Calculating Return on Investment of Training



GUIDE TO CALCULATING RETURN ON INVESTMENT OF TRAINING

Identify Program Objectives

In making the decision to implement a training program, whether for one person or a larger group of employees, you have likely identified one or more solutions or improvements that you are looking to achieve by providing the training.

If you performed a Needs Assessment to arrive at the decision to implement a training program you have likely identified gaps between outcomes that the organization expects (performance) and what is actually happening related to job performance. From this, you will have identified specific things you are looking to achieve by providing training. This may include improved productivity or quality, reduced scrap or waste, reduction in accidents or injuries, improved customer satisfaction, reduced customer complaints or some other aspect of job performance that increased skills and abilities gained through training should positively impact.

Soft skill training such as supervisory or communication training can be more difficult to measure. Objectives may include reduced employee relations issues being escalated to senior management, improved ratings on employee satisfaction surveys and even reduced turnover in the supervisor’s department.

Unless you identify specific and measurable objectives, you will not be able to calculate the impact of the training or the ROI. You can refer to the Developing SMART Objectives resource document for further assistance in identifying your program objectives.

Develop Program Evaluation Criteria

Based on the specific program objectives identified, you will need to identify the specific elements you are going to use to measure the success of the training. These may include quality control reports, scrap reports, production statistics or any other measurable element.

Baseline levels should also be established by determining the current level of performance against each measuring element before the training commences so that you will have a clear understanding of the effect that the training has on performance. Without specific and measurable criteria, it is virtually impossible to measure the impact of training.

Collect Feedback During Program Implementation

Whether training is being conducted in-house or an employee or employees are being sent to an outside training provider, it is important to seek feedback from the participant(s) regarding their training experience. Feedback should include satisfaction with the training and specific action plans being developed based on the learning (i.e. how are they going to apply the training to their job).

These action plans will assist in measuring the impact of the program. It also provides the opportunity for additional action plans to be developed based on the training objectives identified by the company at the outset of the program and/or in the needs assessment.

Collect Data re: Impact of Program on Evaluation Criteria

Based on the criteria identified in the second step, monitor and track performance against the baseline data. The positive change in these elements represents the real impact of the training program. While there may be some other elements you’d like to consider, such as the participant being a ‘happier’ employee, if those elements do not translate into a measurable improvement against the baseline of the evaluation criteria, there is no real way to factor it into the ROI calculation.

Translate Impact Data Into Financial Benefits of Program

Based on the data collected and the performance improvement against the baseline data, the real financial impact of the training can be calculated. Using criteria such as improved productivity or reduced scrap/waste, you will be able to calculate the actual financial value and benefits that the training program is providing.

It is important to ensure that you factor in any other influences on performance that may be having an effect in addition to the training as well. If there has been a material change to process, equipment, etc, which is contributing to improved performance, try to determine a reasonable split between the effects of the training and the other factors.

Calculate Program Costs

The costs of running the program should be fully loaded into this calculation. Costs should include applicable items including the actual course or program fees, costs of materials, facilities, travel expenses, participant wages/salary and benefits for paid time in course as well as prorated costs for the employee time spent conducting needs assessments and program evaluations. If the course was conducted on-site, administrative and overhead costs for the organization and the space and equipment used can also be allocated to it.

Return On Investment Calculation

The ROI, expressed as a percentage, can be calculated by dividing the Financial Benefits realized from the program by the Program Costs and the multiplying by 100.

The period for which the ROI is calculated may vary, but as a general rule, it should not exceed one year from the completion of the training.

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IDENTIFY PROGRAM OBJECTIVES

DEVELOP PROGRAM EVALUATION CRITERIA

COLLECT FEEDBACK DURING PROGRAM IMPLEMENTATION

COLLECT DATA ON IMPACT OF PROGRAM ON EVALUATION CRITERIA

TRANSLATE IMPACT DATA INTO FINANCIAL BENEFITS OF PROGRAM

CALCULATE PROGRAM COSTS

Financial Benefits

ROI = ------------------ x 100

Program Costs

• What do you want to achieve from the training?

• What are the specific business outcomes that you hope to see?

• Identify the specific elements that you will use to gauge the success of the training.

• Establish baseline levels for each criteria (current performance).

• Participant feedback.

• Capture planned actions to be implemented based on learning.

• Monitor performance against criteria and compare to baseline data.

• Calculate the real financial benefits of program implementation in target period.

• Calculate total costs of running the program.

• Benefits divided by Costs gives you the ROI.

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