Discovering the Return on Investment for Training

It’s a hot topic at every Human Resources conference, training seminar and networking function. For years we have been trying to find out where the measurements for demonstrating a Return on Investment (ROI) lie and how this can be proved upfront and reinforced on completion of training programmes.

However we need to ask ourselves what exactly are the outcomes we are looking for? We may want better communication, enhanced problem solving and better employee morale but can we really prove that a training programme will effectively deliver this?

We can collect lots of data in our attempts to measure ROI on training but what should we ignore and sift out? What data will make the most difference? We may know the outcomes we are looking for in terms of profit, performance, sales etc. but the real challenge is constructing a process to help us get there, to measure ROI.

A simple ROI Diagnostic Tool does not exist but looking more closely at training programmes and considering a few factors will allow us to get excited about discovering the ROI each unique programme can bring.

The Process of Discovering Training ROI.

A traditional approach is to hold a training programme and afterwards collect data through feedback surveys. These tend to take the form of did you enjoy the course? Were the facilitators effective? Can you use these skills in the workplace? This collects subjective data and as a result is very difficult to measure. So how can we justify this data as proof of ROI?

Efficiency and productivity are still the prominent measurements when it comes to assessing ROI for most organizations. However the outcomes of raising performance may indeed create more output but could bring with it the negative effects of low morale and possibly even industrial disputes. We need to achieve balance and harmony.

An innovative approach in quantifying ROI is to target the training design through thorough analysis by asking “What you we looking for?” and “What competencies do our people need training in?” By determining specific competencies upfront we can target who actually needs to attend the training and for how long. If someone is 95% competent in a particular field maybe they only need half a day. If someone is only 50% competent they could require two days plus additional face to face coaching. The key is to make training more bespoke and therefore more cost effective. Next comes the challenge of proving the benefits in measurable terms.

Distinguishing between Measurable and Non-Measurable Benefits.

A few examples of the beneficial outcomes of training programmes are demonstrated in employee networking, knowledge sharing and increased employee morale.

Employee Networking – Given the impact of globalization lots of companies now have teams of people working through different shifts for different markets or to support complete twenty-four hour operations. Training provides an opportunity for employees to interact and meet others, possibly for the first time and establish valuable contacts. Constant networking increases a sense of belonging and creates better team cohesion and therefore must be beneficial.

Knowledge Sharing – On training programmes employees get the chance to pass on their job related wisdom, understanding and skills expertise. Through this sharing employees gain new insights, opinions and important tools. This is taken back to the workplace and used and must have a direct effect on performance.

Increased Employee Morale – As training continues to feature highly on internal employees’ needs surveys, the fact that training is being provided contributes strongly to individual’s self-esteem and self-confidence. This in turns increases overall team spirits and morale. A team full of morale works efficiently together and continually performs.

However these three areas are difficult to measure and do not make the case for a powerful ROI model. They are indeed valuable but maybe we should refer to them as benefits of training but not measureable benefits. Interesting research on benefits which can be measured look more towards their impact on recruitment, retention and overall employee performance.

Recruitment – There are many different theories on the types of jobs that attract fresh graduates and current talent. However a consistent factor is that people apply for jobs based on training opportunities, advancement prospects and benefit packages. Research has shown that if a potential employee applying for a job where the advancement opportunities and benefits are equal, then training courses provided will be the distinction that makes the difference in deciding to work for that company.

You must discover if recruitment is linked to training in your organisation by surveying new employees and asking them why they chose to join your organisation over a competing company. If opportunity for learning features the highest, then you can directly link this to ROI on providing learning. This then reinforces the necessity to continue providing training courses as these newly recruited employees are expecting them, if they don’t get them they will leave.

Retention – High attrition rates are expensive in terms of pay outs and replacement costs. Therefore any measure to reduce employees leaving brings obvious benefits your organization. When Management Needs Analysis Surveys are conducted internally, training and coaching skills tend to feature highest. As employees are asking this from the organization, if they receive it frequently they will be more compelled to stay with that organisation.

Training is an excellent retention tool and is a benefit which can be measured though satisfaction surveys and at appraisals. There is no point asking employees who have left if they did so because they did not receive enough training. Rather it is a more positive experience to ask those who remain, why they do so. If opportunities for training features highly then that is an indication that learning and retention are related. Start quantifying training provided against the retention rate and you can measure the effects to provide a stronger case for ROI in training.

Overall Employee Performance – So how can we measure the relationship between training and getting business results? The fact is it depends very much on the type of industry you are dealing with. Take aviation for example, business performance can be measured by unit cost of fuel, airplanes and the human capital required to service this, against monetary returns from passengers and cargo. A performance indicator in terms of revenue and profits is given.

If we then increase the training expenses to the human capital for the next year and observe the impact on revenue, we can measure the return on learning for that year. If there is a significant increase it can be proposed that increased training is increasing profits. If you have these measures available for previous years you can start to discover straight away.

Questioning the ROI on a training programme.

Unless you want a resounding “So what?” factor on conclusion of the event, you have to question the ROI upfront. So clarify exactly what you are investing the training in. It can’t just be fun, reward and appreciation; it is about people and more importantly your people. Make sure you can support the effects of learning on business performance by considering the points mentioned.

Remember that this is a process of discovery and the more qualification completed up front for the proposed outcomes, the more readily this can be assessed on completion of the programme. Also note that each training course can not be scrutinized on an individual basis. A series of training programmes must be completed in order for the ROI to be demonstrated. Consider how performance is measured E.g. Sales made, calls handled, and bills to clients. Then integrate these required outputs into the modular design and outcomes of the training programmes.

David Simpson, Director, Team Building Asia, providing core training & development and events based team building solutions across the Asia Pacific Region.