10 facts about the ROI of your performance management cycle

What's the financial gain from better performance management? When is the right time to put in place a 360-degree feedback process? What's the downside of an annual staff appraisal? Is a lack of feedback killing staff turnover? Let's start with the facts.

Fact 1 - Everybody benefits from good feedback

Every employee, junior or senior, benefits from getting quality, timely feedback.

Getting quality, timely feedback from those we trust and respect drives career development.

Without regular, helpful feedback -- we are working in a vacuum.

Without regular, helpful feedback -- communication, work quality and relationships suffer.

Fact 2 - Good performance management programmes are built on good feedback processes

Good businesses are built on good teams.

Communication within a good team is efficient and effective.

Good communicators know how, when and why to give feedback.

Good HR Leaders give teams the tools to do feedback in a way that motivates and amplifies.

Uncertainty is a terrible place for a person to be.

When feedback is done often and well, nobody is uncertain about their performance.

Fact 3 - The more people you have, the more costly a bad feedback process is

Salaries and bonuses make up 60-80% of P&Ls.

People are the single biggest investment a company makes.

The more people you have on the books, the more ￡/$/€ at stake.

If you spent ￡1 million on a piece of machinery, you'd monitor and fine-tune it so that it performs as good as possible as often as possible.

Would you spend ￡1 million p.a. on people, then leave them be without regular fine-tuning from the team?

Fact 4 - The longer you wait to put in place a good feedback process, the more your business suffers

Without a good feedback process, you accumulate what Ben Horowitz calls "Management Debt".

Management Debt is like Technical Debt: The longer you leave it, the nastier the clean-up will be.

But unlike Technical Debt, Management Debt affects everyone, not just developers.

And a bad relationship is harder to fix than a bad piece of code.

When Management Debt gets too high, good employees wonder why they're not getting recognised and developed.

Good, emotionally intelligent employees wonder why their culture isn't people first.

Fact 5 - Some employees will leave you soon because they're no longer engaged

Regardless of your Management Debt, around 13% of employees resign voluntarily every year.

Why do they leave?

Remuneration aside, it's because:

1. They're not getting the career development they need
2. They're not getting recognised for their work
3. They don't get along well with their manager

Fact 6 - Every employee resignation costs you

The cost to the business of losing a junior employee is around 6-9 months of salary.

The cost of losing a senior employee is around two years of salary.

Why so high?

1. It costs money and time to hire someone new
2. It costs money and time to onboard and train someone new
3. It takes 1-2 years for the newbie to be as productive as the oldie
4. For those that lost a friend, lower morale = lower productivity

(Sources = Society for Human Resource Management, Deloitte/ Josh Bersin.)

Fact 7 - You can decrease turnover by increasing feedback

Employees stay longer when they receive quality, timely feedback.

24% of employees think about quitting because their manager provides inadequate performance feedback.

Companies that do regular strengths-based feedback have ~15% lower staff turnover.

The easiest way to give everyone better feedback more often is to make it easier for everyone to give feedback.

The easiest way to do that is by having a simple, intuitive feedback platform.

Fact 8 - The ROI from increasing feedback is at least 8x

Let's say you pay your junior staff ￡30,000 and your seniors ￡50,000 on average.

Per Fact 6 -- the economic cost of losing the junior person is ~￡15,000 and the senior leader is ~￡100,000.

Let's say you have 50 employees.

The annual cost of having year-round feedback software like Howamigoing is ￡3 per employee per month, or ￡1,800 p.a.

For each junior that doesn't quit because of better feedback and communication, you've avoided a ￡15,000 loss. That's a return on investment of 8.3x (￡15,000 / ￡1,800).

For each leader that doesn't quit because of better feedback and communication, you've avoided a ￡100,000 loss. That's a return on investment of 56x (￡100,000 / ￡1,800).

Fact 9 - You can tangibly improve your feedback process in 30 days

It took 2x 45-minute calls to help Metro Bank run a strengths-based 360 feedback process in two of their West London branches in October 2019.

One month later, when we surveyed employees that received feedback, this is what they said:

In July we helped set up a 360-feedback process for the senior leadership team at Motivation.

Motivation is an inspiring INGO transforming the lives of people with mobility disabilities in low and middle-income countries.

4 weeks after our first call with the CEO of Motivation, we were proud to say that:

Want to see the best-practice questions used at Motivation and Metro Bank? Message me.

Fact 10 - By investing in better feedback software, you have a competitive advantage

In 2020, most companies are wasting time and money trying to do feedback by hand.

In June Howamigoing surveyed 500 people employed in small businesses in the UK:

• 91% of people thought their company’s performance management process could be better
• 70% of companies require a PA or HR representative to collect feedback via email, Word or Excel
• 40% felt that the feedback they receive is unhelpful and of low quality
• 38% felt that they don’t receive enough feedback

The takeaway from this data? Those with better feedback processes are better businesses in the eyes of employees.

At a cost of ￡3 per employee per month and an ROI of at least 8x, purchasing beautiful feedback software is more like taking out an insurance policy against too much Management Debt rather than investing in heavy machinery.

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That's all for this month's edition of Make Feedback Great Again!

Do you manage your company's employee productivity or learning & development budget? Please share your feedback and thoughts in the comments below :)

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About the author

Julian is the Co-Founder and CEO of Howamigoing, a software company that helps people in small businesses get better feedback more often. Howamigoing was recently voted #21 in the 2020 UK Top 100 Startups and a Top 10 HR Tech Solution Provider in Europe for 2019. Julian previously worked in Mergers and Acquisitions at Goldman Sachs and J.P. Morgan, and he served as a fundraising committee member for the Victor Chang Cardiac Research Institute. Julian is an Aussie living in London, passionate about friends, feedback, food, wine, improv, comedy and science. You can connect with him directly here.