Employee training represents an act of faith for many organizations. They know it’s important, but few can quantify the return on investment (ROI).
Still, HR is pushed to prove—usually around budgeting time—that training pays off.
Advice: Use a formula (see box 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 ROI analysis to training still can be a useful way to measure—and improve—its effectiveness. Use the following guidelines:
1. Specify expectations. Before they send employees for training, managers need to determine exactly what skills they expect trainees to return with—and to communicate that to employees before, during and after the training.
Require managers to be specific. The right way: “You should be able to increase the number of pieces you produce from three to six an hour.” Too vague: “This training is meant to help increase production.”
2. Measure what they learn, not how they feel. If your organization is like most, you probably survey employees after training to obtain feedback on how the training went. That’s the wrong approach—you need to know how performance improved because of the training, not how well participants liked it.
A better way: Ask managers to document changes in employees’ behavior after participating in training. After three months, ask for progress reports from both the manager and employee that detail exactly the performance change.
3. Determine the payback period. How? Add up the training costs and divide by the monthly financial benefits that you can attribute directly to training. That yields the number of months it will take to pay for the training.
Example: Your organization invests $10,000 to train 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 2½ months.
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