Return on Investment: Training and Development ROI and Evaluation.

Return on Investment:

Training and Development

ROI and Evaluation

ROI Contents

Purpose of ROI, and Value of training What is ROI Why ROI Methodology Toolkit

Models Benefit/Cost Ratio

ROI (%)

Costs Program

Benefits ProgramBCR

100(%) xCost

CostBenefitROI

The Value of Human Capital

We all know Human Capital (and its development) is vital

Human Capital is often much undervalued as an investment opportunity

ROI can be very highPhillips refers to 800% being achievable regularlyTennessee Valley authority claim 1000%+A world-class corporate university claimed 5,612%

Why ROI?

• Pressure on training functions to show demonstrable return• Value for money from training activity• Value of HRD to the business; e.g.

• Financial benefits• Staff productivity• Staff retention

• Clear alignment with corporate goals• In-house vs outsourced training

• ROI analysis is a tool to support the contention that training is valuable; demonstrate benefits vs cost

• Pressure to reduce costs must be balanced by visibility of benefit

• “Warm and fuzzy” is no longer any good! (in most cases)• Jay Cross alternative view

ROI as Process

Use evaluation techniques to acquire performance data

Use Training Needs Analysis to direct the project to the right data

Use analytical techniques to calculate ROI from the data

Use ROI results to review training effectiveness Use the reviews to inform future decisions

ROI as Perception

Which of these perceptions indicate your client’s view of ROI (which you need to address)? The Board may see a big picture of how the training affects the company’s ability

to achieve its corporate goals The finance department may be looking to see how training stacks up financially

against other ways to invest the company’s money, and whether the training, as carried out, was financially more effective than alternative forms of development

The business unit manager may be solely concerned with the impact on performance and productivity in achieving the goals of their department

The training and development manager may be concerned with the impact training programmes are having on the credibility and status as the training function within the company and its ability to secure investment in the future to drive further business performance enhancements

What is ROI?Elements of “Total ROI”

Reducing costsIncreasing benefits/performance/capability

Use of ROIROI of a training project’s contribution to business or

projectROI of one delivery method vs. another (e.g. ILT vs. e-

learning)Role of ROI

Pre-training assessment and expectation settingPost-training feedbackPost-experience value measurement

The Process Model

1: Measure reaction &identify planned actions

Immediate reaction and response

2: Cognitive learning and retention

Skills, knowledge, attitude changes

3: Assessing application of learning to the job

Actual change in behaviour

4: Identifying business results

Quantify business value of change

5: Calculating ROI Compare monetary value with costs

Getting Started

•Select your project to measure

•Select a significant project; align with significant goals

•Start with a project that has clearly definable metrics

•ROI measurement Plan

•Data Collection Plan

•Identify the “returns”

•Identify the investment factors

•Select the survey audiences and sources of data

•Select your data collection methods

•Analysis Plan

Investment Factors

Costs incurredPayments to suppliers and service providersTime and attention to create and deliver the

trainingOpportunity costTime and costs involved in the ROI

measurement exerciseOther Internal costs

Process Summary – Data Collection Plan

Data collected at different times to provide:Pre-training baselinePost-training change analysisPost-experience change analysis

Data Collection PlanState the objectives of the training / learningState the objectives of each phase of data collection at each

evaluation LevelIdentify any previously used metrics, values or methodologies

used by the client, and determine suitability for the current exerciseSelect the appropriate evaluation methodsIdentify the audiences who will be surveyed for dataSet the timing for the data collectionAllocate responsibilities for data collection and analysis

Process Summary – ROI Analysis Plan Continuation of the Data Collection Plan, capturing

information on the key items needed to develop the actual ROI calculation. List Significant Data items (usually Level 4 or 3) to be collected

Benefit Factors Cost Factors

Methods to isolate effects of the learning/training from other influences

Methods to convert data to numerical values Intangible benefits Other influences Communication targets

Process Summary – Data Collection Identify the purposes of the evaluation.

State clearly what the evaluations are to measure and what the goals of the training are intended to be.

Be as specific as possible about the goals of the training Ensure goals address the performance enhancement,

business improvement or cost savings expectations. Select the evaluation instruments and methodology. Establish the timing for the data collection.

Decide whether pre-training analysis is required, or post training analysis, or both. (e.g. pre-training and multiple post-training assessments may be necessary to effectively identify the skills changes in Levels 2, 3 and 4.)

Carry out the data collection at the levels 1-4

Process Summary – Sources of Data Organisational Performance Records, showing outputs and

measurements taken as part of the business’ normal reporting process

Testing and certification assessment records Participant feedback Instructor feedback Feedback from participants’ supervisors/managers Feedback from participants’ subordinates Team/group peer feedback Feedback from other internal or external groups (eg HR training

departments)

Process Summary – Evaluation Methods Identify how the data will be collected and analysed Surveys On the job Observation Interviews Focus groups Action plans (or Performance contracts) and

Program assignments Performance data monitoring

Process Summary – Isolate effects of training Separate training (personal productivity) component of

performance change, from new software/systems/processes

Essential for credibility Potential methods

Use control groupsImpact assessments and estimates by participants,

managers, peersTrend linesDiscount/adjust for over-estimates

Apply “inflation adjustment” for estimates and assessments

Process Summary – Convert to money Convert data to monetary value

Specific costs and time incurredCosts and time savedQuality increase, reduced wasteImproved customer service and

satisfaction“Intangible” benefits (retention,

commitment, fewer complaints, reduced conflicts etc)

Process Summary - ROI

Calculate ROI Benefit-cost ratio= Program Benefits

Program Costs

ROI % = Net Program Benefits

Program Costs x 100

Break-even time = Investment

Benefit x Period in months

Evaluation Levels

1. Reaction and Planned Action

2. Learning

3. Application and Implementation

4. Business Impact

5. Return on Investment

Writing Objectives

Easy as A, B, C, D

Audience: Who?

Behavior: What do “they” do?

Condition: What is the setting and method of evaluation?

Degree: Measurement to be met.

Example Objectives

Course objective: Learners will be able to make 15 entries in a customer database in 15 minutes with no more than 1 error.

Application objective: Learners will be able to reduce the data entry error rate by 50 percent over the next 6 months.

Impact objective: Employee time spent correcting database errors is reduced by 25 percent from last year’s rate.

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Costs, Budgets, Accounting

Quantifying ROI means accounting for all the costs of the program.Fixed costs: independent of the number of

participants.Variable costs: Dependent on the number of

participants. There are costs at every step – make sure to

account for them all.

Benefits and Soft Skills

Change in:Attitude, work climate, leadership, teamwork.

We desire these changes because they ultimately effect productivity.Allow time for change in attitude or behavior, then

measure these changes and report qualitatively.Allow time for change in productivity, then

measure for data and report quantitatively.

Create a Data Collection Plan

What? New information that needs to be

recorded? Who? When? How?

Trend Line Example

Trend Line 35 Y axis: 30 Number of Customer Complaints 25 Projected Value 20 Before Training 15 Training Intervention 10 New Projected Value After Training J F M A M J J A S O N D X axis: Months

Stakeholders: Review

Customer Employee Supervisor Subordinate President Board of Directors Stockholders

Thank You..

Any Questions:

Dr. Pratik Surana

+91-9890653263

[email protected]