Building theBusiness Casef o r T a l e n t A s s e s s m e n t s

To get buy‐in for talent assessmentsyou have to be able to demonstrateROI. Savvy HR leaders know it'simportant to show HR's contributionto the bottom line, not just go hat‐in‐hand to the CEO.

In this guide we’ll show you the hardnumbers that demonstrate the valueassessments will bring to yourorganization, and how to build yourown business case.

Showing Value

LOWER COST PER HIRE LOWER "HIGHPOTENTIAL" TURNOVER

CUSTOMER RETENTION HIGHER PRODUCTIVITY

Companies using assessmentsreduced CPH by 3.3% year-over-year. For others, itincreased 1.3%

11% vs 18%For a company with 50 HiPosthat means hanging onto 4.5more of their future leaders

2XAssessment users had twice asmuch improvement incustomer retention year-over-year

56% vs 45%The number of employees whoexceeded expectations onperformance reviews

The Assessment Advantage

Source: Aberdeen Group

To show you how to calculate the ROIof assessments, we've createdattributes for a sample company, let'scall them Widgets 'R Us.

Our Sample Company

Number of employees: 500

Employee turnover rate: 16%

Cost-per-hire: $3,479

Customer retention rate: 70%

Profit per customer: $10,000

You can substitute your own numbersto create a more accurate estimate.

ROI of Talent Assessments

Widgets 'R UsHere's W

idgets' R

OI for u

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assessm

ents, ba

sed on the

compan

y stats 

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 last pa

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and som

e stand

ard calc

ulations 

we'll

explain 

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ing pages

That's areturn on

investment of2,269%!

Imagine puttingthat in frontof your CFO!

The calculations in the chart on the previouspage are based on the attributes of ourfictitious company and commonly-acceptedindustry calculations.

They also assume that Widgets 'R Us will hire80 people during the year and assess the topthree candidates for each role.

In the pages that follow, we'll show you thedetails so you can calculate your own ROIestimate.

Calculating Your ROI

COST OF  The cost of assessmentsvaries based on supplier,volume, and type ofpackage/arrangement. Weassumed that the companyused in our examples washiring 80 people per yearand used assessments onthree candidates for eachnew hire. The cost perassessment at this volumewas $75.

EXPLANATION CALCULATION

Calculating Assessment ROI

ASSESSMENTS

$75 x 240

(Cost per assessment) xAssessments used

If you’re comparing costs, be sure to ask about the “all­in” cost. Some assessment supplierswill offer a lower per­assessment price, but then add on charges for mandatory trainingpushing the final cost up substantially.TIP

COST OF  Estimates on the cost ofemployee turnover rangefrom 20% of salary to fivetimes salary. An average ofseveral major studies putsthe cost of turnover at136% of annual salary. Weused that figure in ourcalculations.

EXPLANATION CALCULATION

Calculating Assessment ROI

TURNOVER

($40,000 x 500) / 16% x136% = $4,352,000

([avg salary] x [# ofemployees]) / [turnoverrate] x [cost ofturnover %] = TotalCost of Turnover

COST PERHIRE

The average cost-per-hire inthe US (2012) was $3,479. Ifyou have your own CPHfigure, substitute it here.

Research from theAberdeen Group shows thatcompanies usingassessments realized a 3.3%improvement in cost-per-hire.

EXPLANATION CALCULATION

Calculating Assessment ROI

$3,479 x 3.3% = $115(savings per hire)

$115 x 80* = $9,200

[Savings-per-hire] x [# ofnew hires] = Total Cost-Per-Hire Savings

*Our sample companyplanned to make 80 newhires per year.

PROFIT-PER-EMPLOYEE

CUSTOMERRETENTION

EMPLOYEEENGAGEMENT

Additional ROI Factors

We used the most common areas of financial benefitfor using assessments. If you have the data, you can alsoinclude these factors to demonstrate the full return.

PROFIT PEREMPLOYEE

Profit per employee iscalculated by dividing thecompany's net profit by thenumber of full-timeemployees.

Companies usingassessments have a 2.5times greater year-over-year increase in profit perfull-time-equivalent (10%vs. less than 5%)

EXPLANATION CALCULATION

Calculating Assessment ROI

Profit per Employee =( [Revenue - Total OperatingExpenses] ) / [Total # of FullTime Equivalents (FTE's)]

If our sample company had a net profit of $10,000,000, the calculation would look like this:$10,000,000 / 500 = $20,000. If they realized a 10% y­o­y increase, that would mean $2,000 peremployee, or an additional $1,000,000 to the bottom line! "You're welcome, boss!"TIP

CUSTOMERRETENTION

Companies usingassessments have more thandouble the rate of customerretention improvementyear-over-year than thosethat do not use assessments(5% vs. 2%).

EXPLANATION CALCULATION

Calculating Assessment ROI

For our calculation, weassume a company with 1,000customers, earning $10,000profit per customer, a 70%customer retention rate thatincreases 2% per year.

([Avg profit per customer] x[total customers]) x [retentionrate] x [change in retentionrate] = Impact on Profit($10,000 x 1,000) x 70% x1.4% = $68,600

This is a trickier one to measure because you need to get data from different sources, but studiesback up assessments' impact on this metric and it's an impressive one to show management.

TIP

EMPLOYEEENGAGEMENT

Companies usingassessments are 36% morelikely to be satisfied withnew hires and 24% morelikely to have employeesexceeding performanceexpectations

EXPLANATION CALCULATION

Calculating Assessment ROI

How you calculate the returnhere will depend on how youtrack and report employeeengagement in your company.

Make Your CaseThe value assessments can bring to anorganization has been proven over andover again. All that remains is for you toshow your management the kind ofreturn you plan to bring.

If you'd like help with that, we're here foryou. We can help you identify youropportunities and provide relevant casestudies to make your case. And oursupport team will be by your side to makesure you get the results you expect.

www.McQuaig.com 1.800.387.5455

WHAT IS MCQUAIG?Easy to use, web-based assessments that helpyou hire and retain the right people.

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ASSESSING CANDIDATESImagine knowing how they’ll performbefore you make the offer. Find the rightfit.

COACHING & DEVELOPMENTCreate customized development planstargeting employees’ natural strengths andpersonality.

LEADERSHIP DEVELOPMENT

Find your future leaders and develop themthe right way with a 3-step process.

EMPLOYEE ONBOARDING

Better onboarding means higher productivityand lower turnover. Make your programwork for every individual.

TEAM BUILDINGBuild high-performing teams and fixdysfunctional ones by understandingeveryone’s natural temperament.

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