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Where should you use a return on investment criteria?

When most executives think about return on investment they think about a formal justification for a large capital investment. Usually in a large company it’s expenditure over a preset limit of say $25,000.

My experience has taught me that much more money is spent everyday with little or no accountability and without thought to return on investment (ROI).

Business executives must demand a return on investment for every resource in their organization.

As a business leader, you have a responsibility to ensure that the assets of your company are used in ways that provide the highest possible return to stakeholders. That applies to all assets, including your human resources.

I have seen numerous managers over the years that pride themselves on being frugal. Sometimes they go so far as to refuse to purchase something that may aid productivity on the pretense of financial responsibility. Yet, many of these same managers continue to compensate underachieving subordinates without saying a word. They don't seem to understand that employees are critical and expensive resources. When I question them about the obvious disparity, most are unable to see the connection.

When you tolerate poor employee performance, you violate the trust placed in you as a business leader to generate maximum return on investment. You place an unfair burden on other employees who must pick up the slack, or even worse, must correct the errors and deficiencies in poorly completed work. As an effective leader, you must expect excellence. Tolerating mediocrity is toxic to your organization.

The cost of poor performance can be staggering when you consider poor quality, returned goods, rework, overtime to make up lost production, and the negative impact is has on other employees. Many executives fail these dollars as an investment and they treat the cost symptoms rather than the root cause.

To realize a return you must first invest. Leadership development and training your people is an investment opportunity.

Unfortunately, most companies don't see it that way. They'll invest in new equipment long before they'll invest in their people.

Not infrequently these companies will promote people from the technical and production ranks to roles as supervisors and first level managers without any additional training. Some of the good traits that set these individuals apart, such as dedication and work ethic, are directly transferrable to their new roles. But other needed skills in the area of leadership may be new and foreign to them.

As a result, many upper management initiatives are not effectively transmitted from the boardroom to the shop floor. And much valuable information from the production floor is incorrectly filtered before it reaches upper management.

As wages and health care costs continue to rise, management must invest ever more wisely, consistently, and generously in human resources. Investing in effective leadership development and communications programs pays big dividends in terms of –

• Higher productivity.
• Lower employee turnover.
• Better quality products.
• Customer loyalty and satisfaction.

Be prudent about where you put your time and money. Invest in employees who have demonstrated a willingness to learn and grow. 

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