How to Quantify Productivity Cost Savings from Wellbeing Programs?
Let me make a controversial statement: savings in presenteeism and absenteeism from wellbeing programs outshine medical or premium cost savings by a wide margin.
Additionally, they are also far more predictable and less complicated to calculate than calculating medical or premium cost savings. This conclusion is based on 25 years of calculating the ROI of wellbeing programs.
We have all read the countless studies of how wellbeing programs save the US economy billions of dollars. However, all of this is quite useless if I cannot quantify productivity gains from an internal program within an employer setting, as decision-makers have tuned out general statistics. Would you base an investment in a new factory by saying it would help America grow?
Let’s understand how productivity is quantified
Before explaining how to calculate productivity savings, let´s go back to Economics 1.0. Productivity is measured by Output. It is generated when we combine people (who bring skills) with equipment (or even a very positive work environment that multiplies the skills).
As examples, what would a software developer produce without a computer? And don´t employees that work as a team produce higher output as compared to employees going in separate directions? We now agree there are two components to productivity. However, many use salary as an indicator of individual productivity without considering the other variable.
They say that the productivity savings of one individual not being absent for one day because of a physical or behavioral condition is equal to one days´ salary. Why do they forget the other variable? Answer: they don´t know how to quantify it.
How is productivity generally calculated?
There are several ways to calculate the true productivity output of an employee in any given employer. One method is to divide the total revenues of your employer (minus the corporate profit margin) by the number of employees. Good luck in trying to obtain the numbers you need from Finance, especially in a large company with subsidiaries.
And how does WELLCAST do it?
An alternative approach is by utilizing a database of productivity contributions by industry, region, and occupation adjusted to an individual employer. This database is embedded in our ROI calculation software, WELLCAST ROI.
For those who really like Economic theory please consult our website, under News & Studies, and select ROI User Guide, for a detailed description of how we calculate productivity contributions and adjust for individual employers: www.wellcastroi.com.
By the way, productivity contributions for a specific type of employee, say a software developer, can be very different depending on the industry they work in. Let’s look at two examples:
- Developer A: works for MicroSoft;
- Developer B: works for a state government
Which programmer generates more output (productivity)? Answer: MicroSoft. Why? The programmer is given better computer hardware.
Important variables that should be taken into consideration
In other words, although they have the same skill set, their productivity contributions are very different. Also, productivity contributions vary by region. All of this keeps our WELLCAST economists quite busy, as we also keep track of the impact of economic conditions, and consider shocks, like COVID or interest rate hikes on productivity. Note that without productivity contribution data, it is impossible to calculate the costs of presenteeism and absenteeism.
To sum it up, our goal is to generate a single number (e.g., $450 per employee), that reflects the true productivity contribution of a typical employee in your company. How we use this number to calculate the cost (and savings) in presenteeism and absenteeism from a wellbeing program will be the subject of my next blog, so stay tuned. For more, see our website: www.wellcastroi.com. Of course, please invite other benefits, HR, medical directors, procurement, and financial administrators to read my blogs.
