Trainingisn’t cheap. We get it. And it’sonly natural to want to know whether yourtraining budgetis being well spent.That’s why calculating theROI (Return on Investment) of your training can be helpful. ROIis a useful way of measuring whether aparticulartrainingcourseor programoffered value for money. In this post, we’ll explorefiveeasy ways to measure the ROI of any training course or session.
Contents
What is ROI?
WhycalculateROI?
Who should use ROI?
Option 1. Use a training ROI calculator
Option 2. Use supervisor assessments
Option 3. Create an impact study
Option 4. Use the Phillips ROI Methodology
Option 5. Usea training effectiveness measurement platform
What is ROI?
The traditional ROI formula for trainingis the program benefits(net profit) minus the training costs and thendivided by the program costs. This indicatesthe dollar amount returned as a benefitfor every dollar spent on a program.This can also be converted to a percentage by multiply by 100.
Here’s the equation:
In addition to the traditional ROI formula, several other methods are occasionally included under the umbrella term ‘Return on Investment’. Onesuch method is the payback period; the total investment divided by the annual savings, expressed in years.
Calculating the payback period works better with long-term metrics such as improving staff retention levelsor reducing healthcare costs among staff. Results may only become apparent over a long time period, hence calculating the annual savings is better.
Why calculate the ROIof training?
ROI calculationsof trainingaim to answer two broadly similar questions:
Are traineesgaining new knowledge and skills so that they can increase efficiencyand/or reduce costsin the workplace?
Canwe measure the cost of this trainingagainstthe benefits to both theindividualsand the organization?
ROI can be used to justify the expense of a training course, compare one training course to another and help establish training within an organization. It is a simple way to tracking the effectiveness of training and measuring what value the learning helped create.
Who should use ROI training calculations?
ROI often creates various ideas or concerns about how to measure and use it.In particular, whatto focus on andwhatvalue to place on the results. If these concerns are shared by senior management, there’s little hope of using the results from ROI unless it has an impact on the bottom line.
Some organizations lack the trustorflexible environment required to utilize ROI results. Companies must be willing to learn, change and try new things, particularly with regards to training development.Organizations that lack the rightattitude and approach, may not find ROI calculations helpful or worthwhile.
That being said, hereare fiveeasy ways to measure the ROI of training.
Option 1. Use a training ROI calculator
The first way of measuring the ROI of any training is to usetraining ROI calculator. This is a simple way of calculating the ratio of the total cost of the training program relative to the total benefits of a training program.
It works best for highly structured jobs where the monetary benefits are easy to isolate.
For example: Imagine you’re a call center operations manager managing thirtycall center agents and you spent $30,000 to put them on a program designed to improve their call handling skills.
Measurement isa very important aspect of ROI soyou would need to measure the productivity of your agents both before and after the program. For example, you could look at the cost of handling a call. Or you could look at the number of callsyour staffcan handle per hour. If you're struggling to decide which metrics to focus on, here are our suggestions for thetop 15 training ROI metrics you should know.
After the training, you could then take the same measurements and see what, if any, difference hadmaterializedas a result of the training.
Let’s assume that your staff could handle 20 calls per hour before the training, and 25 calls per hour after the training. If it costsan average of $1 to handle each call, thenthisproductivity improvementof 25 percentwould beworth$5 per hour, or $40 per employee over a typical 8-hour shift.
For your thirty employees, youcould say that the call handling training provided a total net benefit of$1,200 per day or $120,000 over a period of 100 days.
To calculate the ROI, you’d use the following formula:
ROI% = $120,000 - $30,000/30,000 X 100 = 300%.
Download ourfree ROI calculator. It will both guide you in your calculation of ROI from training but alsoin your calculation or ROI from evaluating theitseffectivenessandtaking actionon low quality and lack of learning transfer.
Option 2.Use supervisorassessments to calculate training ROI
Training ROI calculators work great for easily measurable net benefits such as sales figures, manufacturing work or other highly structured and clearly defined jobs.
But what about flexible, unstructured work such as managerial positions?
One approach is to use supervisor assessments. This approach lets yousuccessfully measure the ROI of employee training in 6 steps.
For the next example, let's imagine that you are a senior manager looking after a team of three middle managers, each of whomis in charge ofmanaging their ownsub-teams. Youdecide toput your middle managers on a training program designed to develop their overall management skills.
Unlike the call center example, the work of middle managers islargelyunstructured and difficult to measureobjectively.In other words, it is difficult to isolate the effects on the training froma myriad ofotherpossiblefactors.
This is where supervisor assessments come in handy. In this approach, a senior manager uses on-the-job observations and assessments to make judgments about the areas in which the middle managers who attended the training haveimproved.
