Return on Investment (ROI) is that magic phrase that any service provider will coin in an attempt to justify that ‘investing’ in their product or service will result in the impact of a relevant business metric. I say this somewhat sceptically because while most HR service providers do offer tangible ROI, many are a lot harder to justify, and even tougher to extract and communicate to management in a way that elicits the response you’d be hoping for.

So why ROI? Think about it...every day you run a very similar calculation in your head whenever you go to purchase something...anything! Your morning coffee, your lunch, a new pair of jeans, a new car! You work out that by paying $X for said item, you’re getting something in return. Be it the satisfaction of an awesome coffee, feeling full from lunch, or looking super-hot in your new jeans! You personally, get something (tangible or intangible) in return for those personal purchases. Now flip over to a business environment... businesses buy products or services from other businesses because it either a) helps their business make money by doing something more effectively, or b) helps them save money by doing something more efficiently. It’s so simple, yet I’ve seen so many services providers get seriously carried away with the notion of ROI. Generally speaking the ROI sought is required to be tangible, but often intangible ROI can be just as powerful. Here are a couple of examples, and I’ll use psychometric assessments as the context, but don’t worry, this isn’t a plug!

I recently heard a Recruitment Manager from a large global retailer say they’re not exactly sure what benefit they’re getting from using assessments in the selection process. My question to that was: “Why did you implement in the first place without understanding what you’re hoping to achieve?” Psychometric assessments are one of those services that unless you have a clearly defined objective, you may as well save your time and money and come back to us when you know that objective. Otherwise the assessments are offering no value whatsoever, and therefore zero “ROI”. I’d rather have a client stop using us.

Example two: in conversations with another client about a trial we’re running, the number one thing the business is seeking is that users of the assessment find the process and reports ‘easy’ and ‘simple’. That will be the yay or nay to our trial. It’s intangible, hard to measure, but extremely powerful. No matter how strong the technical evidence is that our assessments work, or that an actual hard business metric is improved, user ‘acceptance’ will have the final veto on the trial.

All this being said, psychometric testing is still relatively easy to show ROI on a tangible metric. It all comes down to data; and psychometric tests provide plenty of that! Then you just need a mix of hard (e.g. sales figures) and soft (e.g. manager performance ratings) employee data, a skilled Organisational Psychologist and away you go. The key however, is communicating the impact or ROI in a way that is meaningful to your audience, which brings me back to my original point...know what you’re trying to achieve! As most organisations are now realising, the key to a successful HR strategy is ensuring the alignment of people and business strategies. So provided these two are aligned, communicating the ROI of any product or service you’ve engaged should be pretty straight forward.

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This blog was originally published on Onetest's HR and psychometric testing blog.

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