8

Measuring ROI in Employee Engagement With a Bonus

National Crushed Stone Company

Jack J. Phillips and Patti P. Phillips

This case was prepared to serve as a basis for discussion rather than to illustrate either effective or ineffective administrative and management practices. All names, dates, places, and organizations have been disguised at the request of the author or organization.

BACKGROUND

The crushed stone industry is a very competitive industry where profit margins are narrow and cost control is everything. Companies in this industry are constantly seeking ways to control costs to gain a competitive advantage in the marketplace. National Crushed Stone (NCS) is one of the leading firms in the crushed stone industry, with more than 300 locations in several geographic areas. Each crushed stone plant offers a narrowly defined product mix, consisting of various sizes of crushed stone that is used in construction projects such as roads, bridges, and large buildings. NCS takes pride in its employee relations programs and usually has a stable workforce, although turnover can be a problem. A typical plant is staffed with approximately 20 employees and is managed by a plant manager. Employees perform a variety of jobs from entry-level labor duties to skilled mechanic positions involving equipment repair. They are assigned to one of 12 different job titles within a plant. Each job has a distinctive pay rate, and employees usually work in their specific job classifications all day.

THE ENGAGEMENT ISSUE

A crushed stone plant must constantly control costs to be a survivor in the industry. Crushed stone is a very common commodity, but the price is low on the per ton basis, averaging about six dollars a ton. Rock quarries are located near market areas where the stone is needed to build roads, bridges, and shopping centers, because hauling the stone creates cost. For example, if the rock quarry is 50 miles away, there will be as much in the cost of the transportation as there is in the product itself. Thus, a quarry operator must operate on low cost to make a profit.

There are some concerns that the costs at NCS were not as low as they could be, although they were among the lowest in the industry. Some costs are fixed and not under the control of the quarry team. For example, the local plant cannot control royalties or property lease costs. However, many costs can be controlled. The suggestion is that if employees are really engaged in quarry operations, taking a very strong interest in maintaining the equipment, taking care of the equipment, working smarter, and operating in an efficient way, the costs could be lower, perhaps even significantly so.

The operations vice president is really proud of his ability to maintain very efficient plants and was skeptical when the HR executive approached him about getting employees more involved in taking care of the work, the equipment, and the quarry. But he was willing to listen. The HR team suggested a simple employee engagement survey, the results of which are shown in Exhibit 8-1.

The scores were very low on the six critical statements (questions 1, 2, 5, 8, 9, and 10). To a certain extent, this confirmed that there was a lack of engagement. The HR executive proposed that if employees become more engaged, at least in most of the statements, they will take more interest in their jobs, try to be more efficient, take care of equipment, take care of the plant, and even make suggestions for improving.

However, the company culture wasn’t very open to employees accepting responsibility, making recommendations, and being involved in making decisions. In this business, a typical rock quarry had a capable superintendent who gave the orders, made the decisions, and expected people to work, obeying orders and following directions. In order to implement this plan, NCS would have to change its culture. It also made the decision to retitle the superintendents as plant managers, and give them the additional expectation of having a more involved and engaged workforce. But this does not happen just by decree, discussion, meeting, memo, or policy—it comes from changing the mindset of the organization while adjusting job descriptions and encouraging employees to open up.

EXHIBIT 8-1. Engagement Survey Issues

Topic	Scores
1.   My suggestions to improve work are welcomed.	2.15
2.   I accept responsibility for my work.	2.19
3.   I have great co-workers at work.	3.91
4.   My work expectations are clear.	3.22
5.   I routinely receive recognition for my good work.	2.15
6.   My performance is often discussed.	2.61
7.   I have opportunities to learn at work.	3.78
8.   I am encouraged to do my best.	2.32
9.   I am involved in decisions at work.	2.05
10. I have everything I need to do a good job.	2.77

5-point scale: 1 = Not at all, 5 = Very much

The plant managers viewed this approach with some skepticism because they were not sure that the move would make a difference, at least not enough to overcome the cost of the program. Many of them came from the old-line management where the boss was the boss and everyone else took the orders. NCS was trying to change that mentality by bringing in more open-minded managers who had college degrees and believed in participatory management and having employees involved in the process.

