How to Calculate ROI for Training
Trainers have struggled for years with the concept of how to demonstrate return on investment (ROI) from training. Because of the many variables involved, it is often very difficult to tie business results directly to training outcomes. But training ROI can be measured, and tangible organizational results demonstrated quantitatively, by choosing the right outcomes to measure. Capturing data on intangible benefits may supplement the ROI figure.
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Instructions
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Select the right program. Choose a program for ROI analysis that is important in helping the organization meet its goals. Select the program based on its cost, its visibility, the size of the target audience and the extent of management interest. This is important in justifying the time and cost of performing the ROI analysis.
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Collect data. Identify appropriate performance indicators and develop a data collection plan. Select output data such as units produced, units sold, work backlog, new accounts opened, inventory turnover or productivity. Alternately, collect time data such as equipment downtime, overtime, time to project completion, processing time, lost time delays or repair time. Measure hard costs, such as cost per unit, variable costs, operating costs and overhead. Also measure quality indicators, such as scrap, waste, rejects, error rates, product failures and rework.
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Isolate the effects of training. Use a control group, trend line analysis (comparison of projected rate versus rate after training), participants' estimates or managers' estimates to determine the impact of training.
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Convert data to monetary values. Focus on a unit of improvement (hours of equipment downtime, for example). Determine the value of each unit (the cost per hour for equipment downtime). Calculate the change in performance after training. Determine an annualized amount of change. Calculate the annual value of improvement. This is the net program benefit.
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Tabulate the cost of the training program. Include costs for design and development, program materials, facilitator fees, facilities and administrative and overhead costs. Also include participant costs: travel, lodging, meals and salaries and benefits for the period of time they were in training.
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Calculate ROI. Divide the net program benefit by program costs and multiply by 100. This calculation will provide a percentage of return on the training investment. An ROI of more than 100 percent indicates that the benefit of training was more than the cost.
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Determine intangible benefits of training. These are soft benefits that cannot be directly measured or included in the ROI calculation. Nonetheless they are important. Examples include improvement in morale, market perception or employee engagement.
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Tips & Warnings
Choose measures carefully.
