Issue: A solid return-on-investment (ROI) analysis helps your organization buy more for its training dollar.
Benefit: ROI can help you prove, or disprove, that training is improving the bottom line.
Action: Use the formulas below to compute your training ROI.
Employee training represents an act of faith for many organizations. They know it's important, but few can quantify the return on investment. Yet, HR is often pushed to prove, usually around budgeting time, that training pays off.
Advice: Use the formula below to prove to senior managers which training produces results and which doesn't. While it's not always easy to quantify and calculate training's less tangible benefits, applying return-on-investment (ROI) analysis to training can still be a useful way to measure, and improve, its effectiveness ... if you use the following guidelines:
Specify expectations. Before they send employees for training, urge managers to determine exactly what skills they expect trainees to return with ... and to communicate that to employees before, during and after training.
Urge managers to be specific. Bad example: "This training is meant to help increase production." Better example: "You should be able to increase the number of pieces you produce from three to six an hour."
Measure what they learn, not how they feel. If your organization is like most, you probably survey employees after training to obtain feedback. Unfortunately, in most cases, surveys measure only employees' feelings about the training, not specific results.
A better way: Ask managers to document changes in employees' behavior after undergoing training. After three months, ask for a progress report from both manager and employee that exactly details the performance change.
Determine the payback period. How? Add up the training costs and divide by the monthly financial benefits that you can directly attribute to training. That yields the number of months it will take to pay for the training.
Example: Your organization invests $10,000 to train customer call center reps on cross-selling and up-selling. After training, profits from products sold through the call center increase by $4,000 a month. The training paid for itself in two and a half months.