Measuring ROI to Make the Case for Training HRPYR Topic by Table Thursday, April 17, 2008.

Measuring ROI to Make the Case for Training

HRPYR Topic by Table

Thursday, April 17, 2008

Why did you come to this Topic by Table?

Looking for measures. Employer’s are starting to look for measures,

so I should learn about it. Justification to sell in training programs. Justifying travel costs associated with training. Identifying how much money we should be

spending per employee per year. Selling in soft skills programs.

Some Interesting Facts

American Society for Training and Development – investments of $1,500 per employee per year vs. $125 per employee per year results in 24% higher gross profit.

Barrett and O’Connell (2001) report that soft skills training has a greater effect on worker productivity than specific training.

Some Interesting Facts cont’d

Louis Harris and Associates report that companies that offer no training or poor training have 41% of employees planning to leave the organization.

Blandy et al (2000) report that there is a direct correlation between training and changes in sales volume, productivity, and other profit measures.

Donald Kirkpatrick

Ideas regarding measuring the evaluation of learning were first published in 1959:

Reaction - what the participant(s) thought and felt about the training.

Learning/Retention - the resulting increase in knowledge or capability.

Behaviour/Transfer - extent of behaviour and capability improvement and implementation/application.

Results - the effects on the business or environment resulting from the trainee's performance.

Level 1: Reaction

How participants in a training program react to it.

Did they like it? Was the material relevant to their work?

Often called a “smilesheets.” Every program should at least be evaluated

at this level to provide for the improvement of a training program.

Participants' reactions have important consequences for level two - learning.

Level 2: Learning/Retention

Attempts to assess the extent participants have advanced in skills, knowledge, and/or attitude.

Measurement at this level is more difficult and labour intensive than level one.

Methods can include formal to informal testing, team assessments, and self-assessment.

If possible, participants should take the test or assessment before the training (pre-test) and after training (post-test) to determine the amount of learning that has occurred.

Level 3: Behaviour/Transfer

Measures the transfer that has occurred in participants' behaviour due to the training program.

Evaluating at this level attempts to answer the question - Are the newly acquired skills, knowledge, and/or attitude being used in the everyday environment of the learner?

For many trainers this level represents the truest assessment of a program's effectiveness.

Measuring at this level is difficult as it is often difficult to predict when the change in behaviour will occur.

Need to make important decisions in terms of when to evaluate, how often to evaluate, and how to evaluate.

Level 3: Behaviour/Transfer cont’d Methods of assessing transfer include:

Performance Appraisals. 360 Degree Feedback Programs. On the Job Observation. Focus Groups. Client Satisfaction Surveys. Employee Engagement Surveys.

Level 4: Results

Thought of as the bottom line, this level measures the success of the program in terms that Managers and Executives can understand -increased production, improved quality, decreased costs, reduced frequency of accidents, increased sales, and even higher profits or return on investment.

From a business and organizational perspective, this is the overall reason for a training program, yet level four results are not typically addressed.

Determining results in financial terms is difficult to measure, and is hard to link directly with training.

Level 5: Measuring ROI

Jack Phillips created Level 5: ROI to assist organizations in selling in training initiatives to Senior Management teams.

Level 5: Measuring ROI

Think of outcomes prior to starting the development/design of training programs. Why are we looking at creating this program

for employees? High turnover. Average sick time per year is above what the

policy governs. Having to hire externally vs. internally. High number of terminations per year. Number of grievances are up 20% from the

previous year.

Level 5: Measuring ROI cont’d

Once the outcomes have been determined, quantifying the benchmark is key. For example: Turnover is at 57% annually at present. Average sick days per person is 7, even

though the policy states that employees are able to take 5 per year.

Terminations in 2007 resulted in average legal counsel costs of $10,000 plus settlement costs averaging $25,000.

Level 5: Measuring ROI cont’d

Examples of Direct Costs: Cost of time off work to attend training. Cost of job coverage during training. Salaries of in-house trainers. Travel. Accommodations. Catering, meals, refreshments. Training materials. Design and development costs (internal and external). Customization costs. Off the shelf material costs and license fees. Copywright costs. Cost of equipment. Cost of the venue, rooms, etc. Cost of Utilities. Cost of insurance. Computer software and hardware costs.

Level 5: Measuring ROI cont’d

Examples of Indirect Costs: General overhead allocation. Program administration costs. Coordination costs. On-line support costs. Production and supply of training materials. Office supplies and printing costs. Incidental costs. Participant’s evaluations and assessment costs. Coaching costs. Consulting costs. Costs of external organizations/services. Promotional activity costs. Cost of lost opportunities (sales/productivity). Opportunity costs of time. Indirect labour cots.

ROI Definitions

Net Present Value – the value that the investment generates over its lifetime.

Benefits Cost Ratio – ratio of the benefits to the costs of an investment.

Return on Investment – ratio of net present value to the costs of an investment.

ROI Calculations

Net Present Value = Benefits – Costs

Benefits Cost Ratio = Total Benefits

Program Costs

ROI = Total Benefits – Program Costs

Program CostsX 100

Creating a Learning Council in Your Organization Start with the senior executives in the

organization to determine what type of learning initiatives they require or would like to enhance the skills of their current teams/departments.

Create learning champions to help you sell in learning initiatives and development opportunities from the top down.

Please contact Jodi at (905) 874-1035 extension 433 or at [email protected] with any questions you may have.