Measuring the ROI (Return on the Initiative) of a Relocation
Measuring ROI in relocation seems to be as allusive as proving string theory. Perhaps if we looked at it a little differently there is a commonsense solution. Relocation comes with a cost, not only out of pocket but a cost in down time and disruption to the organization. It is estimated that twelve team members can be affected for every new placement. There is also a learning curve and a massive disruption in your employees personal and family life. Many of these disruptions are intangible, as is the actual services involved in relocating an employee. There is always going to be a cost and many of those costs can not be measured. The following approach however may add a little clarity into what you are getting for you money.
Firstly, lets break it down, by definition: HR ROI is a metric used to measure the financial impact of investing in HR initiatives or programs. It is calculated by dividing the net benefits of an HR initiative by the total cost of the initiative. But how do you measure the ROI when relocating someone, what is the benefit? Perhaps we are overcomplicating the process and not looking at the initiative of the relocation itself but trying to measure the long-term success of the placement. Should we be measuring the Return on the Initiative rather than the return on the long term placement?
In the international best-selling book “The First 90 Days” by Michael D. Watkins (In my opinion mandatory reading for any leader relocating), talks about a study conducted with a cross section of 200 CEOs. They estimated that it takes 6.2 months for a leader in a new position to start making a positive impact to the organization. (This could vary based on the level of the position). As per the book, the break-even point after the 6.2 months, is the value they produce measured against the value they consumed. Training, team disruption and I would also suggest, relocation costs are consumed value. This value, has numerus factors, based on the position, the state of the department, the role they are moving into or the organization itself are all variables out of your control. The purpose of the book is to have the employee hit the ground running and make an impact in the first 90 days.
Now this is where we should pump the brakes, with common sense. You are not measuring the success of the placement, as that could take months or even years to ascertain and is totally out of our control. How successful they are in the new job is based on the performance indicators they are measured on, performance reviews and direct feedback from their management. In many cases they may even leave the organization prior to demonstrating any value. You are measuring the ROI- Return on the Initiative of the actual relocation, not the long-term success of the placement. There in lies the confusion about measuring the ROI on a relocation.
ROI calculates by dividing the net benefits of initiative (the relocation) by the total cost of that initiative.
The two numbers you need to calculate the ROI of the actual relocation are:
- The total cost of the relocation.
- The net benefit, how satisfied was the transferee with the service.
That’s it, how much did we pay to move Mary, and did we get our moneys worth? Did Mary hit the ground running? She has six months or less to start adding value, how much of her time/company time was consumed by the relocation?
What did it cost and was the transferee satisfied with the service = the Return on Initiative/Relocation.
Cost: You need a number to measure a return on that investment. The cost should be easy, what did you pay to move Mary? There in lies another problem; many organizations have no idea how much they pay for relocation, making it impossible to measure the ROI. Are the costs covered by the departments cost center the individual is moving into? Are the numbers tracked? Are you working with a relocation management company, are you using a lump sum, or do you reimburse expenses? If you are dealing with an RMC, what was the invoiced amount? If you are giving a lump sum, what is it? If you are reimbursing, what did you reimburse? Whatever your program looks like, you must know how much you spent, to measure the return on that investment.
Benefits: Relocation is an intangible service and very difficult to measure. The only real measurable part would be the transferee’s satisfaction. The overall customer experience is extremely difficult to put a number on. Let’s try to break this down.
Relocation is one of the first steps in hitting the ground running. Arguing with a mover or trying to get a hold of an RMC or being frustrated with a realtor, whatever the case, the transferee’s dissatisfaction is reducing the ROI. You paid $75,000.00 on a relocation, was the transferee, the end user, satisfied with the service. When the rubber meats the road, was the customer happy, and focused on the new job, did you get a good return on that 75K?
The next question is how do you get that second number, the satisfaction number? Quality questionnaires can be a waste of time, six pages of minutia turns anyone off. They are also easy to manipulate or used to deflect responsibility. They should be simple and easy to respond to and managed either inhouse or through an independent service.
How to get a tangible benefit number, for an intangible service.
If the net benefits of a relocation are based on how satisfied the transferee is with the service, you must gage that satisfaction.
At Customized Moving we suggest using a simple “Net Promoter Score” model, designed by Fred Reichheld in his book “The Ultimate Question” to get the single “Net Relocation Score.” By asking one simple question we can provide not only a fantastic quality program, but you can also measure the ROI on a relocation. (The response to this question triggers several actions but for the sake of this article we will not go into them all). The one question we ask is.
On a scale of 0 to 10 with 0 being extremely dissatisfied and 10 being extremely satisfied, how would you rate your overall relocation experience?
With that one question you can set into motion an entire program to both measure the ROI and increase the quality. For those of you that have not read the book or understand the NPS system this is a quick overview.
By using this one simple question you make it for the transferee to respond 0 to 10 pick the number, (give a quick reason why, if you want) and click send. your done. When you receive the response you can immediately figure out the level of customer satisfaction, the benefit of the relocation initiative.
In that, if you receive a score of 9 or 10 you have a very satisfied customer and great ROI on the spend, no matter the cost. The transferee is on the job and in a positive state of mind. A score of 7 or 8 the transferee is Ok, not wowed by the experience but they received a decent service, again a good return. If the response is six or under you have a dissatisfied transferee and a poor ROI, the lower the score the worse the ROI. The transferee has serious issues with the relocation service and are not concentrating on their new job.
This may sound simple but there have been volumes written about this process and it works. There are of course additional actions that must be taken pending on the score. Pending on the score we offer a service to drill down and identify the actual problem. We allow the customer to vent, and the information gathered, is then shared with HR and the service providers to take immediate action to address the situation. We can also identify if the transferee is being difficult or if indeed there was a breakdown. We can also follow up to make sure the problem was resolved. The bottom line is that the transferee is the customer, and their opinion reflects the Return on the Initiative and consequently influence the breakeven point of the placement.
Keeping in mind that an RMC is a supplier. Some of them are great at deflecting all the issues onto their supply chains, but in some cases, they can be the root of the actual problem. Again, this is why it is important to have an independent firm doing the survey or doing it yourself inhouse. Also Keep in mind the question is only the beginning of the process, action must be taken to drill down into the problem and then of course, fix it.
How do you evaluate the Return on Initiative? Simply take the “Net Relocation Score” and marry it up to what you spent, giving you an at-a-glance ROI number. E.g., we spent $700,000 on fifteen relocations and the overall Net Relocation Score average is 9, that would be a fantastic ROI. If the satisfaction score was 7, we need a little work, but a good ROI nonetheless and we identified the problems and are taking action to address them. Now let’s say the overall satisfaction score is 6 or under, you are not getting a great ROI and if the numbers are consistently lower than 6, you may need to make big changes.
Return on Initiative for relocation can be measured using two numbers, the Net Satisfaction Score, (the benefit of the initiative) and the actual cost of the relocation.
Two numbers, how much did it cost, and what was the satisfaction score. Did they hit the ground running and contributing to the organization?
Contact us for more commonsense solutions at email@example.com or direct @ 416-570-5694.