In early discussions, it was suggested that a portion of the cost savings be shared with the employees. There is no better way to recognize the efforts of employees than to reward them with a bonus that is tied to their performance. Using a concept called gainsharing, the decision was made to share half the gains in cost reductions with employees, providing a bonus for becoming more engaged, taking actions, and exploring options for lower costs. This concept has been successful in several areas, but until this study, there was no indication that it had been used with rock quarries.

The attractiveness of the concept was met with some resistance. Philosophically, plant managers had difficulty with the concepts of:

•  sharing sensitive cost data with employees

•  having employees more involved in the decisions

•  allowing employees to make suggestions for improving operations.

Fortunately, they were open to trying the process to see if it worked; if successful, the bonus could be significant.

ROI DRIVERS

The HR executive knew that others were concerned about the value of the project. Investments of time would be substantial and senior management wanted some indication of the payoff before pursuing full implementation. The payoff would have to go beyond the traditional positive feedback from employees and an occasional report showing reduced costs. It needed a comprehensive evaluation, up to and including measuring the return on investment. This way, the HR executive reasoned, senior managers could see the new system as a value-added process that would help the company reach its major goals of increased efficiency and greater profits.

This is an excellent example of a program beginning with the end in mind: business impact measures. The HR executive anticipated that the program would reduce labor cost per ton and employee turnover. In addition, as employees became more engaged, absenteeism was expected to decline, and job satisfaction to improve. While these benefits had been attributed to engagement in other settings, proof was necessary to convince plant managers to fully embrace the concept. Armed with the determination to show the value of the program, the HR executive, with the support of the VP of operations, pursued the development and implementation of the program on a pilot basis.

Development and Implementation

The new system was planned for implementation in six locations that represented typical NCS plants. The complete process, which would comprise several stages, was developed during a two-month period using the part-time assistance of an external consultant and two internal staff members.

The first phase was to review the cost statements with the plan to present them to the employees. It was decided that only the controllable costs would be included and they would be in a format that would make it easy for the average employee to see and appreciate. They identified the particular cost items where employees could make a difference if they were more engaged in the process. Some of these controllable costs included equipment maintenance costs, conveyer belt expenses, plant maintenance, tire costs, fuel costs, quality, water, electricity, labor, and accidents.

Phase two involved developing potential actions that employees could take to improve each of these measures. These actions would come out of discussions with employees. The plan was to have meetings with employees, tackle a particular cost item at each meeting, and focus on how to improve it. Although more input and action would be requested from the entire group, they would start with potential actions that could be taken for each category.

Phase three focused on amending the job responsibilities to ensure that they were written in a manner that would cause employees to assume more responsibility, expanding job duties beyond the classic “what you do” and including how to measure work, what they can change, and how they can control the work. Employees would have the responsibility to speak up, take actions, and help make decisions.

Phase four involved structuring the plant meetings, which would be conducted by the plant manager and a representative from HR. In addition, the VP of operations and operations managers would be invited to attend if feasible. The meetings would be for reviewing the cost data, comparing it with the budget, and then highlighting critical areas where focus is needed. Then, they could deep dive into one cost item more specifically. As the meetings progressed during the year, they started with the cost item with the most opportunity and worked down the list. By the end of the year, the least cost item would be discussed.

Phase five involved the design of the gainsharing process. The design essentially follows these rules:

•  The cost for each category is set for the budget for the year based on what the plant managers and the area operations manager believes to be possible. This is the typical approach each year. The budget becomes the target for employees.

•  As employees come under the budget, they receive half the savings, to be paid quarterly.

•  Following this process, there will be a larger bonus in the last quarter compared with first quarter.

•  For the next year, the new target is the previous budget plus a small amount for inflation, using the producer price index as the measurement for adjusting the budget.

Although, after the first year, there is a lower number for each cost item, the team did not expect that number to continue to be reduced. The cost savings opportunities just won’t be there. If the target is reset with a lower number, it would demotivate the employees and they would give up. The new target should be the original target adjusted for what would have probably been the new budget considering inflation. This is a great motivator because as employees achieve a lower cost they are rewarded for continuing to reduce costs. Because the company is willing to share half of that to keep the lower costs, it is a win-win situation for all parties.

