ROI in Training

For trainers to continue to be successful they must be able to show the difference they can make, and prove they are value for money. Anne Walsh looks at a model for measuring the ROI (Return on Investment) in Training...

A survey done by the ASTD (American Society for Training & Development) found that the companies that spent more on training did better than those that spent less. However these companies also measured the effectiveness of the training. Accenture evaluated the impact of training on their organisation. They found that training opportunities was one of the main reasons impacting employees' choice of workplace. They also found that it reduced turnover, increased their opinion of the organisation as a "great place to work". Accenture invested $358 million in their staff and found they had received an ROI of 353%.*

However, for many Irish companies, training is seen as the soft option when budget cuts are required as most training departments do not provide clear cut evidence of the benefits of training. In smaller companies there is still scepticism about the value of training (as one owner-manager said to me "all they are going to do is up and leave anyhow").

This is the purpose of this article to explore some of the ways the effectiveness of training can be measured.

The main model used for calculating ROI on training is Donald Kirkpatrick's 4 level model . The 5th level was identified by Kirkpatrick in some of his later work.

Level	Description	Methodology	Beneficial to
1	Reactions: Did they like it?	Post event evaluation sheets	Participants
2	Learning: What did they learn?	Pre and post evaluation of learning levels	Trainers, participants
3	Change: Did they use it? Has behaviour changed?	Action plansSupervisory survey (post event)	Participants.
4	Results: Impact of training on business metrics	Follow-up surveys, questionnaires, action planning, 360 degree feedback.	Managers.
5	ROI: financial return, timescales	Comparison with control groups, estimate of impact, convert impact to money terms.	Decision-makers

Many companies just use Level 1 evaluation (and some do not even use that!). The information may or may not be collated. But it is in the interest of trainers and HR departments to push for the establishment of some sort of measurement of training ROI - even if just to show measurable changes in behaviour.

Jay Cross argues that evaluation of training is properly evaluated in the same spirit as business decisions and that the only real ROI on training is business ROI. Learning has to be linked to business results and focus on how learning will plug the performance gaps. The choice as to how much will be spent on learning will be based as much as intangibles as tangibles. He argues that probabilities and gut feelings have a strong part to play in decisions around training, rather like how business decisions are made.

Calculating ROI
Formula 1: Costs/Benefit x 100
Formula 2: Payback time (how long it takes to recover the costs in improved performance)

Costs included in measuring ROI include not only the direct and indirect costs of the training, but also the opportunity costs of having a worker at training as opposed to adding immediate value by being in their job.

The benefits include: measured increased effectiveness, impact on business metrics, value of increased productivity at work, reduced staff turnover. Of course the key to the effectiveness of this is being able to measure before and after training performance. A way to measure this could be a simple before and after questionnaire.

Another factor that needs to be considered in the benefits is the long-term impact of the change and also its impact on the people around the learner. If a person learns to handle their staff better and their turnover is reduced substantially over a year, that too is a benefit.

A formula for calculating the ROI on coaching (still a hot topic!) came from the Manchester Review "Coaching at Work" gives the following equation for calculating ROI:**

1. estimate value of resolving issues
2. % of improvement attributed to coaching
3. multiply step 1 by step 2 to arrive at savings due to coaching
4. your confidence in the savings in step 3 as a percentage
5. multiply step 3 by step 4
6. cost of coaching
7. subtract step 6 from step 5
8. Divide step 7 by step 6
9. multiply step 8 by 100 for ROI expressed as a percentage

Difficulties with implementing an ROI model

- Could be seen as an additional paperwork burden that has no real impact.
- Who decides what gets measured?
- Extra evaluation means extra costs…who pays?
- Is the supervisor committed to supporting the learner through the learning curve?
- Is management committed to the implementation of an evaluation system?
- Identifying the impact of training alone, particularly in complex situations.

If trainers and HR managers want to retain and increase their training budgets, one of their key steps will be to develop systems that will allow them to identify the impact of training on performance, productivity and attitude. Perhaps a simple first low-cost step would be to implement a pilot programme of before and after training evaluation and set up a simple spreadsheet to begin quantifying that.

Whether you choose the models outlined above or not, one thing is clear - the ability to evaluate training and determine ROI on investment will continue to be important for all professionals involved in training. Continued success relies on taking these realities on board.

Useful resources:

www.trainingreference.co.uk
www.engineersireland.ie/Home/docs/EI_Investment.pdf
hrsuccess.blogspot.com/2005/07/results-orientated-training-objectives.html
www.businessballs.com/trainingprogramevaluation.htm
www.learningcircuits.org/2001/jan2001/cross.html

*(Smith, David. Y. and Waddington, Ted. Running Training Like a Business: Determining the Return on Investment of Your Learning Programs, Outlook Point of View, March 2003.)
**(Maximinising the Impact of Executive Coaching, Manchester review, Manchester Consulting 2001)

Anne Walsh