Budgeting for Assessments

One of the most difficult aspects of using assessment lies in gaining an understanding of the various pricing models associated with it. This understanding is critical when it comes time to budget for an assessment program. Even if your organization has experience using assessment, budgeting can be a very difficult issue.

Budgeting for assessment can be hard because of the following:

  • Lack of understanding with assessment and its value proposition.
  • Purse strings that are often owned by different groups within HR.
  • General inexperience with assessment pricing models.
  • Lack of understanding around price differences for off-the-shelf vs. customized assessments.
  • The increasing commoditization of assessment via integration into other staffing tools.
  • Lack of good benchmarking data.
  • Extreme variation in assessment pricing.

The remainder of this article provides some basic information that I hope will shed a bit of light on assessment-related budgetary concerns. What this article does not do is provide specific benchmarking information that will allow you to magically understand how much you should budget for using assessment.

Consumers of assessment understand some general rules about assessment and pricing:

  • The more customized the assessment content, the higher the up-front cost. Once up and running with customized assessment, however, the actual costs of testing often will not differ. The cost is in the investment required to create the customized content. Customized content often provides incrementally higher levels of ROI, so the extra investment is often worth it.
  • The technology level offered by a vendor does not necessarily impact price. Many companies now offer assessment delivery platforms that are robust and have a variety of candidate-management features built in. These systems can be configured very quickly and easily. However, the more custom-technology-related work required to implement the system (i.e., applicant-tracking-system integration, customized reporting) the higher the price. These jumps can be steep when one starts getting into ATS integrations and the like.
  • Just as the assessment market is extremely fragmented, assessment pricing is all over the map and price is not a reliable index of assessment quality.
  • Assessment is getting cheaper as it becomes more integrated into the bigger picture as a value-add to staffing processes and the systems used to back them.
  • At the same time prices are dropping, quality is actually increasing in many cases, due to the accelerated wisdom that is being gained via the ability to collect and analyze previously unthinkable amounts of data.

With the above in mind, there are three key areas of best practices related to the use of assessment impact pricing models.

Area 1: Setting Up the System

There are two key factors related to set up: doing the work required to understand key job requirements and technology system configuration.

The work needed to verify that the assessment content is job-related and the set up of the technology system are often inexorably linked, such that there is one “set up fee” that includes all the work needed to get the assessment process up and running. For example, using an off-the-shelf test from a vendor with a modern, robust candidate management system is getting to be less and less expensive. Set-up fees for this type of package usually range from $1,500 to $5,000.

As the complexity of the implementation goes up, these fees can often rise sharply. First is the level of technology integration required, with deeper implementation requiring much deeper pockets. Second is the level of due diligence related to understanding key job requirements.

If a full job analysis is required, you may pay north of $10,000, depending on the scope of the initiative. Conversely, using an off-the-shelf tool can be extremely cheap. Just remember that you get what you pay for and that taking the time to do a more in-depth job analysis can have tremendous value because it contributes to legal defensibility and also serves as a critical foundation for a variety of other HR activities.

Area 2: Assessing Applicants

This area involves charging for the test content or for the use of a system that collects a variety of different types of predictive data from applicants. There are a variety of different models related to test/system usage. Understanding them is critical when working on setting assessment budget.

The most common models include:

  • Traditional-“test-centric” model. This is a flat per-head charge for any assessment used. Prices almost always follow a volume model such that the more units used, the lower the price. There is a huge range in per-test pricing with the cheapest tests now running at about $5 per head all the way to over $150 per head. The main variables are the number of tests and job level for which the assessment will be used. For instance, a test for entry-level retail workers will be much less expensive than a test for marketing managers. There is not always a direct correlation between price of an assessment and its quality, so be careful when considering this type of pricing.
  • “Per-recommended” model. Because companies with more evolved technology systems often offer a multiple hurdle approach that involves the collection of data at various stages in the hiring process, many customers are wary of paying per click when there is high applicant volume and many applicants are screened out at the first step in the process. This has led many companies to create a variation of the per-head model in which charges occur only when candidates clear the first hurdle or for those who are judged as acceptable.
  • Per-seat-license model. Some companies price their assessment based on the number of employees. This model is most common among vendors that sell packaged software systems and is often calculated to provide a price point for yearly use of the system
  • Flat-fee-license model. Some companies offer a flat-fee model, an agreed-upon price for unlimited applicant evaluation. In many cases this model includes a threshold value such that over usage causes some additional fees.
  • Pay-for-performance model. Some companies will offer a variation of any of the above models in which there is a service level agreement put into place regarding the level at which the use of assessment will return a return on investment. This model is rare but it is an excellent way to hold vendors accountable. It also serves as a quality filter when choosing assessment vendors because it takes confidence in one’s product and process to offer this kind of model.
  • Combo model. It is common to encounter some combination of the above models. This is especially true as assessment becomes more tightly integrated into different types of human capital management systems and processes.

