Quantifying the ROI in training – Can it be measured?
Training in many companies is not the most popular activity in terms of “Return on Investment” or ROI. The reason being many HR managers have to strive to justify and quantify the money spent and relate the cost of training back to profitability and increased income to the company.
Training is often seen as a waste of time, money and effort and the potential value of such training is often questioned. To make matters worse many HR managers have no idea how to quantify or justify such expenditure or to explain the value added through such training.
So how do we justify the value of training in any company? How can we establish the value of training if we have no means of measuring the effectiveness and result of training?
The overall objective of any training intervention should be to increase the performance of delegates while at the same time adding to effectiveness of employees and overall profitability of the company. If we say we want to increase the performance of the delegates then it goes without saying there must be an identifiable performance problem.
If we can identify a problem and find a means of quantifying the effect of the problem we have a means potentially of measuring the impact of training. To do so we have a need to quantify the impact of the problem and to give this impact some form of monitory value. Following training, we would again need to monitor performance and establish if an improvement has resulted and at the same time place a new monitory value on the performance improvement. This can only be done by measuring the cost of poor performance prior to training, the increase in productivity and/or profitability after training and expressing this as a percentage of the total cost of training. This would then give us a percentage return on investment. Not such an easy task is it?
One approach might be to establish what the problems are that exist in a company?
Who are the people involved? Are others impacted as a result of the problem? What is the best potential solution?
It is then necessary to establish the impact of the problem or problems in terms of some form of monitory measurement. This can be considered in terms of the average salary of the group identified, the average number of hours worked per annum, the average rate per hour and the estimated time lost as a result of the problem. From this we can give a value to the time lost expressed in man-hours and at a specific rate per hour. We have a value we can place on the performance problem
We would then have to consider the possible solutions. For our purposes let’s assume the solution is training. We can then place a cost to the training either making use of our own resources or bringing in an external provider.
We would then need to decide on the possible or desired results in terms of performance improvement. Initially we would want to get employees back to optimum performance. But we may also wish to see and improvement over and above the optimum. Let’s assume we aim at 110% performance. This can be quantified based on the rate per hour we previously established. We have given the improved performance a monitory value and have quantified desired results.
In order to calculate ROI I am suggesting we first need to make estimates and assumptions. In order to measure the costs and benefits associated with training. This I feel makes the calculation of ROI a relatively simple process.
Since it is a very difficult process to measure performance improvement, mainly because it can only be done over a period of time, it is necessary to make assumptions and to decide on a desired result. If the desired result is linked to work hours and outputs during work hours it make the task of measuring results easier and more quickly identifiable.
Example
Let’s assume we train a person who was having a performance problem due to lack of skills and our estimate of outputs was that he/she was working to 80% of potential.
We decide to put the person onto a skills training course.
So if this person was working at 80% of potential and thereby costing the company say 480 (20% of total hours PA) hours at a rate of R22 per hour, then the cost of the loss has a value of R10560.
So if we calculate the Rate of Return on investment as
ROI % = (Value of improvement –cost) X100
Total Incurred Costs
Then following training we see an improvement of 10% over the optimum then the value of the improvement is R5280. If it cost of training this one individual is R2500 then the return on investment is 111%
© Des Squire (Managing Member)
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Cell 0828009057