Calculating Training ROI – The Modern Approach

Many top management in leading organizations are aware of the importance of training, yet they fail miserably when it comes to explain the return on training. Traditionally they attach the sales volume or productivity directly to trainings and look to the short term gains.

However, Investment and return from training is however is a different concept.

Let’s examine a futuristic method for evaluating Training ROI

The best approach to calculate ROI for a training program is to start way before the training starts, this will generate preliminary data for comparison use down the road. Preliminary data collection is done with methods appropriate to the situation, but can include surveys, questionnaires, interviews, focus groups, observations, and tests.

For example if one of the factors to be assessed is productivity, one should create a control group for the training. Control groups are employees who do not participate in the training, so that their post-training program performance serves as a baseline for the group of employees who participated in the training. That way, any difference in productivity between the two groups can be attributed to the training with a high level of confidence.

A timeline for how and when each level of evaluation will occur needs to be chalked out… The modern approach model for ROI calculations has five levels. Here are the levels and what they measure:

Level 1->Reaction/Satisfaction: What are the participants’ reactions to the learning and what do they plan to do with the material?

Level 2 -> Learning: What knowledge, skills, or attitudes have changed and by how much?

Level 3-> Job Application: Was there any behavior change and did participants apply on the job what they learned in the training?

Level 4-> Business Impact: Did the on-the-job application produce measurable results?

Level 5-> ROI: Did the monetary value of the results exceed the cost of the program?

A chain of impact needs to occur as skills and knowledge are learned (Level 2) and applied on the job (Level 3) to produce business impact (Level 4).

Once a training program has been completed, data collection continues. Again, depending on the situation, it can involve follow-up surveys and questionnaires, additional on-the-job observation, post-program interviews and/or focus groups, program assignments and performance contracts, among others.

A second main task is isolating the effects of training. Control groups, as mentioned earlier, are probably the best way to attribute results to training. Also valuable is analyzing trends of pre- and post-training factors, such as employee turnover, grievances, sales, customer satisfaction, employee production, and the list goes on. Differences in pre- and post-training trends can often be attributed to the training with a high degree of confidence.

A third task needed before calculating ROI is converting all the collected data into monetary value. Performance output, improvements in quality, and myriad other factors can be converted to monetary value for comparison and ROI calculation. Meanwhile the training overhead costs should be calculated and added up.

To determine the ROI for a program, divide the net benefits by the program costs and multiply that number by 100.

You will be surprised to see training is not an expense, but a profit center.

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