CALCULATING THE RETURN ON INVESTMENT (ROI) IN TRAINING:
TAKING RESPONSIBILITY FOR THE MONEY INVESTED IN SKILLS DEVELOPMENT
By Marius Meyer, Rina Opperman & Chris Dyrbye
Training in many organisations is not seen as the most popular activity. Why? HR and training managers have to continuously justify the amounts of money that were spent on training. Training is often seen as a waste of time, money and effort. The value added through training is questioned. Rightly so. Assumptions are made regarding the value of training added in achieving overall organisational effectiveness. How do we know the value of training if we do not measure the value of training? ROI in training is about measurement. Measuring the return on the money invested in training. ROI is about accountability and responsibility for the particular investment in training.
The ultimate aim of any training program is to improve organisational performance that will add to organisational effectiveness and profitability. In order to measure performance a person needs to determine the monetary value of the performance in its current status. After the training intervention has taken place, the learners' performance needs to be measured again, thus determining if there was an improvement. Training is not a once-off event, but a continuous process in achieving organisational effectiveness. Employees need to receive training on an ongoing basis to be able to apply the learning acquired to their daily activities. The information acquired to reinforce learning, will be converted to knowledge application once the specific task is performed more efficiently and effectively. Only then can the ROI be calculated through a cost-benefit analysis by determining the cost (investment in training) versus the benefit of the learning that has taken place, i.e. the benefit of learning as a result of training.
Legislation has an impact on the way organisations 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 organisations' employment equity plans and workplace skills plans.
There is resistance to measure the ROI in training, and the following are some of the questions asked in the industry:
How can I measure ROI to determine the value added to the organisation?
What are the steps to measure ROI?
How often should ROI be measured?
In which areas of learning and change in behaviour can ROI be measured?
How do I implement the ROI process in the organisation?
How do I attach a rand value to learning?
What are the benefits of measuring ROI?
How do managers overcome resistance to measuring ROI?
The measuring of return on investment originated in the USA, where the American Society for Training and Development (ASTD) has been championing the process for decades. The ground work was done by Donald Kirkpatrick who designed an evaluation system that addresses the evaluation at four levels; reaction, learning, behaviour and results Reaction evaluation refers to the typical evaluation forms we complete after a training course, the so-called smile-sheets in which learners indicate the extent to which they enjoyed the course. The second level refers to learning evaluation, in other words, the extent to which the learners have learned certain concepts, principles, knowledge and skills. This type of evaluation is normally done by means of tests because you can assess the knowledge level of a learner.
The third level of evaluation is called behaviour evaluation, and this type of evaluation seeks to determine whether people can practically apply their knowledge and skills. Here we ask ourselves the questions: Is there a change in behaviour? Can we measure the application of skills in the workplace?
The last level according to Kirkpatrick is results evaluation. This level of evaluation attempts to measure the results in terms of the impact of the training intervention on the organisation. For example, are there more sales as a result of a sales training programme? Is there an increase in productivity as a result of a training programme? What is evident from all these questions is that there must be some form of pre- and post course measurement in order to be able to answer these questions.
Jack Phillips, a training management consultant, is now considered to be the main expert in the field of ROI in America. He visited South Africa in 2002 to share his ideas about ROI with local training and human resource managers.
Training managers know that ROI must be measured, yet very few are actually doing it. The following are some of the reasons for not calculating ROI that have been provided by training managers during recent conferences organised by ASTD Global Network South Africa:
There is a lack of a measurement culture in training departments. Managers do not know where to start of they don't have the resources to calculate the ROI. It is perceived as too difficult, complicated, too much effort or time consuming. They are so busy with all their training programmes and SETA requirements, that there is no time to calculate ROI. They fear that if ROI is calculated, it will show that their training adds no value and that they will be at risk to lose their jobs!
The King Report on Corporate Governance states clearly that accountability must also be reported in the area of human capital management. Training is an essential component of human capital management.
The good news is that ROI can be determined through a scientific method. ROI is the measure of the monetary benefits obtained by an organisation 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.
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 â€“ cost of the training) / cost of the training] x 100
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 organisation 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 organisation, the cost would be R2.33 per call cost to the organisation. After training the employee answers 3,180 calls per month. The cost of the employee to the organisation 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.
It is important to follow proper guidelines for the effective application of the ROI measurement process by adhering to the following steps:
Create awareness for ROI in the organisation.
Build capacity for ROI by training staff to understand ROI.
Quantify information before the training in order to obtain a baseline (e.g. number of calls answered, number of customer complaints, etc.).
Covert this data to monetary value (e.g. the cost of answering a call).
Allocate resources for ROI.
Develop a culture of measurement and accountability among training staff.
Start with only one course as a pilot programme to practise ROI skills.
Communicate results to training staff and the whole organisation.
Design improvement plans for training programmes in order to increase ROI.
Once ROI results are available, use the data to market future learning programmes.
Measuring ROI is not a one-person show. It is a powerful tool that enables training managers to prove the value of training, gaining credibility for the value added, and a contribution to achieving organisational effectiveness. It enables them to report to management in quantifiable terms, i.e. rands and cents! Measuring ROI is about accountability and taking responsibility for the measuring the impact as a result of the training. Measurement is about becoming a strategic business partner that add value and provide integrated business solutions. Measuring ROI can be done!
Marius Meyer, senior lecturer in training management, Technikon SA
Rina Opperman, people development consultant, Catho Consulting
Chris Dyrbye, ROI consultant, ROIonline.co.za
This article is a summary of the first South African book (including CD-ROM) on ROI measurement in training, published by Knowledge Resources (011) 880 8540 www.kr.co.za