Measuring Return on Investment (ROI) in Training as Part of Your Business Strategy

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1 Measuring Return on Investment (ROI) in Training as Part of Your Business Strategy By Catherina Opperman Measuring ROI in training is the clearest statement an can make about the amount invested in training. Why measure the ROI in training? When measuring, it is possible to establish the benefit of training. If there is a benefit greater than the cost, then training is worthwhile. To draw this conclusion, the return on investment has to be measured. Measuring ROI is a practice of modern management used in the analysis of business operations. The majority of s does not measure the return on investment and therefore do not determine the direct relationship between training inputs and bottom line profit and outputs. This is partly due to some of the challenges and the difficulty in isolating the effects of non-training issues. Unpredictable factors affecting training measurement are staff turnover among employees who have been trained, and interest rates when purchasing training material. Learning-by-doing affects production and is difficult to measure as it is embedded in outputs. Consensus has not been reached over the procedure to measure the financial return on a training investment. Do we measure according to Donald Kirkpatrick s level four evaluation or Jack Phillips level five evaluation? Do you have to make use of a control group to ensure your results are a true reflection of the ROI? The good news is that ROI can be determined through a scientific method. ROI is the measure of the monetary benefits obtained by an over a specified period in return for a given investment in a learning programme. In other words, it is the extent to which the benefits (outputs) of training exceed the costs (inputs). The cost of training is the money invested in the training programme. The benefits of the training programme would be the measurable output, i.e. the ability to answer more telephone calls, or manufacture more nuts and bolts.

2 ROI is a key financial metric of the value of training investments and costs. It is a ratio of net benefits to costs, expressed as a percentage. The formula can be expressed as: [(monetary benefits cost of the training) / cost of the training] x 100 ROI (%) = (benefits costs) x 100 costs If the ROI from a training programme is calculated at 335%, it means that for every rand spent, there has been a return of R3,55 in net benefit, after all costs are factored in. The exact form of that benefit depends on the objectives of the learning programme, i.e. better telephone technique application and communication skills after training. The total cost of the employee to the is calculated including floor space, p.c. rental, etc. If the employee answers 3,000 calls per month divided into the cost of R7, 000. to the, the cost would be R2.33 per call cost to the. After training the employee answers 3,180 calls per month. The cost of the employee to the is now R2.20. The value of the training programme is then calculated as per the above formula to determine the monetary value of the benefit. A business ROI focus is based on a benefit/cost analyses to determine the business value as a result of training. ROI assist in achieving such values as accountability, justification of the money spent on training, and the allocation of resources for training. ROI measurement entails the three c s of ROI; cost, change and calculate, i.e. determine the cost of learning, measure the change as a result of learning, and calculate the benefits as a rand value. The business rationale for investment in training includes the following: Upgrade skills continuously Improve individual performance to meet operational standards Raise al level of performance Enable individuals to adapt to strategy, market conditions and technology

3 Legislative compliance Enable best skills matches between the individual and the Develop potential for promotion Develop the s human capital The performance of each individual affects business performance Long-term sustainability for the business and the industry Legislation has an impact on the way s view training; the purpose of training, and the value of training delivered. South Africa has been investing vast amounts of money in training. More so over the past eight years as a result of legislation in the form of the SAQA Act, Skills Development- and Skills Development Levies Act. Training budgets are growing. Additional training and development programmes are being implemented as part of s employment equity plans and workplace skills plans. Specific measures used when measuring ROI demonstrate the link between training and tangible measures in the form of increased output, fewer mistakes, better quality or higher level of customer satisfaction. Positive behaviour as a result of training could be reduced absenteeism or lower staff turnover. A % reduction in staff turnover translates to the having to recruit and train for example eight employees less, as opposed to no training and a higher staff turnover. Questions to ask when an employee is scheduled to attend training: How does this training relate to the aim of the organization, of the division or business unit, and to the individual s developmental plan? How does the training relate to the customer? Where does it fit into the s long term growth? Why is it important? What are the expectations of the training module? What are the expected outcomes? What is the link between the training and the day-to-day activities?

4 What is the link between the individual s job, the and the customer? What learning is needed to achieve business results? Is the learning integrated into day-to-day activities? Is the training related to improved performance or production? Is the training aimed at increased service levels? Is the training aimed at increased job satisfaction/ morale of the employee? Some of the constraints to measure ROI are the difficulty to collect data and the lack of sufficient training records. A business approach to ROI highlights other issues such as the linking of training to the s strategic objectives. These objectives are indicated amongst others, on the Workplace Skills Plan. Individual performance and the relevant training needs required to achieve strategic objectives should be linked to the Performance Management system of the. One integrated process is then applied to identify individual competencies needed to achieve al effectiveness and record these on a Personal Development Plan. This ensures that learning is integrated into the overall business strategy. To ensure that training achieves what it aims to achieve, the training needs that are identified needs to be aligned to al goals as an integrated process between the different levels. Level Aim Measurement Employee Personal development Individual performance Training manager Narrow the skills gap Individual measures Business unit manager Achieve business goals Business measures Executive management Achieve strategic objectives Shareholder value Measuring the impact of training forms part of an integrated business process and is done according to a scientific process and specific ROI formula. A comprehensive framework for measuring ROI starts from a needs analysis to determine the current competence and gap in performance, determining the required outputs, the sourcing, design and development of learning material, data collection, measurement and reporting. ROI bottom line is achieving measurable business objectives. Training becomes an integrated and focused learning experience.

5 ROI as part of a business model focuses on the inclusion of ROI measurement to enforce business values of accountability and employee development, and most importantly, the conversion of improved business performance to a rand value to measure the monetary benefit as a result of improved individual performance due to training. This is the most crucial step in aligning training to all objectives. Reprinted by Alusani Skills & Training Network with the permission of ROI Online Copyright ROI Online