service calls more quickly (about 20 seconds) and upsold about one dollar more per call than their lower scoring counterparts. Neither 20 seconds nor one dollar may seem all that impressive to you. But when the company extrapolated these results out across a full year, they concluded that these differences translated into nearly $18,000 per agent per year. With assessments costing only $20 to $30 per candidate and with 4 to 5 candidates being considered for each of several hundred openings per year, this is a significant ROI for the company.

Many people are skeptical about the value of assessments in recruiting and employee selection, and we actually think this is quite natural. Industrial and Organizational (IO) Psychologists have long known about the utility of pre-employment tests. For example, Frank Schmidt and John Hunter conducted an exhaustive review of available research on the predictive power of pre-employment tests. They found substantial evidence that ability tests, personality inventories, work samples, integrity tests and other types of assessments effectively predict job performance in a variety of roles. With findings like these, you would think that every organization would be making a mad dash to implement assessments. However, the potential value of assessments is seldom translated into the terms that influence decision makers who hold the purse strings: increased sales, reduced attrition, efficiency gains, or return on investment.

So how does one translate the value of assessments into something tangible and persuasive to business stakeholders? To set the stage for success, you have to know what characteristics to assess (e.g., skills, abilities, personality characteristics) and how best to assess them (e.g., tests, inventories, simulations, interviews), implement the assessments effectively, and follow through on an evaluation strategy for demonstrating the value of the assessment program.

Step 1: Select the right assessments

Start with an examination of the job. How is success defined and measured? What personal characteristics (skills, abilities, knowledge, and personality traits) promote the behaviors that lead to success in terms of these outcomes and metrics? Consider as well the strategic direction of the organization and how planned or anticipated changes will influence what is expected of employees in the role and how success is defined or measured. Designing your assessment program with the future in mind will help ensure that you evaluate candidates for the job demands of today and tomorrow rather than yesterday.

There are a variety of characteristics that predict performance in different roles. Note that the in different roles part of that sentence is really important. Few characteristics predict performance across all jobs. Confidence and an ability to influence others, for example, are important in sales roles. Emotional resilience is important in roles where customers can be demanding (e.g., customer service roles) or where it is critical for one to keep a cool head in an emergency (e.g., pilots, ER nurses). Conscientiousness – the tendency to be reliable, dependable, rule-abiding, and careful - is important in many entry-level roles, but much less so for artists or graphic designers who need to be creative and original in their work. Knowing which characteristics contribute to effective performance in your roles will help you choose the right assessment tools for evaluating candidates’ potential for success.

Once you know which characteristics are important to assess, your next move is to choose the right assessment tools. Keep in mind that not all assessments are created equal. Some are appropriate for use in employee selection, but others are primarily designed for use in self-development, self-discovery, or even just for entertainment. The options can be dizzying—for instance, an online search of “personality test” yielded nearly 7.9 million hits. In order to select assessment tools that will produce ROI, it’s essential to make sure that they have been well developed by testing professionals (often those with advanced training in psychology), and are supported by documentation that describes their development, use, and validity.

Step 2: Use assessments consistently

Few things are more frustrating than carefully choosing a set of assessments, taking the time to plan an evaluation strategy, and waiting for data to accumulate so that you can quantify impact, only to find that segments of your organization are not actually using the assessments properly or consistently. As you implement an assessment program, communication with key stakeholders is critical to build their buy-in and commitment to using the new tools. For example, recruiters need to know how to administer the assessments and how doing so will make their jobs easier. Hiring managers are more likely to integrate assessment results in their decisions about candidates if they understand how those results can help them make a better hire. Therefore, as you prepare to implement, train users, communicate to stakeholders, and then communicate some more. If this seems a bit daunting, fear not. A good assessment partner will have substantial implementation experience and will be ready to help guide you through the process.

You also should develop a plan for monitoring compliance with the assessment program. This is really the only way to know that the assessments are being used consistently. How many assessments have been administered? Do all candidates have assessment scores on file? How many candidates were hired who should not have been hired based on their assessment scores? By monitoring information that provides answers to these questions, you can ensure that candidates are being treated consistently and fairly, and that you’ll have the information that will be needed to evaluate the impact of the assessment program.

