Assessing the ROI of training

By:Andreea UdreaAugust 12th, 2013HRNo comments

If people really are your greatest asset, isn't it time to look at your training programmes as investments in your organisation's human capital and not just as an expense?

Measuring the success of training

The evaluation of training, like motherhood and apple pie, is inherently a good thing. But, because short term priorities always crowd out their longer term competitors, it's typically something we plan to do better next year - after all, we've got away with it so far, so another year won't hurt!

And even if training evaluation is undertaken, it is usually at the easiest and lowest level - the measurement of student reactions through happy sheets. Reactions are important and the happy sheets serve a purpose, but will they be enough to back up your arguments when there is a need for a greater investment in training, when major changes need to be made in direction, when there is stiffer competition for resources, when times get tough?

Why evaluate training?

Let's summarise the main arguments for better evaluation of training:

To validate training as a business tool
Training is one of many actions that an organisation can take to improve its performance and profitability. Only if training is properly evaluated can it be compared against these other methods and expect, therefore, to be selected either in preference to or in combination with other methods.

To justify the costs incurred in training
We all know that when money is tight, training budgets are amongst the first to be sacrificed. Only by thorough, quantitative analysis can training departments make the case necessary to resist these cuts.

To help improve the design of training
Training programmes should be continuously improved to provide better value and increased benefits for an organisation. Without formal evaluation, the basis for changes can only be subjective.

To help in selecting training methods
These days there are many alternative approaches available to training departments, including a variety of classroom, on-job and self-study methods. Using comparative evaluation techniques, organisations can make rational decisions about the methods to employ.

Criteria for measuring training success

The form of evaluation that we undertake is determined by the criteria that we choose, or are told to use, to measure success:

One way of measuring the success of training is the good old ‘bums on seats’. Although by no means a true measure of the effectiveness of training, student numbers do reflect the fact that the training is addressing a need and that the design and methodology is meeting expectations.

Direct cost
Direct costs are those costs that are incurred directly as a result of a training programme – external design and development, consultancy fees, travel expenses and so on. If the programme did not take place, these costs would not be incurred. Many organisations only ever take direct costs into consideration when measuring training costs.

Indirect cost
Indirect costs are costs that may or may not be directly associated with a training event, but which would have been incurred anyway, whether or not the training took place. Examples are salaries of in-house trainers and the costs of rooms and equipment. Any analysis of the true costs of training will include both direct and indirect costs.

Efficiency is a measure of the amount of learning achieved relative to the amount of effort put in. In practical terms this means the amount of time it takes to complete a piece of training. Efficiency has a direct relation to cost – the more efficient a training method is, the less it will cost.

Performance to schedule
Sometimes with a training programme, ‘time is of the essence’ – the training needs to be completed by a given date if a particular business objective is to be achieved. In these situations, the extent to which a training programme performs to schedule is a critical measure of success.

Income received
If you are a training provider operating externally to a client organisation, then income received is a vital measure of your success. It’s the financial equivalent of ‘bums on seats’ – the more courses you run or places you fill, the greater the benefit. Some internal training providers may also cross-charge their clients, although, because this correspondingly increases the cost to the organisation, this is not regarded as a benefit when assessing return on investment.

The extent to which trainees mix
A justification often made for training, particularly group events, is that it provides an opportunity for students who work in different departments or regions to meet with each other, share experiences and make contacts. Because this is a valued outcome of training, it needs to be considered when comparing training methods. Similarly, some training may be regarded as a perk, a benefit of some value, even if this is not directly related to learning.

Reactions are what you measure with the ‘happy sheet’. Reactions are important because, if students react negatively to your courses, they are less likely to transfer what they learned to their work and more likely to give bad reports to their peers, leading in turn to lower student numbers.

Learning, in terms of new or improved skills, knowledge and attitudes, is the primary aim of a training event. Learning can be measured objectively using a test or exam or some form of assessed exercise. If a student has to achieve a certain level of learning to obtain a ‘pass mark’, then the number of passes may be used as an evaluation measure. Another important aspect of learning is the degree of retention – how much of the learning has stuck after the course is over.

Behaviour change
If a student has learned something from a course, you hope that this will be reflected in their behaviour on the job. If a student employs what they have learned appropriately, then their work behaviour will meet desired criteria. Behaviour can be measured through observation or, in some cases, through some automated means. To assess behaviour change requires that the measurements are taken before and after the training.

Performance change
If, as a result of training, students are using appropriate behaviours on the job, then you would expect that to have a positive impact on performance. A wide variety of indicators can be employed to measure the impact of training on performance – numbers of complaints, sales made, output per hour and so on. It is hard to be sure that it is training that has made the difference without making comparisons to a control group – a group of employees who have not been through the training.

Return on investment as a measure

Return on investment (ROI) is a measure of the monetary benefits obtained by an organisation over a specified time period in return for a given investment in a training programme. Looking at it another way, ROI is the extent to which the benefits (outputs) of training exceed the costs (inputs).

ROI can be used both to justify a planned investment and to evaluate the extent to which the desired return was achieved.

The process of calculating ROI

To calculate ROI you must first make estimates or obtain measurements of the costs and benefits associated with a training programme. As you will see, the calculation of ROI is then a relatively simple process.

Calculating return on investment

Return on investment tells you the percentage return you have made over a specified period as a result of investing in a training programme. On the assumption that benefits will continue to accrue some time after the training, then the period that you specify is critical to the ROI figure you will obtain.

You may like to specify a period that fits in well with your organisation’s planning cycle – perhaps a year or two years. On the other hand, you may wish to calculate the period to correspond to the lifetime of the benefit, in which case you will need to know how long the average student stays in a position in which they can continue to apply the knowledge and skills being taught.

It is relatively simple to calculate return on investment:

% ROI = (benefits / costs) x 100

By Lindsey Byrne & Andreea Udrea


Measuring Training ROI


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