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Struggling with evaluating Return on Investment? read on…


Return on Investment (ROI) is very much a hot topic these days in business - if you invest, the reasoning goes, you need to be able to quantify exactly the benefits from that investment. This theory is being increasingly extended in organisations looking to become more accountable and more efficient to company training budgets. However, with learning being an inexact science, quantifying how training interventions have benefitted the 'bottom line' is something which many responsible for training budgets are grappling with.

With this in mind, Tim Drewitt of online training providers Xebec McGraw-Hill has 'taken the bull by the horns' and put forward a process for calculating the return on investment on training activities, and e-learning in particular. Below, TrainingZONE takes a brief look at Tim's theories.

Tim introduces his ideas with a quick swipe at the fact that evaluating the cost benefits of e-learning seems to be given more prominence than evaluating other methods of delivery. It has to be said thought that given e-learning is still in its infancy, companies are going to scrutinise it far more carefully given that there's no tried-and-tested evidence to go on. That aside, Tim points out that mathematicians, accountants or economists (which most trainers are not) all disagree as to how return on investment should be calculated. As someone who studied labour economics at degree level. Tim uses this knowledge, combined with his practical experience of evaluating training, to put forward his guidelines for calculating training costs. He concludes his introduction: "The best we can hope for is a consensus amongst our colleagues and senior management as to the methodology we will use and the correlations that we will apply to our findings."

This document uses the example of delivering soft skills training online, an area which has been the subject of debate so far as to how effective it actually can be. Although Tim admits that calculating the benefits of delivering soft skills training on line 'is not so easy',
putting forward a theory for evaluating it financially does at least provide a mechanism for looking more closely at the effectiveness of online programmes for interpersonal skills.

Tim talks about two ways of evaluating return on investment for e-learning, the second of which could also be applied to any other form of delivery:

  • Immediate Salary Value Gain - because e-learning is a quicker process, Tim argues that there is an immediate productivity gain from the learner spending a shorter period of time actually undertaking the course. He gives a 'compression ratio' to calculate this.

  • Post-training Salary Value Gain. This method assumes that firstly, a person's job role can be divided into a number of competencies, which can be rated, and secondly, that it is possible to quantify the loss if a person isn't performing to the levels required in each of these competencies by assessing this as a loss of salary: "If they (the job holder)were not performing at their most effective then they not be effectively using the required skills and we would not be getting the full value for money." Tim talks about breaking down a job in its composite parts - for example, delegation skills account for a fifth of a person's job role, hence a fifth of, for example, a £20,000 salary, therefore that skill is worth £4,000 of salary. If a person was only 25% effective in delegation skills, but rated as 75% effective after attending a course, would have gained £2,000 by sending person on course. It's worth reading this again in case it isn't completely clear the first time around!
  • Although the competency idea is one many will be familiar with, there is still a fair amount of mathematics involved with this approach. The assumption also seems to be also that one competency doesn't impact on the others, although presumably it would be possible to measure the effect of a training intervention on several competencies at once. The other consequence of following this second method to its logical conclusion is that if course costs more than the amount gained at the end of the training, it isn't worth doing, but that's another story!

    Tim goes on to suggest that you can also look at savings in travel costs, revenue gains and productivity gains for e-learning. Travel costs are an obvious saving for e-learning, but the other two factors apply equally to other methods of delivery. For productivity gains, if training is needed to increase the production of a product, there is clearly a direct gain. Tim admits that measuring revenue gain is a more difficult story, particularly where the desired result does not have a monetary value, such as customer satisfaction scores. Of course, this is key, because the 'bottom line' is often what management want to see. He does however suggests turning the argument on its head, by looking at the financial consequences of not getting the employee trained, (i.e. poor customer satisfaction may mean business goes elsewhere). Tim says you have to combine of these factors together to achieve a detailed report, but says you could choose to give some a greater weighting than others.

    Tim goes on to look at the costs of online learning - course content, maintenance, hosting, delivery, LMS, hardware and tutor support all draw on training budgets, as do other factors such as marketing. Of course, its the very fact that installing and accessing an e-learning system can be so expensive that encourages extra attention to be spent on the benefits at the other end. Tim emphasises that you need to define a projected payback period in order to properly assess how the costs will be recouped.

    Tim Drewitt's theory certainly doesn't provide all the answers, nor does it aim to, or claim to be 'a precise science', but it's certainly worth a read to get you thinking about whether such a structured framework can be of use. To read the full article, visit the Xebec McGraw-Hill website at Additionally, this week's online workshop will be discussing whether evaluation is worth the effort. Join the discussion on Tuesday 13 March at


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