How to Calculate Workplace ROI
Return on investment (ROI) is a fundamental financial formula and/or performance metric, which is used by companies to measure the amount of return on an investment, relative to the investment’s cost.
To calculate the formula, it is often easier and more straight forward when the investment and cost amounts are known, fixed and/or based on something tangible. It becomes increasingly more difficult to calculate the formula when the investment and cost amounts are either unknown, variable and/or based on something intangible. With that said, how does a company then go about figuring out the ROI of its workplace, regardless of it being a newly designed and built workplace or an existing one that has been renovated?
Let’s look at a couple of examples.
ABC Company wants to make renovations to an existing workplace and one of the main features it wants to install is a new energy-efficient lighting system. The company can use ROI to determine if the investment in the new lighting system makes sense, because the investment and costs are known (i.e., the cost of the lighting system and the historic and projected electric bills).
Now, let's suppose ABC Company wants to design and build a brand new workplace and fit it out with plants, standing desks, brightly colored painted walls, bike storage racks and a host of other amenities. How does the company calculate ROI on items like these when only half of the formula amounts are known? Yes, the company knows the investment cost of the plants, desks, paint, racks, etc., but not the return (benefit) aspect of each.
So, now what? It’s at this point that a company needs to know about another quantifier or qualifier known as employee engagement.
Some people simply define employee engagement as happy, satisfied employees, but it really goes much deeper than that. Engagement is really defined as the emotional commitment the employee has to the organization and its goals. This emotional commitment means engaged employees actually care about their work and their company. They don't work just for a paycheck, or just for the next promotion, but work on behalf of the organization's goals. But then one might ask, how does an employee get to this level?
People who study and research engagement, and there are many, often site about a half dozen criteria which drive engagement, and one that stands out more often than not is value. When an organization can show it truly values its employees this is when engagement soars. Value can come in many different shapes and sizes but, in today’s business world, what seems to resonate most with employees (and talent recruits) is the workplace and what an employer is willing and/or wanting to put in that space for its employees and/or how it is designed from the onset.
Whether it’s a variety of work space options (e.g., private, collaborative, free, activity-based, etc.), lighting, acoustics, furniture, colors, textures, branding or amenities (e.g., bike racks, showers, cafeteria, napping pods, lounges, etc.), all of this has a perceived value by employees and, as it has been proven, an affect on how employees conduct and think about their work. How employees conduct their work then can be directly correlated to other factors which are closely associated with engagement, such as employee productivity, turnover and absenteeism. Essentially, one factor feeds into another.
Because it is always a prudent exercise for a company to determine the ROI of an investment, strategy, idea, etc., as it relates to the workplace, a company just needs to keep in mind that ROI is only half the equation ( no pun intended).