How to Measure ROI for Training Programs
You know how valuable training can be for your employees. And the numbers back it up. In fact, a recent Accenture study found that every dollar spent on training got a $4.53 return.1 That’s an ROI of 353%!
But your leaders are trying to do more while spending less, and training looks like an expensive luxury. How do you get them to buy in? Demonstrate that training is a worthwhile investment. Prove your ROI, and you'll shift the mindset about training. Here's how to measure ROI for training.
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What is ROI, And Why is it so Important?
ROI stands for return on investment. It's an economic indicator that shows the impact of your program in monetary terms. With ROI, you're getting past lower-level evaluations of training impact like learner satisfaction and cutting straight to the bottom line: for what we spent, what did we get out of this training?
ROI for training is a purely economic measure. It tells you the benefits of the program, relative to its costs. In a simple number, you learn the value your program adds to the organization.
Benefits include any economic improvements to your company's operations that flow from your training, such as increased profit or cost savings. Costs include the all-in costs of operating the training, from facilities costs to training materials to the economic impact of time away from work.
Bottomline on ROI Workshop
The Bottomline on ROI workshop introduces the Phillips ROI Methodology, illustrates how it's conducted and utilized within organizations, and provides a framework for evaluating the results of specific programs and projects. The workshop illustrates how ROI can be calculated in any situation, including soft-skills training efforts. The math is simple to apply and skill-development tools such as case studies, exercises, and worksheets assist in the transition of theory to application.
BCR vs ROI
ROI is often confused with benefit-cost ratio, but they're not the same thing. Benefit-cost ratio is just the total benefits of the program, divided by the costs. It's calculated like this:
- BCR = Benefits of training / Costs of training
ROI is different. With ROI, we focus on the net benefits of the training—the benefits minus the costs. The formula for ROI looks like this:
- ROI = ( Net Benefits of training / Costs of Training ) x 100
But calculating ROI isn't as simple as just knowing a formula. Let's walk through the steps you'll need to measure the ROI of your next training program.
Steps to Measure ROI
Calculating your program's ROI is a surprisingly simple process. Let's take a closer look:
Decide on What You'll Measure
When you start planning your training, don't just set learning objectives. Plan out the kind of business impact you want to come out of the training. Plan for these outcomes in advance, and you'll be able to deliver training that produces measurable results.
Pick a quantifiable result that you can use to measure your program's success. If you're giving a sales training, you might measure sales KPIs to see how they improved following the training. If it's a customer service training, you might measure customer service complaints, looking for a decrease.
Plan your training with a focus on impacting the specific business outcomes you care about, and collect data that will enable you to demonstrate your success.
Measure the Impact on Performance
Once your training is in place, get as much hard data on the impact of the training as you can. Technically, you only need data on the specific ROI measures you’re targeting, but there are three types of measures that can support your calculations:
- Learning effectiveness. Find out if learning actually did take place. Often, this can be done with a simple evaluation of learner satisfaction. Provide learners with a Likert scale at the end of the training, and ask them to rate the extent to which they gained new knowledge or skills. You may also consider completing an assessment at the start of and following the training.
- Job impact. Send out a follow-up questionnaire to determine whether learners have applied their skills on the job. Typically, you can do this between 30 and 90 days after training. Post-training follow-up enables you to determine how quickly learners were able to apply their new skills—and how much they improved.
- Business outcomes. Here’s where the rubber meets the road. The best way to measure business results from training is by directly observing participant behavior. For example, collect sales records for your learners and look for a difference in their numbers pre- and post-training. Other options for gathering data on business results include asking participants directly about results in follow-up questionnaires or interviews.
The Business Case for Learning
The Business Case for Learning, by world-renowned authors Jack and Patti Phillips, highlights the reasons why learning is an absolute necessity that adds value to an organization's bottom-line. The book also provides insight into how to enhance the learning and talent development investment through an 8-step, results-driven process.
Isolate the Effects of Training
As you calculate ROI for training, you'll often see changes in performance that coincide with trainings, but that doesn't necessarily mean you can assume the training was the sole cause of the change. Always ask yourself: how much of the change I'm seeing is due to the program, and how much is due to something else?
Isolating program effects is easier than you might think. Here are some things to try:
- Create a Control Group. Consider staggering your training sessions among groups of employees. For example, you can host a training session with one group, then another session with another group the next month. This can allow you to observe KPIs from the trained group and the non-trained group over the course of the initial month so that you can compare differences between the two. When doing this, be sure that the groups are very similar in terms of their KPIs and working conditions, so that you can adequately compare them.
- Expert Estimation. Ask training participants and their supervisors to record their thoughts about the training as well as other factors that could have impacted performance over the measured period. You can ask them to grade each factor for its weight on the impact of results—i.e. Training 70%, New Marketing Campaign 40%, New Product Launch 20%, etc. While this data may not be completely accurate, it should provide a clear starting point to assist you with isolating your training ROI.
- Trend Analysis. Another handy way to isolate the effects of training is to perform a trend analysis. Compare actual results following training to the trend line leading up to the period before the training took place (continuing along that trend as if training did not occur). Plot out your results six months prior to training, and project that plot onto the time period you’re measuring following training. Then compare that with the plot of the actual results post-training.
Convert your Results to Monetary Values
You've got solid business results: more sales, lower turnover, fewer customer complaints. Whatever the outcome, there's just one more step to measuring your ROI: convert those outcomes to a monetary value.
Don't just guess. Have a legitimate basis for your estimate. At every stage, you want to be able to back up the claims you're making with evidence. Here are a few proven ways to finding the monetary value of your results:
- Use your company's standard values. In all likelihood, your company has standard values in place—i.e., the typical value of a sale, the typical cost to replace an employee, and so forth. Use these values to calculate your program's monetary impact.
- Look at historical costs. If your company doesn’t have standard values for business results, historical data is the next best thing. How much has a customer complaint typically cost in the past to resolve? How much does it cost to replace an employee who leaves the company? Look at company analytics, and you can usually get a pretty good approximation.
- Go to an expert. If these steps aren’t feasible, consider finding an expert who can help you estimate the monetary value of your outcomes. Make sure you work with someone credible who has authority in the area you're working in. Take time to bring them up to speed on your project and your target business outcomes.
Calculating the ROI of training may sound complicated, but it can be surprisingly straightforward. Once you show a solid return, your leadership will start to look at your training program as a valuable asset!
Plan for the outcomes you want in advance, gather all the data you can to show the impact of the training, and use a credible standard to convert your results into a dollar amount.
HRDQ is your go-to resource for a wide range of soft-skills training programs and materials. Explore our expansive training library online, or contact our training experts for assistance with building out your programs.