As a small business leader and project manager, you know that your employees are your most essential asset. They're more valuable than all of your software, computers, coffee machines, and cargo vans combined.
Without your people, those computers and coffee machines and cargo vans would fall into disrepair and rust away.
Your employees have powerful brains in their heads, managing traits such as skills, charm, versatility, resolve, and, well, basic humanity. They also have a bunch of other skills and qualities that you could never teach a computer to perform.
But your employees also have good days and bad days. They get sick, go on vacations, have children, have hobbies, and experience personal difficulties that sometimes leak into their work time.
In other words, you can't run diagnostics on your employees to determine their efficiency on a 0-100 scale, nor should you.
What you should do is have a system in place that determines a baseline for acceptable performance, so you can compensate your highest performers for going above and beyond.
Measuring employee effectiveness may not be the most fun part of managing a small business, but it is critical to your success.
By following the guidelines we discuss in this article, you can measure employee effectiveness without feeling like you're treating your employees like machines.
5 Critical elements for measuring employee effectiveness
If you go by the old punch clock method and compensate your employees by who logs the most hours, you're going about things all wrong. You could be rewarding an employee who surfs the web for eight hours a day over another who does their work efficiently and goes home.
If you manage to quantify "work units" and determine how much each employee is producing each day, you're getting closer to measuring employee effectiveness, but you're still not capturing the whole picture.
For example:
Say you run a sweater factory and Employee A produces 15 sweaters a day while Employee B only produces 12. Employee A should get higher ratings, right? Not necessarily: If only seven of Employee A's sweaters pass quality inspection, while 11 of Employee B's sweaters pass, you'll see that measuring effectiveness purely based on output is a pretty flawed model.
Accurately and fairly measuring employee effectiveness requires more of a holistic approach, and if you keep these five critical elements in mind, you'll be on the right track.
1. Define what effectiveness means
You can't measure effectiveness until you know what "effectiveness" means for your team. That definition should be aligned with one or more of your organizational goals. One quarter that goal might mean growing revenue, while next quarter it might mean improving quality.
Determine how each individual employee can contribute toward that goal (that might mean adding clients if it's a salesperson, or producing usable code if it's a programmer) and weigh their effectiveness based on that metric.
Capterra's senior project management analyst Eileen O'Loughlin suggests that you should only be tracking three to five metrics at any given time. This guide shows you how to start off by tracking return on investment, cost performance index, schedule performance index, and resource capacity.
O'Loughlin's chart shows how key performance indicators can help determine employee effectiveness (Source)
2. Prioritize achieving goals over hours worked
Fred Flintstone had to punch in and out of his job at the rock quarry using a stone card and a dinosaur's mouth, but this is the year 2018 and we work differently. Your employees have laptops and mobile phones, and they are capable of working from home and making their own hours.
Your responsibility as a manager isn't to hold their hands and babysit them. Instead, you need to help them to do their jobs better and achieve their goals. Measure employee effectiveness based on their contributions, instead of how many hours per day they need to work to complete their tasks.
By that same token, if you find that your employees are getting all of their work done in an hour or two per day, it may be time to either promote them or give them more work.
3. Give continuous feedback
Letting an employee backslide for an entire year before giving a negative review isn't beneficial to anyone. Check in on a regular basis—you can determine whether that should be weekly, monthly, or quarterly—to let them know how they're doing and where they have room for improvement.
Keep in mind, though, that your employees are not robots and you can expect some fluctuations. For example, if an employee takes a few days to get back up to speed after returning for summer vacation, or has a personal issue that resolves itself in a timely manner, there's no need to hit the panic button.
The key here is to check in frequently so that you can make incremental improvements throughout the year before they become big problems to deal with.
4. Use peer feedback
The purpose of peer feedback—also known as 360-degree feedback—isn't to encourage co-workers to snipe at each other. Instead, it's meant to provide a valuable perspective on your employees' performance that you might not have access to otherwise.
No matter how hands-on you are as a manager, you'll never be able to spend as much time with every member of your team as they collectively spend with each other.
To preserve anonymity, you can set up a survey using Google Forms or another free option to field this feedback. You should also subject yourself to peer feedback to show that you're committed to the process and no one is above it.
As Globoforce's Lynn Levy writes, peer feedback can "support the speed of business by aligning priorities, allowing course corrections between managers and employees, fostering learning, and improving trust."
Visit The Balance Careers for some sample peer feedback prompts.
5. Measure team performance
In 1975, Philadelphia Flyers defenseman Jim Watson was named an All-Star despite scoring just two goals in 79 games. A deeper look at the statistics would show that when Watson was on the ice, the Flyers as a team scored 66 more goals than they allowed and made it all the way to the Stanley Cup finals.
Watson wasn't scoring goals, but he was clearly doing something to help his team win. In football, offensive linemen are similarly rated based on team accomplishments such as rushing yards, sacks allowed, and—ultimately—wins.
Isolating individual performance is important, but it doesn't always tell the whole story. There will always be intangible contributions—whether it's facilitating team communication or reducing stress—that you can only really gauge by measuring team performance as a whole.
Use project management software to closely track your team performance, and you'll always have a strong insight into how your entire team is performing.
How do you measure employee effectiveness?
There's no one-size-fits-all solution for measuring employee effectiveness. It's more of an art than a science, and is an ongoing process of learning and iterating for both you and your employees.
It's worth it to put the time in, however: Your employees are the most valuable asset you have as a small business leader, and you need to treat them like the unique, priceless contributors that they are.
You do this by setting realistic goals, developing a reliable way of tracking progress, providing frequent feedback and encouragement, and prioritizing team success over individual performance.
How do you measure employee effectiveness on your team, and what lessons have you learned as a small business leader? Please share your thoughts in the comments, and follow our project management blog for more tips!