Quantifying Employee Performance Management — It’s Tougher Than You Think

Zach Thomas By Zach Thomas

As you may, or may not, know Forrester has one of the most rigorous Total Economic Impact (TEI) – or ROI methodologies out there. "The ROI Of Packaged Apps Instance Consolidation" and "The ROI Of Interactive Chat" are a couple of completed TEI reports (you need client access to view these reports) and below is a graphical representation from the second report, to give you a flavor.


So, I decided to create a TEI model for employee performance management. I thought it would be pretty straightforward and valuable to clients who are looking to better manage performance, identify top and bottom performers, implement pay-for-performance, etc. — especially in this economy.

Over the last couple of months we have been speaking with numerous software vendors, consultancies, and organizations about this very issue. Sure, it was easy to quantify efficiency-based cost savings like easier reporting, time savings for managers and employees, etc. But how about these? (And remember, you have to show verifiable, measurable dollar savings directly linked to employee performance management):

  • Increased retention
  • Increased employee engagement
  • Increased productivity due to competency alignment with job requirements
  • Reduced time to productivity in new roles/projects
  • Visibility into your bench strengths
  • Visibility into goal attainment
  • Competencies aligned with job requirements

These are just a few examples of the benefits that neither vendors, clients, nor consultancies could quantify to my satisfaction. Anyone have suggestions on how to quantify these?


re: Quantifying Employee Performance Management — It’s Tougher

Zach, you certainly have asked a tough one!When assessing the performance of any process or the impact of changes to that process, I always use 3 buckets: Cost, Quality and Cycle Time. The efficiency-based savings you mention are usually pretty easy to quantify through reduced cost and/or reduced cycle times. The Quality improvements may or may not be able to be linked to directly to measurable dollar savings, but are just as important.Let me give some thoughts on each item on your list:Increased retention - obviously there are many things that impact retention. Perhaps the only way to quantify EPM's impact is by surveying employees with different tenure and asking them how much the way their performance is managed contributes to them staying with the company. Averages and trends over time can validate EPM's impact on retention and determine its share of any retention gains... or declines.Increased employee engagement - I'm not an expert, but I think it is still difficult to tie employee engagement to specific results and equally difficult to determine the impact of EPM on employee engagement. I put this in the "leap of faith" category... certainly an EPM process with clear understanding of impact on company results, performance measures and expectations, along with frequent performance discussions contributes to employee engagement.Increased productivity due to competency alignment with job requirements, Reduced time to productivity in new roles/projects, Competencies aligned with job requirements - assuming that there are current metrics on how long it takes employees to reach average productivity levels, say in a call center environment for example, and then the impact of competency alignment could be measured. Pre-employment competency screening results or evaluation of competencies of individual employees could be correlated with their times to reach average productivity levels. Hopefully those employees who tested higher or were evaluated higher on key competencies achieved average productivity levels quicker than those who scored lower. Also, perhaps they end up with higher productivity levels.Visibility into your bench strengths - another tough one... perhaps this impacts cycle time to fill open positions?Visibility into goal attainment - good visibility into goal attainment can impact the accuracy of each employee’s performance rating directly impacting compensation. More poor performers could save dollars in the form of reduced merit increases or bonuses, but increase costs due to lower productivity. More above average performers could cost more merit and bonus dollars, but reduce overall costs due to higher productivity. Visibility into goal attainment ensures that the right decisions can be made.Just some initial thoughts... I'm certainly interested in other views