Phase six was the plant managers’ workshop for the six plant managers involved in this pilot group. This one-day workshop taught them the concepts of engagement, their roles in the process, how their jobs are shifting, how the process works, and the gainsharing rewards for everyone. Incidentally, the plant managers were already paid a bonus depending on meeting certain goals. If they have a lower cost than budgeted, then they would receive a much better bonus.

Phase seven involved an introductory two-hour training session with employees to introduce the process, show how it works, and explain their particular role in the process.

EVALUATION METHODOLOGY

To ensure that the new system received a comprehensive evaluation, the five-level framework for evaluation was undertaken and the actual calculation of the return on investment was planned using the ROI Methodology. Data would be collected to obtain the reaction from employees (Level 1) and to measure the extent to which they learned the new approach and how the gainsharing process works (Level 2). In addition, employees’ progress would be monitored on the job to determine how engaged they are at each plant (Level 3). Also, specific cost measures and other impacts (Level 4) would be monitored at each plant before and after the program, and these data would be compared with a group of similar plants. This control group arrangement involved identifying six other crushed stone plants to compare with the six plants destined for implementation. This approach should ensure that the results achieved were directly related to the new system. The actual cost of the system would be compared with the monetary value of the benefits to develop an actual ROI (Level 5). To be conservative, one year of monetary benefits would be obtained and compared with the fully loaded costs. The new system was expected to represent a positive return in the seventh year, so a one-year payoff is underestimating the results.

Process Model

These five levels represent a logical flow of data. The ROI Methodology uses a logic model to ensure that the project delivers value. The beginning point for a project is to set objectives. Under this methodology, objectives are set for five levels: reaction, learning, application, impact, and ROI. This provides the proper focus throughout the project, as individuals react properly, learn what to do, make it successful, and then have the desired impact.

Exhibit 8-2 shows the 10-step ROI process model that illustrates the logical flow of data, moving through the different phases of each step, up to and including reporting the results to various stakeholders. Critical parts of this model are to collect the proper data from the different levels, isolate the effects of the project from other influences, ensure that conservative methods are used to convert data to money, and set the value stream for the benefits. Many projects pay off in one year; others will be multiple years. This decision is made at the beginning of the project. Another important issue is to ensure that the intangibles are captured and properly connected to the project. Then, the results must be communicated to a variety of stakeholders, with the key client being the principal audience.

EXHIBIT 8-2. ROI Methodology

Standards

Any process model needs standards. The 12 guiding principles for the ROI Methodology are:

1.   When conducting a higher-level evaluation, collect data at lower levels.

2.   When planning a higher-level evaluation, the previous level of evaluation is not required to be comprehensive.

3.   When collecting and analyzing data, use only the most credible sources.

4.   When analyzing data, select the most conservative alternatives for calculations.

5.   Use at least one method to isolate the effects of the program or project.

6.   If no improvement data are available for a population or from a specific source, assume that no improvement has occurred.

7.   Adjust estimates of improvements for the potential error of the estimates.

8.   Avoid use of extreme data items and unsupported claims when calculating ROI calculations.

9.   Use only the first year of annual benefits in the ROI analysis of shortterm solutions.

10. Fully load all costs of the solution, project, or program when analyzing ROI.

11. Intangible measures are defined as measures that are purposely not converted to monetary values.

12. Communicate the results of the ROI Methodology to all key stakeholders.

The standards are very conservative, which is particularly CEO- and CFO-friendly. They provide the guidance so that projects are consistent, but conservative in their analysis.

Control Group Selection

Selecting specific plants to use in a control group represented a challenging issue. Although as many as 30 variables can influence the performance of a crushed stone plant, only a small group of variables could be used, on a practical basis, to select the two groups. The area operations managers of the six selected locations identified the top five variables as:

•  the size of the plant, in terms of annual production

•  the product mix of the plant; some products require more time to produce and are more abrasive to the equipment

•  the market, as defined by the construction activity in the local market area

•  the age of the equipment, which is already a routinely monitored variable; older equipment can cause inefficiencies in production

•  previous plant productivity.

