There’s an old meme that gets circulated on LinkedIn and other sites, reporting a conversation between a CEO and a CFO:
CFO: What happens if we spend all this money training our employees and they leave?
CEO: What happens if we don't, and they stay?
The idea, of course, is that organizations can’t afford NOT to train their employees.
But where’s the proof? What does a training program really accomplish in terms of productivity? Employee loyalty? The bottom line?
Thoughtful decision-makers are often reluctant to back full-fledged training programs for their teams without hard evidence of value. Workplace learning and development specialist Clive Shepherd reports that the slogan “people are our greatest asset” has become something of a cliché. Although widely recognized, “the effort [businesses] put into developing this ‘human capital’ continues to be seen as an expense and not as an investment.” .
It’s time for that perspective to change. Organizations would do well to analyze their training programs as capital investments, using techniques such as ROI measurement. Then senior management can see the value of training in recognizable, actionable terms.
How Does 353% ROI Sound?
As illustration, a study by professional services company Accenture showed that for every dollar invested in training, companies received $4.53 in return. That’s a 353% ROI.
Likewise, online learning consultancy True Focus Media reports that companies utilizing e-learning tools “have the potential to boost productivity by 50%. For every $1 the company spends, it’s estimated they can receive $30 worth of productivity.” On the negative side, True Focus found that nearly 25% of employees leave their jobs because of inadequate training and development opportunities.
How are such figures calculated? The formula for calculating training ROI is pretty widely known: % ROI = (benefits ÷ costs) x 100. But it can be a daunting task to pin down all the variables and metrics involved in a training program. Northern Michigan University training and development educator Leigh Dudley has developed a five-step approach for attaining the data for calculation:
- Collect post-training data: Collection can be done through knowledge questionnaires, performance metrics, employee feedback, assessment of new information and skills employees are using on the job, increased speed and quality, and supervisors’ observations. If it is not feasible to do all of these, begin with a few. The important things is to quantify the effects of your training as much as possible.
- Isolate the effects of training: This essential step determines the amount of output directly related to the training program. You can do this by comparing pre-training and post-training performance, or comparing trained with untrained groups. Realistically pinpointing causes of improvement will up both the accuracy and credibility of the ROI calculations.
- Convert data to monetary values: The ideal approach to this step is converting output data to profit contribution or cost savings using historical costs, payroll and benefits, quality expenses, and supervisors’ and senior managers’ assessments of improvement. This step is critical to determining the training program’s fiscal benefits, and yet it can be especially challenging because of the need to convert soft data to hard figures.
- Tabulate program costs: This step involves monitoring and tracking all of the related costs of the program targeted for the ROI calculation, including expense to design and develop the program; cost of all program materials provided to each employee; all fees for the program coordinator and instructors; cost of facilities for the program (including electronics); expenses for travel, accommodations, and meals; employee salaries for the training time; and costs for needs assessment and evaluation.
- Calculate the ROI: Now calculating that ROI is the easy part! Using the program benefits and costs collected and quantified in the first four steps, calculate your training program’s ROI as follows:
% ROI = net benefits ÷ program costs x 100.
When you have an ROI calculation like this in hand, you will not only be speaking the language of that doubtful CFO, you’ll be able to make a hard case for you favored trainings programs and win support for larger budgets.