Area 3: Evaluating Assessment Accuracy/ROI

This involves the work done to “close the loop” and evaluate the effectiveness of the assessment used. Unfortunately, this area is often not a concern for many organizations because they do not take the time to do this type of work.

This may be one of the biggest mistakes when it comes to budgeting, because evaluating assessment ROI is the only way to demonstrate that the use of assessment is paying for itself.

Such demonstrations are critical for understanding budgeting and for providing the ability to obtain more budget for the continued usage of assessment.

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There are two types of charges that relate to evaluating assessment:

  • Configuring reporting. These costs can vary quite a bit, but most technology platforms have accounted for most of the major types of reports that one would need. This means that reporting costs are often not a big deal.
  • Validation. This usually requires professional services to set up data collection, analyze data, and report findings. One can expect to pay between $10,000 and $25,000 or more for this work, depending on the depth of evaluation work required. While this may seem expensive, remember that validation pulls double duty because it provides legal defensibility and proof of ROI. Further, the increasing integration of technology into hiring is leading to a business intelligence mindset that is causing feedback loops to become increasingly automated and thus allowing for savings when it comes to professional services.

Conclusion

In general, the trend in assessment is moving toward commoditization. Prices are dropping because assessment is getting easier to use off the shelf and is becoming more tightly integrated into other staffing-related products such as job boards and applicant tracking systems. This is good news for many folks because it also supports availability of quality assessment to the middle market, where it was not previously affordable.

In days of yore, assessment came in two basic flavors: direct off-the-shelf or highly customized. In both cases, the revenue was related to the professional services required to ensure the assessment was properly configured, created, and evaluated.

In most cases, each local assessment implementation was customized and was costly due to the sheer volume of work that was required to set up, maintain, and evaluate the assessment process. The good news is that technology has allowed us to move toward models that involve fewer professional services while allowing for increasingly higher quality assessment content.

While reduction in professional services can be a good thing, just remember that you get what you pay for and that using a system directly off the shelf is likely to yield less-accurate results than creating an optimized assessment.

One of the other new trends that helps to bridge the gap between off the shelf and customized assessment is what I call “light customization.” This involves the use of standard “blocks” of content that can be stacked to help optimize the relevance of assessment without requiring the development of fully customized content.

I feel that this offers the best compromise between optimal configuration and quick implementation. This type of system is usually much cheaper than the old model for assessment while often delivering almost equal results.

The final answer of how much one should budget for the use of assessment is, “it depends.” I wish I could provide some hard-and-fast guidelines, but costs for assessments depend on a multitude of factors including how much customization you need; the level of technology required; the level of job you are assessing for; the applicant volume you plan to experience; and the level of follow-up evaluation you plan to use.

Do not skip out on the proper evaluation of assessment, even if it does add extra cost. Evaluation is critical because this is a central part of understanding ROI and provides the data needed to build a business case for the use of assessment tools.

Once you have implemented and evaluated an assessment process, you will have a much better starting point for the development of next year’s budget. Live and learn.

Dr. Charles Handler is a thought leader, analyst, and practitioner in the talent assessment and human capital space. Throughout his career Dr. Handler has specialized in developing effective, legally defensible employee selection systems. 

Since 2001 Dr. Handler has served as the president and founder of Rocket-Hire, a vendor neutral consultancy dedicated to creating and driving innovation in talent assessment.  Dr. Handler has helped companies such as Intuit, Wells Fargo, KPMG, Scotia Bank, Hilton Worldwide, and Humana to design, implement, and measure impactful employee selection processes.

