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Justify your training proposals with ROI calculations

by on
in Best-Practices Leadership,HR Management,Human Resources,Leaders & Managers,Management Training

Issue: Executives are reluctant to approve training unless they can prove that it will pay for itself many times over.

Benefit: By providing the CEO with legitimate return-on-investment (ROI) figures, you'll prove your big-picture worth to the organization.

Action: Tap into the information and resources below to help measure training ROI.

Your CEO likely looks at training as an investment to be recouped, and he or she wants solid numbers to prove it's effective.

ROI measurements are far from an exact science. But ROI numbers can build respect for effective training programs and help eliminate inefficient ones, and that gives HR a reputation as a money saver.

If you don't measure training ROI and want to start, heed the following advice:

Begin by measuring the right program. Choose one that's important to management and has easily measurable results and a potentially high ROI. Examples: sales, manufacturing and customer service, says Karl Kapp, professor of instructional technology at Bloomsburg University in Bloomsburg, Pa. "Anything related to revenue generation, production or tangible metrics is a candidate for ROI. Things like computer skills, leadership and communications training are difficult," says Kapp.

Preserve credibility by making conservative ROI estimates. Initially, leave out intangibles such as increased job satisfaction and better teamwork.

Don't measure every training program. "Because it's so labor intensive, most best-practice organizations only target a small percentage of programs and HR initiatives for ROI," says Holly Burkett, a principal at Evaluation Works, a Davis, Calif.-based consulting firm.

How to calculate ROI

Here is the most common way to calculate training ROI:

First, figure out the total cost of training by adding direct and indirect training costs. Direct costs include design and development, supplies, pay and travel expenses for trainers, administrative and logistical costs, meals, facilities and equipment. Indirect costs include pay for trainees that aren't working and their replacements, and the time employees spend in meetings and briefings before and after training sessions.

Determine the net benefits by subtracting the total cost of training from the financial benefits to the organization. Total financial benefits include the dollar cost of anything that adds to the bottom line, such as higher productivity, increased skills, more customers, fewer accidents and lower turn-over. Divide net benefits by training costs and multiply the result by 100 to get ROI ex-pressed as a positive or negative percentage.

Example: A training program nets $180,000 (total financial benefits of $200,000 minus $20,000 costs). Dividing $180,000 by $20,000 equals 9. Multiply

9 times 100 equals a 900 percent ROI.

? Online resources:

Training ROI info, calculators

 

  • www.roiinstitute.net

     

     

  • www.internettime.com/itimegroup/metrics.htm

     

     

  • www.avat.com/training/roicalc.asp

     

     

  • www.newcreationmarketer.com/134/training-roi.html

 

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