Return on Investment for Customized Training
Why invest in training for your staff?Training enhances company profits.
According to the American Society for Training and Development (ASTD), investment in employee training enhances a company's future financial performance. An increase of $680 in a company's training expenditures per employee generates, on average, a 6 percent improvement in total shareholder return. Based on the training investments of 575 companies during a three-year period, researchers found that firms investing the most in training and development (measured by total investment per employee and percentage of total gross payroll) yielded a 36.9 percent total shareholder return as compared with the 25.5 percent weighted return for the S&P 500 index for the same period. That's a return 45 percent higher than the market average. These same firms also enjoyed higher profit margins, higher income per employee, and higher price-to-book ratios.
Firms that invest $1,500 per employee in training compared with those that spend $125 experience an average of 24 percent higher gross profit margins and 218 percent higher revenue per employee (source: Laurie J. Bassi et al., "Profiting From Learning: Do Firms' Investments in Education and Training Pay Off?" American Society for Training and Development, 2000).
Training improves work quality.
Improved skills result in better-quality performance.
Training improves a company's competitive edge.
Keeping up to date keeps you in the running!
According to Nobel Laureate Gary Becker, professor of economics and sociology at the University of Chicago, "Any company has to recognize that not only is the human capital of their employees a major asset, it is also a depreciating asset that needs continuing investment."
Training increases worker productivity.
Just a 2 percent increase in productivity has been shown to net a 100 percent return on investment in training (source: "The 2001 Global Training and Certification Study," CompTIA and Prometric).
Motorola calculated that every dollar spent on training yields an approximate 30 percent gain in productivity within a three-year period. Motorola also used training to reduce costs by over $3 billion and increase profits by 47 percent (source: Tim Lane et al., "Learning to Succeed in Business with Information Technology," Motorola).
Training saves supervisory and administrative time and costs.
The less time and money you have to spend on monitoring and guiding employees, the more you have available for other activities.
Training improves customer satisfaction.
Better-quality work means better-quality products and services . . . resulting in happier customers.
Training improves employee satisfaction and retention.
Many people assume that once employees are trained, they are more likely to leave the company for greener pastures, but actually, the opposite is true: trained staff are happier and more likely to stay put. Their self-esteem improves, which in turn improves their morale in the workplace and their loyalty to their employer. A Louis Harris and Associates poll reports that among employees with poor training opportunities, 41 percent planned to leave within a year, whereas of those who considered their company's training opportunities to be excellent, only 12 percent planned to leave. A Hackett Benchmarking and Research report shows that companies that spend $218 per employee on training have more than a 16 percent voluntary turnover, while companies that spend over $273 per employee have turnovers of 7 percent.
BENEFITS OF STAFF TRAINING
- Labor savings: reduced duplication of effort; less time spent correcting mistakes; faster access to information
- Cost savings: fewer machine breakdowns, lower maintenance costs; lower staff turnover, lower recruitment costs; reduction in bad debts; reduced customer support calls; reduced help desk calls; reduced need for supervision; reduced downtime; increased staff productivity
- Income generation: increased sales; sales referrals made by nonsales staff; new product ideas; improved customer satisfaction and retention
- Performance improvement: in quality, quantity, speed, safety, problem solving
- Behavioral improvements: attitude, ethics, motivation, leadership, communication, reduced conflict
CALCULATING YOUR RETURN ON INVESTMENT (ROI) FOR TRAINING
When to calculate ROI
Not all the benefits of training are quantifiable; many are intangible, such as improved employee self-esteem and morale. Moreover, trying to set a monetary value on the value of training is complex, and therefore probably not worthwhile for a short course delivered to a small number of employees. So when is it worth the time and effort to do all the company research and cost-to-benefit ratio calculations?
- when the training program will have a long shelf life
- when the program will serve many participants
- when the program represents a sizable investment of company resources
- when the "before" and "after" performance factors are tangible, can be quantified in some manner (i.e., with measurable indicators), and can be assigned monetary values
How to calculate ROI
There are many different ways to calculate ROI. For information on the various theories and methods, consult the bibliography below.
SELECTIVE BIBLIOGRAPHY ON RETURN ON INVESTMENT
ROI Overview and the Pros and Cons of ROI Calculation
Barron, Tom, "Is there an ROI in ROI? Another Look at Evaluating Training Programs." Alexandria, VA: American Society for Training & Development (ASTD), 1998.
Cross, Jay, "A Fresh Look at Return On Investment," white paper. SmartForce: The e-Learning Company, 2000.
Parry, Scott B., "Measuring Training's ROI, Another Look at Evaluating Training Programs." Washington, DC: American Society for Training & Development, 1998.
Phillips, Patricia P. and Jack J., "The Bottom Line on ROI: Basics, Benefits, & Barriers to Measuring Training & Performance Improvement." DC: The Center for Effective Performance, 2002.
Tobin, Daniel R., "The Fallacy of ROI Calculations," Corporate Learning Strategies, www.tobincls.com/fallacy.htm
Methods of Calculating ROI
Brauchle, Paul E., "Costing Out the Value of Training, Another Look at Evaluating Training Programs." Washington, DC: American Society for Training & Development, 1998.
Conner, Marcia L., "How do I measure return on investment (ROI) for my learning program?" Training & Learning FAQs, Learnativity.com. 2002.
Martin, John, "ROI: Do It & Prove It," ASTD, 2001.
Phillips, Jack J., Return On Investment in Training and Performance Improvement Programs. Gulf Publishing, 1997.
---------------. "Was It the Training?" ASTD, 2001.
Setaro, John L., "Is It Worth the Cost? Calculating the ROI for Training," mytrainingserver.com/news.
Shepherd, Clive. "Assessing the ROI of Training," Fastrak Consulting, 1999.
ROI Calculators (Online Tools, Software)
Training ROI Worksheet.
An Excel worksheet allowing calculation of the real or actual cost of training. www.workplacebasicskills.com/non_frame/free_tools/roi/worksheet.htm
ROI Calculator for Training Methods.
An Excel workbook for comparing costs and determining ROI of various training methods. www.mediapro.com/html/resources/roi.html
BNH Expert Software.
A company that offers software and services to help organizations manage training budgets and resources, measure the impact of training on the bottom line, and identify ways of reducing costs and improving productivity.
Advisor.
A media selection and ROI decision support tool that helps the user analyze a course to decide the most economical blend of instructional delivery methods.
www.bnhexpertsoft.com
Avatec Solutions ROI Calculator.
An online tool allowing the user to type in factors pertinent to his/her training situation and then receive a calculation of ROI.
http://www.avat.com/training/roicalc.asp
