January 2011

Many companies spend considerable amounts on training to increase productivity, reduce waste and improve employee retention. Ensuring that this investment pays off is vital, but measuring return on investment (ROI) in training is a controversial subject. Sue Bird, Director of Operations at SkillSet Ltd, examines the role of ROI in the planning and delivery of training.

If employees are a company’s greatest resource, training is perhaps one of the soundest investments an organisation can make in a challenging economic climate, playing a fundamental role in business and the need for competitive advantage. However opinions as to its effectiveness vary considerably, and with all organisational budgets under close scrutiny, training must be measureable and justifiable.

It is essential that learning and development are recognised as an effective, contributing part of any business - a value-adding function rather than a cost that can be cut when budgets are tight. However, the benefits of learning and development in a business setting can be difficult to quantify, which leads to difficulty with measuring the ROI of training.

Return on investment shouldn’t be confused with value for money, which looks solely at how much a desired object or condition is worth relative to other objects or conditions. ROI does not equate to cost; it is simply the ratio of money gained or lost (whether realised or unrealised) on an investment relative to that same amount.

While some elements can be easily recognised in financial terms, others are tricky to calculate; what value would you place on improved staff morale or more qualified staff who stay with the company for longer? Although harder to define in terms of value, these elements are no less important to the strength of an organisation. Overall, measuring ROI is more of an art than a science, but applying a value to these indicators of successful training undoubtedly helps a company pin down the effects of their investment.  

If you don’t know the goal, you don’t know you’ve scored.

Businesses need to think about what success looks like for them in order to be able to adequately measure the success of training. If learning and development professionals fail to plan for success from the start, they are unlikely to be able to measure it later, and no measurement means no calculation.

An analysis of training needs will assist in outlining the objectives of the training; this should include how it will fit into the organisation’s learning culture and how you will get internal buy-in for the initiative. Once training needs and objectives have been set, the calculation of ROI must begin with knowledge of the costs and benefits associated with the training.

Direct costs such as materials, training venue, suppliers / providers, refreshments and the administration associated with training are the easiest to quantify. Associated costs such as travel and accommodation must also be taken into account, along with indirect costs such as employee cover.

Measurable benefits

The financial benefits of training are notoriously difficult to measure in terms of employee reactions and need not simply be based on the revenue generated by training. Long-term benefits come from improved performance, whether individual, corporate or financial.

Successful training can improve staff satisfaction, which links to enhanced productivity, greater retention rates (which, in turn, relate to lower recruitment costs and less training time) and reduced absenteeism. Operational savings such as faster access to information, reduced duplication of work and fewer mistakes also have a direct impact upon the revenue generated by a company.

With the implementation of new IT systems, measurement can be relatively straightforward. Examining proficiency levels amongst staff via the number of helpdesk calls, errors, speed of work or the number of attempts to go back to the old system are all sound indicators of aptitude. Similarly, regulatory training ROI can be measured by determining the effect on the number of accidents or incidents a company faces.

Soft skills, however, are more difficult to calculate; focused on people rather than processes, calculation is far from an exact science. Employee retention is a useful long-term indication, while satisfaction surveys can also be useful - the happy sheet is not quite dead.

Customer feedback or complaints and 360 analysis from reportees give other measurement options, all of which can be applied to the formula to calculate ROI. Once this formula has been created, measurement against the costs outlined above is a simple calculation that offers a sound financial measure.

Ultimately, while there will undoubtedly continue to be lively debate on the topic, the role of ROI calculation is a fundamental one, helping us to identify costs and potential returns in order to sharpen a company’s competitive edge.

Although training can increase the competitiveness of a company, the costs incurred must be tracked closely to ensure that an organisation’s learning and development programmes are truly an effective service to the business.