In addition, three more variables were considered: the average wage rate, unplanned absenteeism, and the employee turnover rate. These additional variables should be similar because they were closely related to the perceived payoff of the program.

These eight variables were used to select six locations to compare with the six locations where the plan would be implemented. Exhibit 8-3 shows the average wage, absenteeism, turnover rate, employee level, and production prior to program implementation for both the pilot group and the control group.

EXHIBIT 8-3. Wage and Turnover Data for Both Groups—One-Year Average Before Implementation

SYSTEM DESIGN

Before the engagement system could be fully implemented, job descriptions and responsibilities had to be broadened to indicate more responsibility and accountability. The descriptions were written in a tone that encourages the employees to do more, seek more, and become more. With these descriptions in place, the engagement was then defined.

The engagement survey that was administered as part of the needs assessment was the beginning point to determine what types of issues should be addressed. After much input from the plant managers, senior executives, and employees, coupled with a review of the literature on engagement, a new definition of engagement was developed as shown in Exhibit 8-4. This breaks down the process to achieve results with engagement by first detailing the six items employees need from their jobs. Next, the five items of what employees must actually see and experience in the work setting are identified. More importantly, it identifies the seven items that employees must do as they take a more active role and make some improvements leading to the desired impact. This initial list was a starting point that showed where adjustments needed to be made.

A workshop was conducted with plant managers to teach them how to engage employees, using these concepts and the ratings of the employee-only concepts. The managers learned how to make these adjustments, make changes, and support the process in a productive way.

EXHIBIT 8-4. Engagement Defined

What Employees Need	What Employees Must See	What Employees Must Do
•  Opportunity to grow •  Increase in pay in proportion to contribution •  Recognition for the good work they do •  To be appreciated for their work •  An opportunity to do their best work •  Clear expectations	•  Routine feedback from managers •  A future in the organization •  Learning opportunities on the job •  A supportive environment •  Work that is important	•  Take responsibility for results •  Use unique talent to make a contribution •  Take a more active role in decisions •  Offer suggestions for improvement •  Collaborate more with co-workers •  Control the work and make adjustments •  Perform high-quality work

Next, monthly meetings were organized. The first meeting, which was a two-hour workshop, focused on the description of the program, the details of the complete system, and the employees’ role in the process. Following that, monthly meetings were held to work on cost items. This cycle would be repeated each year, with a continued focus on the major cost items, with the most important cost tackled first and the less important costs left for later.

Finally, the gainsharing system was developed to share gains with the employees, who would receive half the difference between the budget costs and actual costs. This amount would be paid quarterly during the meetings. The complete system design formed a process that will be constantly revised and adjusted as the program is implemented and sustained.

EVALUATION PLANNING

Planning the evaluation is a key step in measuring the effectiveness of a successful implementation. Detailed planning includes determining the methods for data collection, isolating the effects of the new system, converting data to monetary values, and deciding which costs to capture. The two planning documents used in this analysis are presented as Exhibits 8-5 and 8-6. Exhibit 8-5 shows the data collection plan, which includes collecting data for Level 1 (reaction to the system), Level 2 (learning how the system works), Level 3 (application of the system), and Level 4 (business impact). It also shows the specific data collection methods and the timing for data collection, as well as defining the responsibilities. Exhibit 8-6 presents the plan for the ROI analysis, which includes detailing how the effects of the system will be isolated from other influences and how the data will be converted to monetary values. In addition, the specific cost categories of the program are detailed, along with other important issues concerning the overall evaluation plan.

EXHIBIT 8-5. Data Collection Plan

EXHIBIT 8-6. ROI Analysis Plan

RESULTS: REACTION AND LEARNING

It was considered important for employees to learn about the new system and react favorably to it. Although a positive reaction was assumed, employee feedback was obtained in a more formal method using a one-page questionnaire. This was considered necessary because of potential skepticism from management and the sensitivity of making adjustments to the job and adding a bonus. The questionnaire was designed to capture specific reaction in five areas, as shown in Exhibit 8-7, which also includes reactions from the plant manager on the same set of measures. Both employees and plant managers provided reactions that exceeded the expectations. This is critical to have success later.

