The ROI of People: Measuring the ROI of 360 Performance Appraisals

It is a reality in business that senior managers want to, and should make sure all their business operations are producing a positive Return on Investment (ROI). This requirement should also include the people in which the company invests its time and money to hire, train and develop for the growth and success of the organization. Over the years, as more companies began seeing the importance of effective leadership, their investment in leadership programs and 360 performance appraisals increased. This is due to the strong link between profitability/revenue growth and the skills of effective leadership.

The Importance of 360 Performance Appraisals

Putting it simply, ineffective leaders cost companies money. Their lack of ability to engage and motivate employees increases employee turnover, leaving management teams with the time consuming and expensive task of replacing them. Employee turnover affects productivity (finding and training replacements), time (reviewing resumes, interviewing, onboarding new hires), and cash (paying out the former employee's accrued vacation and/or long service provisions). Low performing managers also negatively impact their team's morale and the motivational levels of individual team members. This leads to a negative effect on employee productivity and company performance. Often, these ineffective leaders are a product of promoting individuals based on their past accomplishments related to specialized skills and not their ability to manage, engage, and develop employees to be inspired to contribute to the success and growth of their organization.

This is where 360 performance appraisals make their impact. 360 Appraisal Surveys are a reliable tool in the 360 feedback process because they measure an array of leadership capabilities such as people management, decision-making, assertiveness, innovation with ideas, communicating more clearly, and clarifying goals and objectives. The confidential responses from various members of the organization provide a higher level of honesty when evaluating job performance. The right assessment performed properly can help provide leaders with greater insight through the perspective of their co-workers, create impactful action plans for professional growth, properly address the needs of their teams and colleagues, and cultivate an empowering, team-oriented workplace.

Effective 360 Performance Appraisals Feedback

The success of 360 performance appraisals does not lie within the feedback alone. It takes continuous action and ongoing practice to create any measurable success from the 360 Feedback process. Without feedback plus action, companies are usually unable to observe and measure significant changes, let alone measure ROI. This can lead to an unfavorable view of the 360 appraisal process. Even still, in general, ROI is calculated by dividing the benefit/return of an investment by the cost of the investment. The return on the 360 process is calculated by measuring the increase in employee performance and productivity, which in many cases is not clear-cut in terms of financial business numbers. Despite this, 360 feedback still produces noticeable improvement in results and performance when executed effectively.

The fundamental purpose of 360 performance appraisals/feedback for managers and other leaders is the development of leadership capabilities. Companies want to develop effective managers that, in turn, hire and inspire exceptional employees. Through 360 degree feedback, organizations can zoom in on specific skill areas and focus on those managers/leaders that require training and development. Comprehensive leadership appraisal surveys are only one part of a successful Leadership Development Action Plan. A successful development plan for leaders also includes:

  • Coaches/Mentors – Guidance on interpreting feedback and implementing development plans
  • Resources – Tools like workbooks and management workshops for identifying ongoing areas of improvement
  • Accountability – Individual planning to help ensure goals are met
  • Ongoing – Repeating the 360 feedback process to measure progress

When well executed, a Leadership Development Action Plan using a 360 feedback helps ensure managers and other organizational leaders perform at the highest level. In the short, medium and long term, the ROI of 360 Performance Appraisals is substantial and provides organizations with a competitive advantage, especially through the development and retention of top talent.