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Determining Training Return-on-Investment (ROI)

by Ron Kurtus (revised 16 May 2001)

Company management wants to know that the money they are spending on training is well spent. They want to know that they are getting a sufficient return on their training investment (ROI).

Improvement factors include increased productivity, reduction of waste and improved employee retention.

Measurement of training ROI starts with defining the reasons and goals for the training, determining how much the training costs and verifying the amount of return.

Questions you may have include:

This lesson will answer those questions.



Start with training goals

A company may provide training to their workers, managers, customers, and sometimes suppliers. The ultimate reason for training them should be to improve the profits and repeat business of the company. It is preferred that this improvement is measurable, so that an effective ROI can be determined.

Reasons to train workers

The reason to train workers and managers is so they will learn to do their jobs better or perhaps learn new skills or technologies that can be applied to the company's goals. Sometimes workers and managers are trained to satisfy government requirements, to ensure safety, or to prevent lawsuits or other forms of company loss.

Managers are often trained in people-handling skills. Also, companies may allow workers to take training simply as a way to keep them happy in their jobs.

Reasons to train customers and suppliers

The reason to train customers is so they will understand how to use the company's products effectively. This can prevent problems and expensive service calls.

Likewise, companies may train their suppliers on the proper method to provide specialized items. This is to ensure the company gets the highest quality parts and supplies needed to make their product.

Training customers and suppliers follows the Total Quality Management (TQM) philosophy of doing business.

Investment in training

In order to train personnel, customers or suppliers, a company must pay for the development of training material and the time spent by the trainers in the classroom. This is either absorbed through an in-house training department, paid to outside training companies, or a combination of the two.

Costs include paying for time off from work, paying trainers, and travel and lodging expenses.

Time spent by workers

Workers and managers must often take time off from work to attend training classes. Not only is the company paying wages for no work done, but it may also lose opportunities for more sales or productivity during the absence of the personnel. For off-site training, the company may also have to pay for travel and lodging.

The burdened hourly rate, estimated loss of productivity, and training expenses must be calculated.

Classes for customers

Classes must also be set up to train customers and suppliers. Training personnel, equipment, and location expenses must be paid by the company, although in some situations the customers or suppliers may pay for their own training.

Keep track of costs

Obviously, if a company wants to determine their ROI for training, they must account for all the money spent, especially the hidden expenses.

Measuring the ROI

The greatest factor in measuring the return-on-investment for training is the definition of what the training is to achieve. Measuring the amount of money generated by a group before and after the training, and then comparing that improvement with the cost of the training is the way to measure the ROI.

If no measurable goals

Very often there are no specific or measurable goals to achieve for a training session. This is especially true in many of the "soft skills" taught to managers. It is very difficult to measure the results of a manager style training seminar. In fact, the goal for such training might be something like: "To be a better manager," whatever that means.

If there is no way to measure the effectiveness of the training, the company might be better off simply giving the people money to go on a vacation. 

Having specific goals

If the goal is to improve the productivity of a worker in a certain process, a metric must be determined the leads to a company bottom line number. Before and after training measurements must be made to determine the effectiveness of the training sessions. Then the costs involved in training the personnel can be compared with the real improvement of profits to determine its ROI.

For example, safety training has a specific goal of reducing the accident rate. Statistics can be made that will verify the effectiveness of such training.

ROI in training customers

A good way to tell the effectiveness of training customers is the reduction in service calls. The cost of maintaining a service call staff and making repairs can be compared with the cost of training the customers.

Some companies use service calls as a method for generating revenue. This is an extremely short-sighted way of making money. A quality product that the customer knows how to use will generate repeat business. If the customer must make service calls or send the product in for repairs, that customer may buy from a competitor the next time around.

Likewise, the return from training suppliers can be measured through the improvement in quality of the goods and services they provide. This will result in the measurable reduction of problems and improved quality of the end product.

Summary

The reason to train should be to improve the company's bottom line. The investment in training consists of the cost of the training and the time spent by the personnel from their jobs. By measuring the effect on the company profits before and after training, and then comparing with the costs of the training, a company can determine their return-on-investment.


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