Training ROI – The BIG Picture

Want to measure the ROI on your training effort? Join the club. This topic has been on the mind of every CEO, CLO, and VP of HR who ever prepared or reviewed a budget for training. If you are having a difficult time calculating ROI on training, you may be missing the point.

ROI on training is conceptually no different than the calculation you would perform before acquisition of capital assets. Most companies have business analysts that spend a great deal of time calculating with some degree of precision the efficacy of such capital acquisitions. You must forecast and measure costs and benefits, calculate the net present value of the result, determine the ROI of the project, and compare the result to the company’s internal desired hurdle rate. If the comparison yields a positive result, that is, the Calculated ROI exceeds the desired hurdle rate, the acquisition is made.

Many of the calculations I have seen for training compare the cost of one type of training to another. Many leaders contemplate conducting training in a classroom with an instructor, as a synchronous online seminar, or as an online asynchronous e-Learning opportunity. They carefully cost and compare one format to the other until they believe a clear “winner” emerges. This thinking misses the point. Much like the old hamburger ad of the past, the mantra should be “Where’s the REVENUE?”

To get at the training ROI, you must first ask: What is the strategic business imperative of the company that this training will support? The company has gone to some lengths to articulate a clear strategy for the future. That strategy must be supported in some way through initiatives designed to implement the strategy. Most often training shows up as a part of the execution of initiatives designed to implement strategy in some form. If the training you are contemplating cannot be tied back to the corporate strategy—stop here—you should not try to justify the training project at all.

Once you establish the link to a strategy implementing initiative, it will be easy to find the ROI. The calculation is now based on forecasting the effectiveness of the initiative to implement strategy with and without training. If the implementation of the initiative will be more successful with training (i.e. the system will be in use more quickly, the customer will be more satisfied if training occurs, revenue will be generated more effectively with training, etc…) you will be able to quantify a revenue stream and a net present value of that revenue. There is always a way to contrast effects with training and without training for any initiative that is designed to implement strategy.

The only task left then is to determine the relative costs of the particular training implementation (e.g. instructor led, self paced, online, hardcopy, etc…) along with the training effectiveness with respect to the revenue stream involved, and pick the one that yields the greatest ROI. Easy. Right? Look for more ROI detail in next month’s issue of Simpact.

On the Road

CLO Summit
April 27-29
The Broadmoor
Colorado Springs, CO