ROI (Return on Investment) Calculation of Employees

[hherryjohn]

I am trying to calculate ROI of employees, especially shop floor operators and supervisors.
I know how to calculate ROI for some new purchases or something of that kind.
But this is getting harder as I am digging in.

 

[dsanabria]

Re: ROI calculations of employees

ROI - Return of Investment?

Most company focus on cost of quality rather than ROI -

is that where you are heading?

 

[Randy]

Start with yourself...What are you worth?

 

[Bev D]

Before you slide down the slippery slope to 'heck', why do you feel that you need to calculate the ROI? I think we can give you far better advice if we understood what you were trying to actually do...

 

[Sequence_Barry]

Just a couple of thoughts. As opposed to ROI, we typically see "revenue per employee" as a measure of productivity. While not often segregated into job functions, you can easily do this. If your shop floor personnel are completely responsible for all of you revenue, i.e., they make everything you sell, then ROI could be easily considered as revenue divided by headcount cost. This number should be going up if you are becoming more efficient. However, to do this for any given employee or over the tenure of any given employee would be difficult at best.

 

[Randy]

Just a couple of thoughts. As opposed to ROI, we typically see "revenue per employee" as a measure of productivity. While not often segregated into job functions, you can easily do this. If your shop floor personnel are completely responsible for all of you revenue, i.e., they make everything you sell, then ROI could be easily considered as revenue divided by headcount cost. This number should be going up if you are becoming more efficient. However, to do this for any given employee or over the tenure of any given employee would be difficult at best.

That's only a wee part of the picture, there are other ways to determine ROI other than making the company widget...From 1997 - 1999 the greatest ROI for the part of ITT I worked for across the entire business of our location was found in the EHS department through cost avoidance...We didn't produce diddly squat, but 3 of us created and managed a process that reduced costs more than $6.5mil from 1996-97 operations...We were the Safety guys!...Got an ITT Ring of Quality award to prove it

 

[Jen Kirley]

Such good responses so far!

Probably one of the last things I would want to do is try to figure individuals' ROI, because how many of us single-handedly create value? Almost all of us interact with at least one other person, use tools and/or inputs from elsewhere, and/or get unseen assistance of some kind. A Pulitzer prize-winning publication is no good without the (usually underpaid and poorly recognized) delivery person.

But if you simply must calculate employee cost, I put a calculator for employee turnover in a thread titled Conquering Employee Turnover Costs. If you want to measure ROI based on events, the personnel compensation costs are a component of my calculator in the QA Inspection Gate - QA caught defect in the buy-off stage? thread.

Those calculators are dynamite. No I don't mean they are so excellent, because I am sure there are better calculators out there. I mean the subject can be explosive and really damaging unless you know very intimately and minutely from whom your value originates, where and when. Every internal customer relationship, every potential opportunity for error that a caring person avoids, every unsung hero from start to finish. No one knows that, but some people get paid like they think they are all of them!

 

[Sequence_Barry]

That's only a wee part of the picture, there are other ways to determine ROI other than making the company widget...From 1997 - 1999 the greatest ROI for the part of ITT I worked for across the entire business of our location was found in the EHS department through cost avoidance...We didn't produce diddly squat, but 3 of us created and managed a process that reduced costs more than $6.5mil from 1996-97 operations...We were the Safety guys!...Got an ITT Ring of Quality award to prove it

Great stuff Randy & kudos to you and your team. In this instance, if all savings were attributable to your team, your yearly ROI was huge This cost savings would show up in the complementary metric of profit per employee which undoubtedly rose as a result of your efforts!