ROI-Return on Investment: Training

When you monitor ROI, do you mean Return on Investment or Risk of Inaction― Paul Gillin

Introduction

When the farmer sows the seed, the expectation is that in the coming 2 to 4 months, the crop will grow and will give a handsome return. We invest time and commitment in our relationship and anticipate fruitful returns in the future. We spend hours doing yoga and gym and assume that it will improve our health and help us to remain healthy during old age. We invest in the property and calculate that in the coming 5 to 10 years, it will double.   

Objective

Training isn’t cheap. We get it and it’s only natural to want to know whether your training budget is being well spent. That’s why calculating the ROI (Return on Investment) of your training can be helpful. ROI is a useful way of measuring whether a particular training course or program offered value for money.

A recent study on workplace learning found that only 11% of employees applied the skills they learned in training to their job. This statistic highlights a significant disconnect between the training organizations are offering and their employees’ actual needs.

So how do you bridge this gap?

There are 5 different and popular methodologies to monitor training effectiveness (Kirkpatrick’s Four-level Training Evaluation Model, The Phillips ROI Model, Kaufman’s Five Levels of Evaluation, Anderson’s Model of Learning Evaluation, Summative vs. Formative Evaluation).

In this blog, we’ll explore ways to measure the ROI of any training course or session. 

Read More: https://bit.ly/CompetencyMapping1

Definition:

Competence (ISO 9000: 2015, Cl 3.10.4): Ability to apply knowledge and skills to achieve intended results

Skill (ISO 30401: 2018, Cl 3.30): Learned capacity to perform a task to a specified expectation

Knowledge (ISO 30401: 2018, Cl 3.25): Human or organizational asset enabling effective decisions and actions in the context

Detailed Information

What is Training Effectiveness?

Training effectiveness measures the impact of training on the participant’s knowledge, skills, performance, and the company’s ROI (Return on Investment). The training’s goals and objectives should be determined before training occurs, allowing these to be clearly and accurately measured.

There are different techniques to measure the training effectiveness. The five most popular techniques are

  1. Kirkpatrick’s Four-level Training Evaluation Model
  2. The Phillips ROI Model
  3. Kaufman’s Five Levels of Evaluation
  4. Anderson’s Model of Learning Evaluation
  5. Summative vs. Formative Evaluation

What is ROI:

Training ROI stands for training return on investment. It is a measure of training success in terms of meeting your desired objectives. ROI is most often seen as a financial measure, accounting for the training benefits relative to the money invested in an intervention.

As Jay Bahlis says in a paper on maximising training impact, “Whether training decisions are based upon financial measures – such as Return on Investment (ROI), or qualitative measures – such as Return on Expectations (ROE), the ultimate objective should always be the same – generate the greatest benefit (value) at the lowest possible cost”.

Read More: https://bit.ly/Kirkpatrick4LevelModel

Why it is Important? Top Management, Just like Profitability to the organization

The top management will be willing to invest in training when they can see an impact on the bottom line.  

ROI calculations of training aim to answer two broadly similar questions: 

  • Are trainees gaining new knowledge and skills so that they can increase efficiency and/or reduce costs in the workplace?  
  • Can we measure the cost of this training against the benefits to both the individuals and 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 track the effectiveness of training and measure what value the learning helped create.  

  • Continual Improvement: Customer satisfaction, Business Processes: QCD- Quality, Cost, Delivery
  • Emphasizing Defect Prevention: in-process, customer, End-user, Supplier end
  • Reduction of Variation and Waste in the Supply Chain: Supplier end, internal organization, warehouse, etc.: Scrap, Repair, Rework, Complaint, Warranty, recall  

How to Calculate ROI?

The traditional ROI formula for training is the program benefits (net profit) minus the training costs and then divided by the program costs. This indicates the amount returned as a benefit for the money spent on a program. This can also be converted to a percentage by multiplying by 100.  

  • Here’s the equation: 

How Training ROI can be improved?

The following are the 4 key questions that need to be asked before planning the training

  • – Which results do we aim to achieve?
  • – What do people need to do differently?
  • – What knowledge and skills do they need?
  • – How do we design an attractive training program?

Kirkpatrick 4 Level Evaluation:

  • o Level 4: Impact/Result
  • o Level 3: Behaviour
  • o Level 2: Learning
  • o Level 1: Reaction
  • Use Training as a Strategic Business Tool
  • Clear Business Goals  linked with Training
  • Identify Skills Gaps Accurately
  • Demand Commitment from the Trainees
  • Create a Clear and Focused Environment
  • Evaluate Job behaviour before and after Training
  • foster personal and professional development

Benefits of ROI: The Top Management of the organization is always keen on gaining the benefits from the training. By focusing on the following 3 key parameters, the management can judge the advantages of monitoring ROI for the training process

  • Continual Improvement: Customer satisfaction, Business Processes: QCD),
  • Emphasizing Defect Prevention (in-process, customer, End-user)
  • Reduction of Variation and Waste in the Supply Chain:

Some of the possible benefits include

  • – Cost efficiency
  • – Increased employee retention
  • – Increased production
  • – Higher morale
  • – Reduced waste
  • – Increased sales
  • – Higher-quality ratings
  • – Increased customer satisfaction
  • – Fewer staff complaints

Challenges with Calculation of ROI:

A study by McKinsey unveiled the shocking reality that only half of the organizations keep track of their employee feedback from training programs.

The bad news is that very few organizations are taking steps, aside from making an initial financial pledge (paying a trainer/consultant, employee time off the job, etc.), to maximise their return on investment. This means that learning and training will rarely result in the desired objectives being met.

Organizations that lack the right attitude and approach, may not find ROI calculations helpful or worthwhile. 

Read More: https://bit.ly/CompetencyRequirement

Industry Challenges:

  • – How often training needs are identified based on the business goals
  • – How often clear and tangible objectives are defined while identifying the training
  • – How often selection of the participants is based on the competency mapping and not on the hunch feeling/availability?
  • – How often participants are communicated about the tangible outputs expected from them.
  • – How often training effectiveness are monitored and linked with the earlier defined business objectives?    

 

Read More: https://bit.ly/TrainingEffectivenessMonitoring

References:

ISO 9001: 2015

IATF 16949: 2016

IATF 16949: 2016, Sanctioned Interpretation & FAQ

Industry Experts

This is the 164th article of this Quality Management series. Every weekend, you will find useful information that will make your Management System journey Productive. Please share it with your colleagues too.

In the words of Albert Einstein, “The important thing is never to stop questioning.” I invite you to ask anything about the above subject. Questions and answers are the lifeblood of learning, and we are all learning. I will answer all questions to the best of my ability and promise to keep personal information confidential.

Your genuine feedback and response are extremely valuable. Please suggest topics for the coming weeks.

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