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Return on Investment: Training and Development ROI and Evaluation.

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Presentation on theme: "Return on Investment: Training and Development ROI and Evaluation."— Presentation transcript:

1 Return on Investment: Training and Development ROI and Evaluation

2 ROI Contents Purpose of ROI, and Value of training What is ROI Why ROI Methodology Toolkit

3 Models Benefit/Cost Ratio ROI (%)

4 The Value of Human Capital We all know Human Capital (and its development) is vital Human Capital is often much undervalued as an investment opportunity ROI can be very high Phillips refers to 800% being achievable regularly Tennessee Valley authority claim 1000%+ A world-class corporate university claimed 5,612%

5 Why ROI? Pressure on training functions to show demonstrable return Value for money from training activity Value of HRD to the business; e.g. Financial benefits Staff productivity Staff retention Clear alignment with corporate goals In-house vs outsourced training ROI analysis is a tool to support the contention that training is valuable; demonstrate benefits vs cost Pressure to reduce costs must be balanced by visibility of benefit Warm and fuzzy is no longer any good! (in most cases) Jay Cross alternative view

6 ROI as Process Use evaluation techniques to acquire performance data Use Training Needs Analysis to direct the project to the right data Use analytical techniques to calculate ROI from the data Use ROI results to review training effectiveness Use the reviews to inform future decisions

7 ROI as Perception Which of these perceptions indicate your clients view of ROI (which you need to address)? The Board may see a big picture of how the training affects the companys ability to achieve its corporate goals The finance department may be looking to see how training stacks up financially against other ways to invest the companys money, and whether the training, as carried out, was financially more effective than alternative forms of development The business unit manager may be solely concerned with the impact on performance and productivity in achieving the goals of their department The training and development manager may be concerned with the impact training programmes are having on the credibility and status as the training function within the company and its ability to secure investment in the future to drive further business performance enhancements

8 What is ROI? Elements of Total ROI Reducing costs Increasing benefits/performance/capability Use of ROI ROI of a training projects contribution to business or project ROI of one delivery method vs. another (e.g. ILT vs. e-learning) Role of ROI Pre-training assessment and expectation setting Post-training feedback Post-experience value measurement

9 The Process Model 1: Measure reaction &identify planned actions Immediate reaction and response 2: Cognitive learning and retention Skills, knowledge, attitude changes 3: Assessing application of learning to the job Actual change in behaviour 4: Identifying business results Quantify business value of change 5: Calculating ROICompare monetary value with costs

10 Getting Started Select your project to measure Select a significant project; align with significant goals Start with a project that has clearly definable metrics ROI measurement Plan Data Collection Plan Identify the returns Identify the investment factors Select the survey audiences and sources of data Select your data collection methods Analysis Plan

11 Investment Factors Costs incurred Payments to suppliers and service providers Time and attention to create and deliver the training Opportunity cost Time and costs involved in the ROI measurement exercise Other Internal costs

12 Process Summary – Data Collection Plan Data collected at different times to provide: Pre-training baseline Post-training change analysis Post-experience change analysis Data Collection Plan State the objectives of the training / learning State the objectives of each phase of data collection at each evaluation Level Identify any previously used metrics, values or methodologies used by the client, and determine suitability for the current exercise Select the appropriate evaluation methods Identify the audiences who will be surveyed for data Set the timing for the data collection Allocate responsibilities for data collection and analysis

13 Process Summary – ROI Analysis Plan Continuation of the Data Collection Plan, capturing information on the key items needed to develop the actual ROI calculation. List Significant Data items (usually Level 4 or 3) to be collected Benefit Factors Cost Factors Methods to isolate effects of the learning/training from other influences Methods to convert data to numerical values Intangible benefits Other influences Communication targets

14 Process Summary – Data Collection Identify the purposes of the evaluation. State clearly what the evaluations are to measure and what the goals of the training are intended to be. Be as specific as possible about the goals of the training Ensure goals address the performance enhancement, business improvement or cost savings expectations. Select the evaluation instruments and methodology. Establish the timing for the data collection. Decide whether pre-training analysis is required, or post training analysis, or both. (e.g. pre-training and multiple post-training assessments may be necessary to effectively identify the skills changes in Levels 2, 3 and 4.) Carry out the data collection at the levels 1-4

15 Process Summary – Sources of Data Organisational Performance Records, showing outputs and measurements taken as part of the business normal reporting process Testing and certification assessment records Participant feedback Instructor feedback Feedback from participants supervisors/managers Feedback from participants subordinates Team/group peer feedback Feedback from other internal or external groups (eg HR training departments)

16 Process Summary – Evaluation Methods Identify how the data will be collected and analysed Surveys On the job Observation Interviews Focus groups Action plans (or Performance contracts) and Program assignments Performance data monitoring

17 Process Summary – Isolate effects of training Separate training (personal productivity) component of performance change, from new software/systems/processes Essential for credibility Potential methods Use control groups Impact assessments and estimates by participants, managers, peers Trend lines Discount/adjust for over-estimates Apply inflation adjustment for estimates and assessments

18 Process Summary – Convert to money Convert data to monetary value Specific costs and time incurred Costs and time saved Quality increase, reduced waste Improved customer service and satisfaction Intangible benefits (retention, commitment, fewer complaints, reduced conflicts etc)

19 Process Summary - ROI Calculate ROI Benefit-cost ratio=Program Benefits Program Costs ROI % = Net Program Benefits Program Costsx 100 Break-even time = Investment Benefitx Period in months

20 Evaluation Levels 1. Reaction and Planned Action 2. Learning 3. Application and Implementation 4. Business Impact 5. Return on Investment

21 Writing Objectives Easy as A, B, C, D Audience: Who? Behavior: What do they do? Condition: What is the setting and method of evaluation? Degree: Measurement to be met.

22 Example Objectives Course objective: Learners will be able to make 15 entries in a customer database in 15 minutes with no more than 1 error. Application objective: Learners will be able to reduce the data entry error rate by 50 percent over the next 6 months. Impact objective: Employee time spent correcting database errors is reduced by 25 percent from last years rate. Increasing Scope

23 Costs, Budgets, Accounting Quantifying ROI means accounting for all the costs of the program. Fixed costs: independent of the number of participants. Variable costs: Dependent on the number of participants. There are costs at every step – make sure to account for them all.

24 Benefits and Soft Skills Change in: Attitude, work climate, leadership, teamwork. We desire these changes because they ultimately effect productivity. Allow time for change in attitude or behavior, then measure these changes and report qualitatively. Allow time for change in productivity, then measure for data and report quantitatively.

25 Create a Data Collection Plan What? New information that needs to be recorded? Who? When? How?

26 Trend Line Example

27 Stakeholders: Review Customer Employee Supervisor Subordinate President Board of Directors Stockholders

28 Thank You.. Any Questions: Dr. Pratik Surana

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