Through his prolific writing for media outlets such as ERE.net, his work as a pre-hire assessment analyst for Bersin by Deloitte, and worldwide public speaking, Dr. Handler is a highly visible futurist and evangelist for the talent assessment space. Throughout his career, Dr. Handler has been on the forefront of innovation in the talent assessment space, applying his sound foundation in psychometrics to helping drive innovation in assessments through the use of gaming, social media, big data, and other advanced technologies.

Dr. Handler holds a M.S. and Ph.D. in Industrial/Organizational Psychology from Louisiana State University.

LinkedIn: https://www.linkedin.com/in/drcharleshandler

 

 

 

 

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7 Comments on “Budgeting for Assessments

  1. Well done Charles- a lot of info presented in an intersting way- almost from the presumed viewpoint of a vendor or would-be investor in the space.

  2. Great article, and helpful.

    I thought I would share this niche and comparision:

    The U.S. Chamber of Commerce?s Center for Workforce Preparedness (now: Institute for Competitive Workforce) has been working on a national certification for entry level job seekers intensively for the past few years. At a June 2004 meeting in Washington DC the Chamber?s director of the Center, Natache Mushette, shared that the top issue raised by their three million business members from a recent survey was ‘soft skills.’

    ?The NWRC helps busy managers by identifying and certifying that an individual has the right communication, interpersonal, problem-solving and learning skills to add value for customers, work in teams and grow with the company. Business leaders now have a simple and effective tool to streamline their hiring and find the right people for their firms. This has the demonstrated effect of decreasing cost-per-hire, reducing turnover and increasing customer value.?

    Now just in case you might think things have improved, and think ?that was then and this is now? look at the agenda for the upcoming Fall 2007 Conference and what are being called ?The New Basics: What are the strategies to upgrading the skills of the current workforce now that companies are demanding more digital capabilities, science and math skills, and interpersonal communication??

    To address the need for the nation?s employers, The National Work Readiness Council, which developed and manages the Credential, operates a growing network of 45 assessment sites in 18 states around the country.

    No doubt there is a big round of applause from the nation?s employers, hiring managers and recruiters for the work done by the Chamber to make it easier to find the right person for the right job, but I?ll bet money there are folks out there thinking, ?yes, great, that?s ok for the entry level stuff, but it doesn?t apply to the kinds of positions that I have to recruit for,? implying that they don?t work with entry level candidates and that soft skills and communication skills are not an issue above that level.

    To wit: ?Employers are finding that freshly minted graduates (MBAs no less!) lack key interpersonal skills?? (my insertion).

    ?When Jack Welch gave a guest lecture at MIT’s Sloan School of Management in 2005, someone in the crowd asked, ‘What should we be learning in business school?’ Welch’s reply: ‘Just concentrate on networking. Everything else you need to know, you can learn on the job.’ Sloan’s dean, Richard Schmalensee, was stunned because ‘Jack was essentially saying a graduate business degree was a waste of time.
    Not long after that visit, MIT began a curriculum rethink – dialing back on pure quantitative skills and adding more interpersonal coursework. Wharton, Tuck, Chicago, the University of Virginia’s Darden, and Berkeley’s Haas School, among many others, have also started stressing teamwork and are paying more attention to ‘soft’ skills like listening to colleagues.

    What’s driving the curriculum shift? B-schools are acting a lot more like businesses these days (gasp) and responding to their various customers – corporate recruiters and students. ‘MBA students we employ don’t need to come in being finance gurus. What’s much more important is that they know how to analyze issues and communicate recommendations,’ says Ken Barnet, a vice president at State Street Corp. who works with both B-school interns and freshly minted MBAs (my emphasis).?
    So we have a ?soft skills? and ?communications skills? issue at the bottom and the top.

    I?m sure anyone can readily confirm this on the ground, and I?d be surprised to hear of substantive across-the-board objections. In a conversation that I had with a senior recruiter for one of the most formative entertainment companies of our time, who is also by coincidence a faculty member at a local university, he pointed out to me the continued prevalence of ?valspeak? (Valley speech) in today?s youth in higher education, and they are about as far away from California as one could get. He also noted, and complained that at least some of his students can write incredibly well, and he just begs them to speak as well as they write. If they did, I think the consensus would be that they could write their own ticket for whatever they would choose to do.

    OK, so where am I going with this?