EXHIBIT 8-7. Reaction Results

Topic	Rating (Manager)	Rating (Employees)
1.   Relevance of the engagement system to the work of employees.	4.00	4.06
2.   The importance of this system to NCS.	4.20	4.22
3.   The importance of this system to employee success.	4.40	4.61
4.   The motivational effect of the system.	4.40	4.74
5.   The intent to use the system properly.	4.20	4.35

5-point scale: 1 = Not at all, 5 = Very much

For Level 2 (learning), a simple true/false and multiple-choice test was administered, using three questions about each part, for a total of 15. Exhibit 8-8 shows the results for this level from employees, which exceeded the goal of 70 percent minimum score.

EXHIBIT 8-8. Learning Results

Topic	Score
The engagement concepts	2.2
Job description and responsibilities changes	2.1
Brainstorming process	1.8
Gainsharing fundamentals	2.6
How the system works	2.5
Total	11.2

5-point scale: 1 = Not at all, 5 = Very much

APPLICATION AND USE

The important part of the study is to understand clearly if the employees are more engaged. A revised engagement instrument, based on the issues in Exhibit 8-4, was administered just before the program was launched with the six pilot plants. Then a post-survey was administered three months later. The results are presented in Exhibit 8-9.

EXHIBIT 8-9. Engagement Survey Results

Engagement Issue	Pre-Survey	Post-Survey
What Employees Need (six questions)	3.19	4.09
What Employees Must See (five questions)	2.92	4.27
What Employees Must Do (seven questions)	3.05	4.52

5-point scale: 1 = Not at all, 5 = Very much

Overall the improvements were significant and impressive. It is also important to capture data about how employees are participating in meetings, taking a more responsible role, accepting accountability for results, and sharing information freely with others. Data were collected from the employees and their plant managers. Data from the managers were based on observation, whereas the data from the employees were collected using a questionnaire to determine their perception of what they were actually doing. Exhibit 8-10 shows the Level 3 application data taken from both employees and the plant manager.

EXHIBIT 8-10. Engagement Implementation

System Issue	Rating (Employee)	Rating (Manager)
1.   Using engagement concepts	4.12	4.20
2.   Participating in meetings	4.22	3.40
3.   Taking a more responsible role	4.70	3.60
4.   Accepting accountability for results	4.78	3.60
5.   Sharing information freely	4.47	4.20
6.   Using the system properly	4.17	4.20

5-point scale: 1 = Not at all, 5 = Very much

BUSINESS IMPACT

It is important to clearly understand the impact of the program. Impact data are derived directly from the system. The cost per ton for each cost category was monitored, along with turnover and absenteeism. Exhibit 8-11 shows the cost per ton for before and after the program. It also shows the turnover rate, which is reported monthly but annualized, and the absenteeism rate, which is the percent of individuals absent on any given day. This is restricted to the unplanned absenteeism category.

The data showed a dramatic improvement in impact caused by the program, with the exception in total employment and production, which remained similar between the control and pilot plants. The cost per ton for the variable costs showed a dramatic improvement for the experimental plants, with a reduction of 31 cents per ton. However, because there was also a five cent per ton reduction in the plants without the system, this five cent per ton must be subtracted from the 31 cents to yield 26 cent improvement.

The same approach was taken for volunteer turnover. The experimental plants saw a significant reduction from 18 percent down to 12 percent. Because the control plants also saw a 1 percent reduction, that 1 percent is subtracted. Thus the program saw a 5 percent improvement.

Unplanned absenteeism saw a dramatic reduction from 7.4 percent to 4.2 percent for the experimental plants. There was a slight reduction (0.1 percent) in the control plant, which was also subtracted to give the overall improvement. This shows a very dramatic improvement and the method of isolation used is the best method.

From all indications, nothing unusual was happening in the six plants that could have affected results (such as a sudden market shift, weather issues, a change in plant manager, or other factors). So, it appears that these plants were matched up very well and were consistent throughout the year-long study period.

EXHIBIT 8-11. Business Impact Results

CONVERTING DATA TO MONEY

Converting the data to money was relatively easy in this case because the measures are already in the organization.

