Effective and convincing ROI calculations give stability and support to an organisation's skills strategy. As part of our Adding Value in Training series, Barbara Greenway, managing director of Parity Training, sets out six straightforward steps to ensuring ROI.
UK companies spent £23.5 billion on training in 2001. On the one hand, this figure is a powerful indication of the value that many organisations put on the importance of training and skills management within their enterprises. But given the current uncertain economy, it’s vital that businesses are getting a return on their investment in learning. Even the most forward-thinking companies will be putting the pressure on Training Managers to justify their budgets.
But is this possible? (The truth is, the training manager often relies on the ‘intangibility’ of learning goals to avoid the frightening question: "was it worth it?").
The short answer is: Yes. Calculating ROI on training programmes is possible. While it is an undertaking that requires time, the value that it can bring to both the company as a whole, as well as the training department, is significant.
These are designed to enable you to prove to the board that the work you do is literally, worthwhile.
1. Define your objectives
It is imperative that you first define the reasons and goals for the training. Typically, objectives for training projects are diverse and can include increased productivity, reduction of errors and improved employee retention.
Objectives like these, which relate back to an organisation’s business goals, can be measured and are meaningful. However, an organisation must have determined its goals and communicated them, before an individual learning project’s success can be mapped against it.
With or without defined objectives, many organisations barely get through the first stage of evaluation - relying on ‘happy’ sheets to let them know if the course went well and leaving it at that. A delegate who achieves a high score immediately following a training session may well be the kind of person who finds it difficult to convert what they learned to the real workplace, or may just forget everything after a weekend away from their desk. So what did their delegates actually gain from the course? How much of what was said by the instructor, or read and practised through the e-learning mechanism was understood?
2. Skill assimilation
So onto stage two: skills assimilated. ‘What did they learn?’ Tests taken after a longer interval (perhaps 3 months after the course), can prove that certain topics have truly been taken on board.
On the other hand, it’s the application of these topics within a business context which is what you really need to gauge. If goals have been set from the start, this will be achievable - especially with the help of electronic tools. Is there, for example, a reduction to errors on the system? Are there fewer calls to the help desk? Are more people sending emails and easing off internal memos?
Traps have to be placed in advance to capture this type of information and relate it back to the training course. Did a user always perform a task in one way and subsequently, after training, demonstrate a skill that was covered on the course? If the answer is yes, the course achieved a degree of success - but was it worth the cost?
Step up to the next level of evaluation: cost itemisation.
3. Cost itemisation
Itemising the costs of a training programme is a detailed job and requires an eagle-eyed commitment to the task - breaking down the share of a cost even if it could easily be lost in overhead.
You have to ask yourself, what was the cost of the course? And trainer development, programme materials, instructor/facilitator, facilities, travel/lodging/meals and administration?
Can you place a value on your delegate’s time; even calculate a potential loss of earnings from a sales person who’s been taken away from their customers for a day? If you can, and therefore obtain a well-researched figure that can be attributed to the cost of the programme, then display it against the list of benefits achieved (reduced errors, improved morale etc) to complete the cost itemisation.
4. Benefit evaluation
Benefit evaluation is not for the faint hearted. At this stage - so high above the aforementioned ‘happy sheet’ it can make you dizzy - you play with the big boys.
There are no fuzzy intangibles and no woolly estimates. All benefits must be converted to a monetary value, which is easy enough for hard facts such as time savings, but difficult for soft data such as customer satisfaction.
Time savings can be figured by multiplying the number of hours saved by the workers’ average hourly salary. Production gains are computed at the monetary value of the extra goods produced. If such a number does not exist internally, external studies and expert opinion can be sources for the data.
Typical benefits you should consider include time savings, improved productivity, labour savings (less supervision, overtime or temporary help required), improved quality, and better morale.
If the measures have been taken before the project began these can be more than just estimates.
5. Doing the maths
Once you’ve taken into consideration the above, the calculation looks simple enough:
ROI = (value of benefits – cost of training) / cost of training
Return on Investment is usually expressed as a percentage, but what scale is it measured against? What is a good ROI?
Achieving a minimum of 25 per cent is a respectable goal, but some organisations are satisfied as long as they break even. According to Gartner, (based on North American figures and presented in US dollars) technical IT training usually yields 25 - 75 per cent ROI of the initial investment.
Management/leadership training programmes typically yield returns of 150% to 400% because the training affects not only the delegate’s performance but also the performance of the delegate’s team members or colleagues.
6. Evaluation
To maintain the credibility of your ROI findings, it’s important to try to isolate the effects of training, rather than taking credit for improvements caused by other variables.
Your wonderfully mature business analysis will swiftly be sent back to the nursery if you declare every business achievement as ‘mine’. It’s difficult because there are so many different influences at work – if in doubt, ask.
Ask the users, ask their managers, ask the technical team. And if enough people tell you the training made the difference and allowed them to hit a business target they’ve never hit before, take pride in what the training has achieved and report it.
Conclusion
ROI builds a compelling financial case for funding any future IT training programmes. It can enable sound decision-making on which learning programmes to progress, and which to discontinue.
Besides, in the future, training managers may not have any choice but to perform this kind of analysis. Gartner estimates that by 2005, true ROI as a measure of training effectiveness will be used on selected programs by 60 per cent of organisations.
The more detailed the evaluation, the more information you will have on whether the training is working well and if not, why not? This will help you make informed decisions on which programmes to continue, and give you a better idea of the potential of future programs.
However, evaluations do take planning, time, and money. You may not be able to perform a full ROI on every skills development activity you undertake, but it’s worth choosing to do it on the big, or brave ones.
In the final analysis, in an era of budget-cutting, training managers who can talk to their directors about ROI will stand a better chance of maintaining a skills development strategy.