    ?The [National Work Readiness Credential] assessment is a web-based test with that uses questions to ascertain a test takers real world work skills. Most of the assessment is in multiple choice format but does include a state-of-the-art, oral language test in which a test taker responds to digitally generated questions and their response are recorded for later rating. The assessment takes about 2 ? hours to complete and has four modules:

    Read with Understanding: 30 minutes
    Math for Decision-making: 30 minutes
    Oral Language Test: 30 minutes
    Situational Judgment: 45 minutes

    Tests are administered in quiet and comfortable computer labs and supervised by trained proctors to ensure both a good experience and reliable results. The assessment is value priced at $65 per test.?
    While I certainly applaud everything that has been achieved over the years with the development and implementation of the NWRC, the convergence of technological infrastructure in just the past 3 years has created possibilities that just did not exist a few years prior. So, I just have to ask, what would be a better indicator of a job candidate?s ?soft skills? than to see them in a structured video interview?
    Structured, employer-driven and job-specific video interviews take approximately 15-20 minutes to take, and are competitively priced by any measure at $19.95 per ?assessment,? if you will, at the employer?s or partner locations.

  3. Very thoughtful article. Implementing assessments along the lines of known best practices requires a comprehensive approach, as Charles details.

    I also suggest readers consider the implementation of assessment as developing a measurement infrastructure for a business process called staffing. Companies invest significant resources in measurement systems that add value and support decision making.

    Most business disciplines require some for of data capture, storage, analysis and retrieval. Look at ERP, AR/AP, Order Entry/tracking for a few examples. A well developed assessment, or objective candidate evaluation process should be considered a measurement based infrastructure that supports decision making in the staffing process.

    If you go out looking to buy a test, any option might seem costly. If you approach assessment as an investment in process control, measurement and improvement, the ROI is easy to calculate.

    Job analysis and validation are no different than a well defined feasibility study and business impact analysis. Businesses typically conduct these analysis prior to making an investment. The same should hold true for investments in objective candidate evaluation.

  4. Dr. Handler did a good job of summarizing the array of assessment pricing options available. While it is beyond the scope of the article, please remember that the tool must fit your need, regardless of the price. We represent Predictive Index and always try to make sure that our tool will solve the client’s problems. Price is only one part of the equation.

    Steve Waterhouse
    http://www.predictiveresults.com

  5. Let?s assume for the sake of argument that fair, non-discriminatory, cheat-proof assessment tests can be designed to accurately measure the ability to do most or all requirements of any given position. Wouldn’t it then follow that organizations should use ATs instead of resumes and competency-gauging interviews for hires? Have their been any formal studies of the ‘quality’ of hires in a group of ATd candidates vs. a control group of resume/interview candidates vs. a third group with both?

    IMHO, should ATs be found significantly ‘better’ than using the traditional hiring methods, there would be considerable resistance to their large-scale usage. Why? The big secret (rarely mentioned) is organizations do not wish to hire people who can do the job very well- they want to hire people LIKE THEMSELVES who can do the job very well. A true meritocracy would upset too many apple carts.

    ICE:
    Inquiry
    Curiosity
    Evidence!

    Cheers,

  6. When you say that companies only want to hire people like themselves, you are making the point for assessments. In our experience, companies tend to hire those like themselves until they have a tool to help them do otherwise. It is amazing to see what happens when we bring a tool into a client and show them their current workforce and compare that to their ideal candidates. Companies want to hire smarter because they want to manage easier. People who are a better fit are happier, stay longer, produce more and demand less. Good assessments can help them do all of that.

    Steve Waterhouse
    http://www.predictiveresults.com

  7. What many people forget is that ANY method used to separate ‘qualified’ from ‘unqualified’ applicants is an assessment. Put another way, assessment is just another word for test.

    Furthermore,like it or not, because questions and answers are used to qualify applicants, interviews are also assessments…and, almost everyone knows interviews are among the easiest assessments to fake.

    And, yes, companies hire people like themselves…but they also expect these look-alikes to be competent.

    Charles’ article is right on target. The major obstacle to trustworthy and reliable assessments (tests) is that the cost of assessments usually comes out of HR’s pocket…but the benefits of lower turnover and higher productivity usually benefit a line department. Making managers aware of the cost/benefit associated with assessment helps clarify the issue.

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