Step 3: Evaluate impact on the outcomes that matter

It is possible to demonstrate, with data, that assessments help drive important outcomes like productivity, sales, efficiency, and customer satisfaction. It’s important to keep a few things in mind when doing so. First, focus on what matters most. For some roles, there literally may be dozens of metrics that are used to measure success. Sales jobs and contact center roles are just two examples. However, just because something is measured doesn’t mean it is important to your business leaders. Work with your business partners to understand the outcomes (and metrics) that matter most to them. Ask them, “If we wanted to demonstrate to you that our assessment tools drive employee outcomes that matter to you, what metrics should we focus on?” Target your evaluation strategy on the metrics they identify as most influential. After all, a small impact on a critical outcome or metric can be much more influential for winning their support for the assessment program (and budget) than a large impact on an outdated or unimportant metric. Many have made the mistake of assuming they know what business leaders cares about—only to show an impact on a performance metric that leaders don’t understand, no longer use, or don’t care about. Ask them.

Second, consider what outcomes or metrics are available that can be expressed in or tied to actual dollars. Any true return-on-investment calculation requires financial inputs. The good news is that many types of non-financial outcomes can be translated into dollar terms. Consider, for example, the cost savings associated with reducing attrition, avoiding costly mistakes, lowering accident rates, etc. One organization recently found that assessing and hiring broadband technicians with stronger problem solving ability would result in a 25% reduction in trouble call rates—because they could more effectively install services on their first visit and avoid costly “trouble calls.” Over the entire technician workforce, this translates into thousands fewer trouble calls per year, saving the company nearly $1.5 million annually in trouble call expenses alone. Other organizations have realized enormous savings following reductions in employee attrition. One call center operation recently found that candidates who scored higher on an assessment had a 29% lower attrition rate. The company calculated that this reduction was worth several million dollars per year in reduced replacement and training costs, as well as lost opportunities.

Show me the money!

EMBARQ implemented an assessment process to evaluate whether applicants for customer service roles possessed the qualities necessary for success on the job (see sidebar). The program had a significant impact on CSR retention, productivity, and efficiency – metrics that mattered to business leaders. This is but one example of how organizations can quantify the impact of pre-employment assessment tools on their businesses. Here are some others:

• In a financial services call center, collections agents who had earned higher scores on a pre-employment assessment collected on average over $10,900 more per month than lower scorers; over the course of the year, 100 high-scoring employees would generate nearly $13.1 million more collections revenue than 100 low-scorers
• By using an assessment to systematically identify more promising candidates for a sales associate position, one retail chain estimated an annual increase in sales of $25 million across the entire workforce
• A retail automotive parts chain found that the average level of store employees’ parts knowledge—as measured by a parts knowledge test—was associated with store-level financial performance. Based on this link, the organization estimated that an improvement of 10 percentage points on average knowledge test scores would result in an increase of over $84 million in sales across the organization.

Assessments do work. They can drive measurable improvements in the key outcomes that matter most to operational and business leaders. But it isn’t just that assessments work. Rather, assessment tools that are chosen carefully and implemented effectively drive ROI. Implementing the right assessments in the right places can help you put the right people in the right places and achieve the outcomes that matter. And, a thoughtful, sensible evaluation strategy will help you quantify the return on your people investment.

About the Authors

Dr. Jeff Facteau - Director of Consulting and Optimization Services, PreVisor - Specializes in employee selection science and validation research, has published original research in top tier journals and presented findings at national conferences. He also manages PreVisor’s Optimization Services team which is dedicated to demonstrating the realized business impact of PreVisor solutions.

Dr. Jay Janovics - Manager of Optimization Services, Professional Services, PreVisor - leads a team of I-O psychologists dedicated to conducting validation and business outcome studies to demonstrate the business impact of PreVisor assessment solutions.

How we saved the company $233 for every $1 spent on assessment

By Michael Blair and Kris Fritsche

EMBARQ serves the total communication needs of our customers through wireless, local and long distance phone services, data and high speed Internet connections, and entertainment access.

The company consists of approximately 16,500 employees serving over 4.5 million households and 500,000 businesses in eighteen states.

