Return on Investment is a widely used term - often needed in the presentation of the business case or in a post-implementation review.
In a recent article on Personnel Today, Head Light's Managing Director, Ian Lee-Emery explores how organisations can demonstrate the financial return on investment in effective performance management.
Intuitively, we know that performance management can benefit individuals and the organisation. But too often it does not. Part of the problem might be that different people have different views on the real purpose of performance management. Team members may use it as an excuse to look for a pay rise; managers may see it as a chance to deal with poor performance; and business leaders may promote it in order to reassure themselves that everyone understands and supports the business objectives.
We think that calculating the return on investment that can be achieved by implementing best practice performance management is not as difficult as is often thought.
We believe that while all organisations may be different, they do have one thing in common: people create value in teams led by a manager - and we suggest starting by quantifying that value. The article takes you through how to do that.
We then look at the benefits accrued from introducing best practice performance management; more effective managers as coaches to their team; better goal alignment and increased employee engagement; more relevant, goal-focused conversations about performance; issues of under performance start to be addressed and more relevant development planning starts to take place.
Here is the critical question: if all of this happened, what impact would it have on the performance of each team? Could it make a 1% improvement in a team’s performance in a year? Would it, more realistically, be a 5% or even a 10% improvement?
Even with a conservative estimate of a 1% improvement in each team’s performance, this could equate to great net productivity improvements - just by introducing a few small behavioural changes.
Calculating the return on investment that your organisation can gain from best practice performance management not only gives you a baseline of where you are, it helps you create an informed business case. Armed with this, you can convince business leaders of the need to establish performance management as a priority in your organisation and you can explain to managers and employees exactly what is in it for them.