Innovation, Training

& Development

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Part 8 Calculation of Training ROI

Reasons

Training and development can be initiated for a variety of reasons for an employee or group of employees…

When a performance appraisal indicates performance improvement is needed.

To "benchmark" the status of improvement so far in a performance improvement effort.

As part of an overall professional development program.

As part of succession planning to help an employee be eligible for a planned change in role in the organization.

To "pilot", or test, the operation of a new performance management system.

To train about a specific topic.

InvestmentIn America organizations spend around $US109,000,000,000 ($US109 Billion) on training and development each year.

Around $US1,435 per employee. Source ASTD

The investment in Australia overall is much less and yet per employee around the same (more if we include government funding).

Well Spent?Beyond training new employees in the specific tasks and roles of their jobs, most companies train staff in areas such as leadership, communications, performance management, or lean operations.Wasted investment if they fail to evaluate, monitor, assess whether those employees learned anything that improved business performance.

Generic training does not address core competencies or performance or productivity needs of an organization.

ROI

Most organizations need to measure their training ROI ratio.ROI ratio = Total Benefit - Total Cost Total Cost

More organizations need highly capable employees—90 percent of the respondents to a recent McKinsey Quarterly survey said that building capabilities was a top-ten priority for their organizations.

If they could or did calculate the ROI, they may be able to invest into more productive programs.

BenefitsCalculation

How do you measure or calculate your training benefits or ROI?

Please pause this video and write your methods…

We will look at a Call Centre scenario.

Average cost per call (based on AHT and wages) = $2Productivity improvement (based on average of 20 per hour increased to 25 per hour) = $10Agents work 8 hours per day = $80ROI through productivity improvement for 20 Agents over 100 days = $160,000

Cost CalculationLet's now calculate the cost of training.

Training costs such as Trainer’s wages, venue, printing, travel costs, instructional design (not including downtime, the Agents wages) = $25,000

ROI Calculation

Productivity improvement for 20 Agents over 100 days = $160,000Training costs for the program

= $25,000ROI% = $160,000 - $25,000 X100%

$25,000ROI% = 540%

What functions within your organization produce a higher ROI?

Remember:ROI ratio = Total Benefit - Total Cost Total CostPlease pause this video and calculate the ROI % ratio.

A ToolTo gauge whether the training investment was worthwhile.

Organizations must ensure that training and development initiatives contribute positively towards individual and organizational performance.

Each program needs to be evaluated as a good investment for growth, competitive advantage, risk management, sales… or in this scenario managing AHT costs and customer service.

Thank youWe hope you enjoyed this short presentation on Calculation of Training ROI.

Your feedback would be appreciated.www.itd.managementFor more information:information@itd.management