Monetary Values

For the variable production, costs are expressed in money as cents per ton, so no conversion was necessary. This is the principal measure connected with the project. The data suggested that for this mix of employees (production workers and some skilled workers), the voluntary turnover cost would be about 50 percent of annual pay, and management agreed to this value before the system was implemented. These studies were based on having a fully loaded cost for turnover, to include recruiting, selection, and onboarding, as well as training and improvement, until the employees were up to previous levels. It also includes disruption caused by the departing employees and the premium pay necessary for other employees to do the job, as well as supervisor time and exit costs. Thus this cost figure seems very conservative.

Finally, the absenteeism cost was straightforward and the group agreed the estimated cost would be calculated at $160. This is probably lower than the actual number, but the key is that it was agreed on in advance.

There were also a few intangibles that could have been converted to money. For example, the slight reduction in the number of loads of stone that were rejected by the customer could have been attributed to the program. However, the number was small and it would require some extra work to calculate the actual money savings, because the quality team had not calculated the average cost previously. In addition, another intangible cost that could have been attributed to the program was a decrease in the amount of downtime for the entire plant. Most of the team thought that it was because of this program, as the employees took good care of the plant and provided better plant maintenance. However, the number was small and there was no credible monetary value for one hour of downtime. Consequently, both of these were left as intangible, as described in a later section.

Monetary Benefits of Project

Exhibit 8-12 shows the calculation of the monetary benefits. The 26 cent cost per ton improvement in total production (8,600,000 tons) gave a bonus pool of $2,236,000 to be spilt equally with employees and the company. This yielded a bonus of $9,395 annually for the employees, which was about a 22 percent bonus over their base pay. This, indeed, is a powerful motivator. In addition, it represents a huge amount of savings directly to the company’s bottom line as the monetary benefit for this program: a total of $1,118,000.

EXHIBIT 8-12. Monetary Benefits

Turnover costs were calculated very similarly, with this program preventing 5 percent turnover, which would annualize to yield six turnovers prevented for the company. Plugging in the value of the cost of a turnover, there was an improvement of $125,736.

Absenteeism costs were very straightforward, with a 3.1 percent reduction as a result of this program. When this is multiplied by the total number of days that employees could work, this 3.1 percent absenteeism reduction accounts for 885 days prevented. When this value is multiplied by the cost of an absence, the result is $141,600. In summary, there is a total benefit of $1,385,336 for one year of this program.

PROGRAM COSTS AND ROI

Costs

Exhibit 8-13 shows the total cost for the program by various categories. The needs assessment cost is estimated to be $18,000, which includes the cost of the initial analysis, the first engagement survey with a sample of employees, some various meetings, literature searches, and an external consultant. When this is prorated over 6,000 employees, who would be eligible for the program—and calculated systemwide for all 300 facilities, this yields $3 per employee. When multiplied by the 121 employees who were involved at the beginning of the study, the yield is $363, which is not significant because of the large number of employees who would be eligible. Proration is the right thing to do because if the program is implemented systemwide, this cost would be prorated over the entire process.

The same approach is taken for the system development cost of $30,000, which includes adjusting the job descriptions and duties, developing the gainsharing plan, and developing an entire series of meetings for the program. Content development was also accounted for through developing the workshops for the plant managers and the initial two-hour workshop for the employees. The engagement design was a redesign of the engagement survey from the original document, formatted to fit what the organization was attempting to do; it was tested and administered at two different times. The initial development cost was $10,000, but the actual survey administration including time and travel of the team was $12,440.

Program materials costs were small. Travel and lodging for the managers and HR staff who attended the monthly meetings at all six plants for a year made up a significant portion of the cost. The workshop facilitation and coordination for time and travel was also included. The facilities and refreshments were minimal (about $100 per meeting). Some meetings were held over breakfast, some were at lunch, and some were just during a coffee break. Another expense was the participants’ time for the meetings, including the two-hour workshop. Some would argue that this cost was already in the system (all plant-related costs should be in the system on a cost per ton basis for the variable costs). However, to be extremely credible and conservative, these costs were calculated for all the employees who were taken off production for the two-hour workshop and approximately one hour for each meeting. Finally, the plant managers’ time was included, along with a very small overhead allocation. Costs for the ROI evaluation study, which was conducted by the staff, also included the time and travel required to present the results to different groups. This totaled $129,886.