The assessmentwill examine certain areas, such as:
Customer Service
Teamwork
Task completion
Task complexity
The senior manager will use observations to make informed judgments about the middle manager's performance in those areas. One observation will take place before the training,and one after, so highly the differences.
To isolate the effects of the training, you could also use a control group of middle managers who are assessed without receiving any additional training.
So, how do you takefinding of the assessmentand turn it into a monetary value necessary to calculate ROI?
In our example, thegroup of threemiddle managers improved theirperformanceby the following average percentages:
Customer Service + 5%
Team work + 10%
Task completion + 5%
Task complexity + 5%
Theoverallaverage productivity improvement would be (5 + 10 + 5 + 5)/4 = 6.25%.
You would then take an average of the middle managers’annual salaries: say,$70,000,and calculate that their equivalent productivity improvement would be 6.25% of $70,000. This would give you a figure of$4,375per year, per manager, and $13,125 for the group of three managers.
If the total cost of the individual program was $2,500per manager and $7,500 in total, you could apply the same basic ROI formula:
ROI% =(13,125-7,500)/7,500X 100 = 75%.
The ROI of the training could be expressed as 75%.
Option 3. Create an impact study to calculate training ROI
The third easyway of calculatingROIis to create an impact study. A ‘business impact’ is any change brought about by the training. It could be:
Sales
Market share
Customer feedback
Staff retention
And more!
Impact studies followaset process:
Evaluation Planning
Data Collection
Data Analysis
Reporting
Intheevaluation planningstage,youevaluate the objectives of a programand develop evaluation plans and baseline data.Inother words, you decide what inputs and indicators you are looking for.
These could include:
The number of programs
The hours
The costs
Time to deliver
The number of participants
During thedata collectionphase, wecollect the data during theprogram implementation, measuring satisfaction, reaction,and learning. The most common approach is to use surveys and to ask the training participants to rate the training they received in terms of their satisfaction and reaction.
(insert image of survey form)
After the training has wrapped, we thencollect the datarelated to theapplication, implementation and business impactthat the training had.This could include another survey where you ask participants to conduct a self-evaluation, or it could include a peer- or supervisor observation as we discussedin the supervisor assessmentssectionabove.
You could look at:
Use of knowledge or skills
Completion of actions or tasks
Implementation of ideas
Use of regulation orprocedures
The success of applications
To measure business impact, you could collect the relevant financial data related to the organizations’ operations.
These may include
sales
new accounts
market share
churn rates
customer complaints,
cycle Time
sales
In data analysis, we isolate the effects of the program, convert data to monetary value andcalculatethe ROI. This includes capturing the costs of theprogram and identifying intangible measures.
For example, imagine that youare runningatraining program designed to increasethe number of sales made.You are training 20 members of your sales team at a cost of $1,500 per head, or $30,000 in total.
Here are the phases you’d go through:
Evaluation Planning
The goal is to increase sales.Data Collection
Ask the sales staff to complete survey forms after the training to gauge their reactions.
Data Analysis
Measure the sales before and after the training.
Lastly, we come to reporting. Here, we generate an impact study. One of the earliest methods of evaluating methods is the benefitstocost ratio. This follows the standardROIformula of the program benefitsminus the training costs,divided by thetrainingcosts.
Option 4.Use the Phillips ROI Methodology to calculate training ROI
In 1980, Jack Phillips published a10 steptraining evaluation methodologycalled thePhillips ROI Methodology. His work was based on early work byDon Kirkpatrickwho published the revolutionary bookFour Levels of Training Evaluation.
The Kirkpatrick model featured four levels:
Level 1: Reaction
Level 2: Learning
Level 3:Behaviour
Level 4: Impact
Here’swhat each level included:
Level 1: Reaction
During this level, you survey the participants and gauge their reaction to the training. Were they satisfied or dissatisfied?
Level 2: Learning
Conduct two tests or surveys – one before and one after the training. This helps you measure what the participants have learned.
Level 3: Behavior
The third levelof evaluation takes placeat some point in timeafter the training has wrapped up. Have the participants started to use their new knowledge or skills in the workplace?
Level 4: Results
The lastKirkpatricklevelmeasures whether the organization’s expectations were met. This is referred to asReturn on Expectations(ROE).
You’ll notice one thing:
Kirkpatrick doesn’t explicitly measure ROI. That’s why Jack Phillips wanted to expand this basic methodology. He added a new level – Level 5 – that helped organizationscalculatethe financial return of a training program.
The ROI Methodologyoffers a balanced way of measuring six types of data:
Reaction and Planned Action – Level 1
Learning – Level 2
Application and Implementation – Level 3
Business Impact – Level 4
Return on Investment – Level 5
Intangibles
What is Level 5?
