MEASURING ROI IN TRAINING
Over the last ten years we have heard continuously that HR should and must add more value to the business - that we must measure the impact of HR and training. Furthermore, South African companies are spending millions of rands on training staff and paying training levies. But how much value does this training add to the organisation? Does it affect the bottom-line of the business? Does training really make a difference as we would like to believe? Most HR and training managers will not be able to answer these questions affirmatively due to the fact that very few of them are measuring the impact of training. In fact, a recent American Society for Training and Development (ASTD) survey revealed that less than 8% of South African companies are measuring ROI in training. The crucial question is whether training managers will survive in an era in which they are required to show the value they add to the organisation.
If a lack of measurement is the problem, what is the solution? For more than 15 years American companies have been inspired by the ASTD to start to measure the bottom-line impact of training. The great ROI guru Jack Phillips defines return on investment (ROI) as a measure of the financial benefits obtained by an organisation over a specified period in return for a given investment in a training programme. In other words, it is the extent to which the benefits (outputs) of training exceed the costs (inputs). If you have spend (invested) R100 000 in training, what does the organisation get back for that investment?
But ROI is not only an American imperative. Its popularity is beginning to grow in the UK and Netherlands where companies are taking ROI measurement seriously. And here in South Africa, because skills development legislation requires employers to invest in staff training, managers are increasingly demanding not only accountability for skills development but also greater articulation of how training interventions benefit their companies in terms of financial impact. The pressure to measure ROI is therefore increasing in South African organisations.
Measuring the return on investment in training programmes is a powerful and effective way to show top management the value of training investments in financial terms. ROI answers the question: "For every rand invested in training, how many rand does the employer get back?"
Many training departments have not made any effort to show the payoff of their training programmes. The good news is that ROI can be determined through a scientific and professional approach to measurement. There are great rewards for such a measurement, in fact it gives the training manager a powerful tool to be able to report back to line management about the financial value of training, and that in the language line management likes - hard, tangible, quantifiable financial results - rands and cents.
The interesting thing about ROI is that training managers know that ROI must be shown, yet very few are actually doing it. The following excuses for not calculating ROI have been provided by training managers during recent conferences organised by ASTD Global Network South Africa:
Training managers do not know where to start.
There is a lack or absence of a measurement culture in training departments.
They do not have the resources to calculate ROI.
ROI is difficult to determine for certain types of training such as soft skills.
ROI is too complicated.
It is too much effort to determine ROI.
They are so busy with all their training programmes and SETA requirements, that there is no time to calculate ROI.
They fear that if ROI is calculated, it will show that their training adds no value and that they will be at risk to lose their jobs!
Despite the above reluctance on the part of training managers, there are a number of trends that have increased the interest and use of ROI for training programmes in South African organisations:
Owing to the promulgation of the Skills Development Act, training budgets are growing.
Additional training and development programmes are being implemented as part of companies' employment equity plans and workplace skills plans.
Top management is exerting pressure on the training function to show accountability in terms of tangible business benefits.
The sad reality is that most training programmes have not been able to show significant improvement in organisational performance.
Many companies are moving in the direction of outsourcing some or most of their training initiatives, with the result that training practitioners are beginning to realise that measuring the ROI in training can justify their existence in the organisation.
The aim of ROI is to measure the impact of training on organisational performance metrics such as higher productivity, less defects, better quality products/services, reduced costs, lower labour turnover, reduced absenteeism and increased market share.
Let us say that the ROI from a safety training programme is calculated at 233%. This means that for every rand spent, there has been a return of R2,33 in net benefit, after all costs are factored in. The exact form of that benefit depends on the objectives of the learning programme. For example, if the training addressed safety management skills, then one key benefit should be a decrease in accidents in the workshop. One of South Africa's leading medical aid companies, Medscheme recently achieved an ROI of 521% as a result of training call centre agents. The cost of learning per learner, as a result of the money spent on training was recovered over a period less than three months.
Measuring the impact of training programmes in terms of ROI enables training managers to provide line management with concrete evidence about the direct financial impact due to training investments. Your ability as a training manager to calculate and report on ROI to line management will have a major impact on your credibility in your organisation.
After the data has been collected, it must be converted into financial terms. This requires a direct conversion of hard data such as quantity, quality, cost and time. The next step is to calculate the costs for the programme. The ROI standard formula is the net programme benefits divided by programme costs, where the net benefit is the financial value of the benefits minus the costs of the programme expressed as a percentage.
Doing the ROI calculation will answer the important question: Did the financial value of the training results exceed the cost for the training programme? If there is a positive ROI, the training manager can clearly show the financial benefits of the training intervention. If not, he or she is in trouble!
Measuring ROI in training usually requires a major paradigm shift on the part of training and human resource managers. In the light of this, it is important to follow proper guidelines for the effective implementation of ROI measurement.
Create an awareness for ROI in the organisation.
Build capacity for ROI by training staff to understand ROI.
Quantify information before the training in order to obtain a baseline (e.g. number of accidents, customer complaints, etc.).
Covert this data to financial value (eg. the cost of preventing an accident).
Allocate resources for ROI.
Develop a culture of measurement and accountability among training staff and managers.
Start with only one course as a pilot programme to practise ROI skills.
Communicate the results to training staff and the whole organisation.
Design improvement plans for training programmes in order to increase ROI.
Once ROI results are available, use the data to market future learning programmes.
To calculate ROI is a lifeline for a training or HR manager. It provides training managers with a tool to quantify the value they add to their companies. What is important, is that training managers must commit themselves to collecting all the necessary data - information that can be measured. To collect this data, they will need to form sound relationships with line managers. Once these results are available, companies will be able to determine the financial value of training. This process can assist them to make important decisions about various training interventions, such as the value of management development programmes, whether to outsource training, whether to use-e-learning, whether to decentralise training, etc. ROI provides the training manager with an opportunity to become a financial business partner - from merely a trainer offering training, to a manager producing tangible business results that can be measured in financial terms.
Marius Meyer, senior lecturer in training management, Technikon SA
Rina Opperman, people development consultant, Medscheme
Chris Dyrbye, ROI consultant, ROIonline.co.za
This article is a summary of the first South African book (including CD-ROM with spreadsheets) on ROI measurement in training published by Knowledge Resources (011) 880 8540 http://www.kr.co.za/
The article will also appear in Management Today, South Africa's leading management magazine: www.managementtoday.co.za
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