ROI Calculation

The benefit-cost ratio and ROI were calculated and are shown. For every dollar invested, there was $10.70 in benefits, which is extremely high by any BCR calculation. In addition, the ROI was calculated to be 967 percent, which means that for every dollar invested in this program, another $9.67 was returned after the dollar is recovered. This is really significant.

INTANGIBLE BENEFITS

Although measurable and convertible to monetary values in some cases, the intangibles were considered significant but were not used in the ROI analysis. Several intangible benefits were identified and connected to the project, including job satisfaction, teamwork, customer satisfaction, the number of customer complaints, the number of loads of stone rejected by the customer, and the amount of plant downtime. The last two, quality of the stone and plant downtime, could possibly have been converted to money, but were not because of the extra time involved.

CONCLUSIONS

The results are very impressive, exceeding the expectations of all involved. The VP of operations was amazed at the reduction in cost and did not think that it was possible to make that much of a difference. Armed with this initial first year of results, he made the recommendation to set the next budget at the previous level, adjusted for the producer price index. This will be the budget going forward. If the team maintains this same level of performance, their bonus will increase as the producer price index increases. If the team can further reduce costs, the bonus will be even greater. The value of this program is almost a no brainer. However, there was a fear that the project might not work for the long term, and ultimately could cause some problems. These concerns will be faced when that point comes.

EXHIBIT 8-13. Program Cost Summary

Needs assessment (prorated over all eligible employees) $18,000 ÷ 6,000 employees = 3 × 121	$363
System development including adjusting job description (prorated over all eligible employees) $30,000 ÷ 6,000 = 5 × 121	$605
Content development for workshops (prorated over all eligible employees) $12,000 ÷ 6,000 = 2 × 121	$242
Engagement design (prorated over all eligible employees) $10,000 ÷ 6,000 = 1.67 × 121	$202
Engagement surveys: time and travel $12,440	$12,440
Program materials $20 × 121	$2,420
Meetings travel and lodging: manager and HR staff $29,440	$29,440
Workshop facilitation and coordination: time and travel $2,000 × 7 days of facilitation, travel, and coordination	$14,000
Facilities and refreshments 72 days at $100 cost per day	$7,200
Participants time: salaries plus benefits (30 percent benefits factor) 14 hrs × 121 × $20.15 × 1.3	$44,374
Salaries plus benefits 20 hrs × 6 managers × $47.00/hr	$5,640
Overhead	$2,000
ROI evaluation	$11,000
Total	$129,886

Credibility of Data

It is important for the study to have credible results. When employee engagement is connected to plant cost in this type of program, there are always questions about the credibility of the results. This program has an even stronger need for credibility due to the bonus associated with increased employee engagement. The results of this study are credible for several reasons:

•  The three business impact data are records that came out of the system and were reported routinely to each plant.

•  The method used to separate the effect of the experimental group from the control group represents the best research approach.

•  All the costs were included, even the indirect costs that are often debatable. This is an attempt to make sure that no expense item was left out of the study.

•  The payoff for this program is based on one year. This program would have multiple-year payoffs and perhaps a little less cost going forward because the meetings can be integrated into the work of the plant manager or area manager.

•  A balanced profile of the financial and nonfinancial data was presented. There is clear evidence that reactions were favorable, employees learned how to make it work, and they followed through by being more engaged throughout the process.

Recommendation

The data show that this program should be expanded to at least several hundred plants in the near term. The company decided to work with nonunion plants first, to make sure that the program was consistent and worked properly. The unionized plants will require negotiations with the union or union involvement, which will come later.

QUESTIONS FOR DISCUSSION

1.   Critique the data collection plan.

2.   Critique the approach to isolate the effects of the program.

3.   Critique the monetary benefits calculation.

4.   Is this credible?

5.   Are there any recommendations you would make?

6.   Is the ROI realistic?

7.   How should the ROI be communicated to senior management?

8.   Should this system be implemented at other locations?

9.   Sometimes a preprogram forecast is needed before attempting to implement the new system. Is this possible for this scenario? If so, how?