Part Two: ROI of Psychometric Testing: How do you know if it is right for you?

Part One of this series outlined the broad value adds of psychometric testing for recruitment, but how do you know if it is right for you?

The driving force behind most organisational practices are of course, Return on Investment (ROI). So, making the change to using psychometric testing can be a scary endeavour when your organisation is not using it already. It requires time, money, planning and most importantly trust that you’re doing the right thing.

As can be seen in the figure below, the more accurate a selection process is in predicting performance (test validity), the better they are at reducing the costs associated with poor selection and therefore maximising ROI. Ensuring your tests assess factors relevant to successful performance in the role is therefore a critical component in getting the most out of your investment.

Relationship between Test Validity and Return on Investment

To help your decision, the neat little formula below can help you work out whether psychometric testing is for you.

Return of Investment = (gain from investment – cost of investment) / cost of investment

The result is expressed as a percentage or ratio. If the outcome is positive, then your investment will earn more than it costs and the investment will be worthwhile. If the result is negative, then cost exceeds return and you might need to reconsider.

In calculating the cost of your psychometric testing, it is recommended the following factors are considered:

Development or purchase of psychometric tools
Training or accreditation of staff for use of tools
Additional time for administration, reporting and feedback of results
Any additional hidden costs e.g. time spent researching assessment tools

In calculating the gains from your psychometric testing, it is recommended the following factors are considered:

Reduction in recruitment costs if testing replaces other recruitment methods
Increased productivity due to higher performing employees
Less hiring costs because of decreased turnover
Savings because of decreased accident rates (e.g. when using safety testing)
Additional hidden gains (e.g. time saved using computerised screening)

Please note these are only guidelines for consideration. Asking test developers to show the outcomes of psychometric testing in an organisation like yours is encouraged to gain insight into all the potential gains from your investment. Your organisation is likely to have unique sources of expenditure and opportunities for gains.

Once you’ve worked out the totals for each, plug them into the formula and see whether psychometric testing could be for you!

Part Three

Part Three of this series will provide a working example of this formula and how you might apply it to your organisation. Read part three on our blog.