Assessment tools are increasingly being used by organizations to evaluate their employees’ knowledge and skills, interests, values, personality, work ethic and work styles to ensure a proper fit not only in a particular job role but also within the organization’s culture. But how can you be sure assessments will be useful and cost-effective for your organization?

Companies can measure the Return on Investment (ROI) of employee assessments in many different ways, but the basic formula for any organization is relatively simple:

ROI (Percentage) = (Total Benefits - Total Costs) x 100 / Total Costs, where

Total Benefits include money saved by the company, capital generated, and everything else that adds to the bottom line, both directly and indirectly. For example, if the use of assessments during the hiring process reduces turnover, savings would include the cost of replacing an employee (potentially up to 150% of their annual wages) multiplied by the number of bad hires avoided.

Total Costs include development costs, loss of work time, materials required, administration and coordination costs, promotion costs, meals/ refreshments, and cost of job coverage. Online courses will include certain additional costs like pre-production, graphics, servers, post-production, web development costs. When using online assessment tools, these costs could be as low as a few hundred dollars or less per employee.

In order to calculate the monetary Return on Investment, you need to identify all the various financial benefits your organization is drawing for the use of the assessment tools, and then subtract the total investment required for developing, producing and delivering the assessment program.

Initially, you may find it difficult to quantify each and every element associated with the process, particularly when you first begin using assessments. Once you do, however, you can easily check the total benefit you are getting from the use of the assessment tools on a regular basis. The savings is often quite substantial.

Assessment tools can be used for both hiring and developing employees. These tools can cut down on mistakes made during the hiring process and keep current employees engaged in their roles. When mis-hires occur or employees fail to live up to their potential, everyone suffers. The employee has to leave the organization and start their job search all over again and the organization must begin the costly process of replacing the employee.

The good news is that assessments can significantly increase your odds of making the correct hiring decisions. Assessments add valuable information about a person’s strengths and weaknesses that is not likely to be gained by any other selection tools.

Many of today’s assessments are easy to implement and very cost effective. In fact, assessments have been shown to more than pay for themselves and give your organization a leg up on the competition by consistently hiring top quality people who are likely to be successful working for your organization.

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Filed under: Employee Selection • Human Resources • Organizational Development

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