Level 5helps companies usecost-benefit analysis to determine the value ofatraining program.It helps organizations determine whether the money they spent on training translated into real-world benefits such as increased profits or increased efficiency.
How tocalculatetheROIof trainingusingthePhillips’ROIMethodology
To calculate ROI using the Phillips’ ROI Methodology, you need to implement eachstepinturn.
Level 1:Survey the trainees to gauge their reaction.
Level 2:Measure the learning that took place through a survey, test, or quiz.
Level 3:Phillips built uponKirkpatricks’ work and expanded this section to encompass ‘Application and Implementation’. This stage studies behavior in the workplace and makes it easier for organizations to see whether training resulted in on-the-job changes.
It uses many of the methods we’ve discussed already such as:
Self-evaluation forms
Supervisor Assessments
Peer observations
Level 4:This level looks at whether other processes were responsible for driving changes in outcomes. For example, changing economic conditions and an altered business landscape could be affecting profits or revenues.
Phillips’ methodologyaims to isolate the effect of a training course in the following ways:
Forecasting models
Trend line analysis
Control groups
Error-adjusted estimates
Level 5: This level is called ROI determination and is a form of cost-benefit analysis.
Toconduct this step, you’ll need to:
1.Choose which factors tomeasure
You could measure sales, productivity, efficiency or some other business metric.
2. Take pre-training measurements
3. Take post-training measurements
4. Calculate the benefit to the company
Example: Sunglasses manufacturer
Imagine that you’re the production supervisor in a sunglasses factory and you decide to train ten staff for a total cost of $10,000. The goal of the training is to increase productivity and increase the number of sunglasses that each employee can produce in a given time.
During level 1, you’d ask your staff to complete a survey form to gauge their reaction to the training. You may like to ask them:
Did you enjoy the training?
Was the training worthwhile?
Did the training meet your expectations?
During level 2, you would test your employee’s rate of work both before and after the training. The course instructor could help devise a short practical test or demonstration where the trainees demonstrate that they have mastered aparticular skillor procedure that will help increase efficiency.
During level 3, you would measureyour employee’s performance in the workplace. For instance,you might find that they could produce 30 sunglasses per hour before the training and 35 sunglasses per hour after the training had wrapped.
Level 4 evaluation would see you isolate the effects of the training from any other variables such as the introduction of new machines or more efficient manufacturing techniques.
The fifth level – ROI – would see you crunch the numbers and calculate the ROI of the training.
The training helped increase the average employee’s productivity from 30 sunglasses per hour to 35, a 16.6% improvement.
If each employee receives an average hourly rate of $12, then over 100 8-hour working days,training would result ina $1,593.6 increase in productivity per employee or $15,936 for all ten employees over a100-day period.
You can then use the standard ROI formula to calculate the ROI:
ROI (percentage) = ((Monetary benefits: $1,250 – Training costs: $200)/Training Costs: 200) x 100.
ROI% = $15,936 - $10,000/$10,000 X 100 = 59.36%.
This gives an ROI of 59.36% and indicates that thetraining was worthwhile and resulted in increased profits for the company.
Option 5. Useatraining effectiveness measurementplatform to calculate training ROI
Thefifth and arguablytheeasiest way to measure the ROI of training is to use trainingeffectiveness measurement platformsuch as Kodo Survey. This dedicated survey automates much of the work required to conduct ROI, such as:
Automatically emailing participants with feedback surveys
Collecting and processing the results
Automating the testing process so measure learning
Assisting with workplace observations
Generating reports based on participants reaction
And more!
The bestplatformcan help generate reports for stakeholders to show the impacts of training and the value that it has returned to the organization. This helps emphasizethe return due to the training and justify the initial costs.
Which approach should I use?
The decision over which method to measure the ROI of training depends on your budget, time frame and the importance of the course. The ROI tool is applicable to situations where the work is easilyquantifiableand the benefits are tangible. The supervisor assessments are better suited to managerial assessments where the work is less structured and harder to quantify. Impact studies and the Phillips methodology require serious time and resources to implement.LMS software is appropriate for firms unfamiliar with learning effectiveness best practices and techniques.
Summary
Hopefully,this post has givenfiveeasy ways to measure the ROI of training.ROIcalculationsare unnecessary for the vast majority of trainingcoursesbut can be a helpful way to helping an organizationtrack whether it isreachingits program and business goals.And, it shoulddefinitely bedone on trainings where you have high volume (hencehashighdirect and indirectcost) and/or that is strategically important (hence have highalternative cost if it doesn’t deliver on its’ purpose).
Need More?
For more tips on how to use the Kirkpatrick model to evaluate training and measure ROI, be sure toaskus for a free demo to see how we can help you achieve your goals.