Broad Use of Assessments
After laying the groundwork for the use of talent measurement from scratch almost two years ago, EMBARQ now uses assessments for over 60% of hires. Positions covered include Customer Care and Sales in call centers, retail outlets, and business operations; Work-at-home positions for customer care and technical support; Installation & repair technicians (a Union employee base); Professional sales positions supporting small, medium and large business; and as of Q1, 2009, Front-line supervisors & managers.

In order to get the results we’re looking for, we use a number of assessments depending on position requirements. Our process employs Web-based screening and selection measures in both proctored and unproctored settings. Tests can include biodata, personality, job preferences, interpersonal communication, problem solving, decision-making, coaching, leadership, accountability, dependability, customer focus, sales, etc. We also use role plays and structured interviews via teleconference and face-to-face.

Make the ROI of Assessments Real
In order to make the ROI of talent measurement real and impactful, you need the buy-in of the Business Unit leaders. We found that you need to work with these leaders to identify ROI measures so it is something they own. For example, to show that turnover translates into lost revenue we asked the Business Unit leaders to share with us how they quantify the actual dollar figure. We then used these figures to calculate the ROI of assessments in reducing turnover and the leaders were able to run the numbers themselves to confirm the results.

In the past, HR has tended to use a benchmark number or a simplified formula that is not specific and doesn’t mean much to the business units. “Average cost per hire” doesn’t really translate well to the bottom line. Our best advice is to keep your talent measurement simple and put results in dollar figures. Make sure your success metrics are important - and the BU acknowledges it.

Here’s one very specific case where we showed impressive hard-dollar results.

ROI for Consumer Solutions Reps

• Turnover reduced by 240 employees (est.) = $3.72M
• Sales increase for high band hires (est.) = $19.3M
• Decrease in Average Hold Time (est.) = $1.58M
• Assessment costs = $105,000
• Total ROI (revenue & savings - cost) = $24.5M
• ROI per assessment dollar = $233.33 (per dollar spent)

Assessments Benefit All
Overall there are many benefits derived from using assessments throughout the organization, for both the HR group and the business units. Make sure your BU leaders know these benefits impact them.

• Hiring effectiveness and efficiency
• Consistency in hiring practices
• Foster diversity in hiring
• Higher performance
• Lower turnover
• Lower cost per hire
• Measurable ROI
• HR as a strategic partner

Speak Business-ese
From the beginning to the end, building a partnership with the business unit leaders is the key. Involve them up front, listen to them, pilot the new program, let them have input, and make changes. We dive into their world, we learn their language, and we talk to them like they talk to each other. We don’t talk to them about validation, etc. Instead we tell them ‘We’ll engage your people to learn about their job and identify metrics important to their job, and then use this information to design a talent measurement process to impact these metrics.’

When we’re ready to roll out a new process, our business leaders have a very good idea of what to expect. By involving them in the process, we get their buy-in which ensures the use of new process and a positive outcome. At intervals we run optimization studies – and go back to the BUs to get additional fine tuning input and buy-in.

"Since incorporating our call center selection process we've seen a marked reduction in early turnover and a notable lift in sales from our new agents. I'm convinced our system is improving the quality of our hiring and promises to make a bottom-line difference", confirmed Bob Sloboda, EMBARQ Vice President.

As of October 27, 2008, the announcement was made that EMBARQ is being acquired by CenturyTel, creating one of the leading telecommunications companies in the U.S.

About the Authors
Michael Blair, MS - Selection & Assessment Program Manager, Talent Management, EMBARQ. Michael is an internal consultant focusing on recruitment, job analysis, assessment, selection, performance management, and optimizing technology in the hiring process. With a background in I-O psychology, Michael has written articles and presented at conferences on topics including innovations in assessment, Internet-based testing, assessment centers, performance evaluation, and managerial development.

Kris Fritsche, MS - Selection & Assessment Program Manager, Talent Management, EMBARQ. Kris serves as an internal consultant with a focus on job analysis, selection system design and validation, and performance management. Kris has a MS in Industrial-Organizational Psychology and has extensive personnel selection experience in both the public and private sectors.