Most training ROI formulas I have reviewed—at least those getting frequent SlideShares hits—are long, theoretical, and inconclusive financially. An example is an article that focused on the need to educate leaders about (1) the importance of training, (2) the value of writing down training goals and (3) the difference between short-term and long-term thinking.
I have served on more than 40 boards of directors of public companies and banks in a consulting capacity. Believe me, this is not an education for them.
I suggest training, talent, learning, organizational development, and transformational leaders consider a completely different approach to calculating return on investment on training—an approach a CFO might take.
As trainers, we know our training is valuable. We see it and feel it. But we haven’t been too successful at proving it. Let’s look at a couple fundamental flaws with traditional approaches to calculating Training ROI:
- It’s rare to predict ROI beforehand—at least not the way finance people predict ROI
- We don’t demonstrate improved performance after the training, such as with actual performance metrics that tie back to a person and applicable key performance indicators
When leaders hear “ROI,” they think strategy, innovation, process, and technology. Most of these contribute to the “bottom line,” which is their responsibility. So, how do we speak their language by using financial terminology? Then, how do we demonstrate training effectiveness with outcomes that contributed to profitability?
For instance, here’s a simple formula for ROI—
- What will we pay ($$) for training?
- What return or value ($$) do we expect (predictive ROI) from that training?
- What results ($$) did we get (actual ROI) from training?
Training ROI Calculation
Here are some numbers we’ll need in advance to calculate an ROI (as many as possible):
- Total payroll (per week or year)
- Cost of turnover, turnover rate, or similar statistic
- Risks: costs of compliance failures, regulatory violations, legal costs, penalties, fines, lawsuits
- Sales forecast
- Margin forecast
- R&D budgets
- Key performance indicators
And here’s what we’ll need after the training:
- Talent metrics
- Performance metrics
- Demonstration that our training efforts contributed to KPIs
Utilizing an effective system will produce numbers that any executive can appreciate. When leaders change the way they look at the value of training, and consider a new approach to implementing it, they are likely to see improved profitability and a happier, more satisfied workforce.
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