MEASURING ROI OF TRAINING

PRE-AMBLE

Traditionally, most impact evaluation studies stop with a tabulation of business results, detailing improvements such as quality enhancements, reduced absenteeism, or improved customer satisfaction;

The aim however should be to show the value of the improvements in relation to cost;

To do this distinguish first between hard and soft data.

The first step in converting to monetary value is to sort out hard and soft data

CHARACTERISTICS OF HARD DATA

Objective;

Easy to measure and quantify;

Easy to assign monetary values;

Common measures of organizational performance;

Very credible with management.

EXAMPLE OF HARD DATA

A state government office approving applications for new drivers licenses;

It will have these four measures among its overall performance measures:

The number of applications processed (Output);

Cost per application processed (Cost);

The number of errors made processing applications (Quality);

The time it takes to process and approve an application (Time).

Ideally, performance improvement interventions in this unit should be linked to one or more hard data measures.

MAJOR CATEGORIES OF HARD DATA

Primary Measurementsof Improvement

“Hard Data”

OutputIncreases

Quality

Impro

vem

ent

Time

Savings

CostSavings

ACCRA BRICKWORKS EXERCISE

What category does your measure fall in?

OutputIncreases

Quality

Impro

vem

ent

Time

Savings

CostSavings

OUTPUTUnits ProducedTons ManufacturedItems AssembledMoney CollectedItems SoldForms ProcessedLoans ApprovedInventory TurnoverPatients VisitedApplications ProcessedStudents GraduatedTasks CompletedOutput Per HourProductivityWork BacklogIncentive BonusShipmentsNew Accounts GeneratedCOSTSBudget VariancesUnit CostsCost By AccountVariable CostsFixed CostsOverhead CostOperating CostsNumber of Cost ReductionsProject Cost SavingsAccident CostsProgram CostsSales Expense

TIMEEquipment DowntimeOvertimeOn Time ShipmentsTime to Project CompletionProcessing TimeSupervisory TimeBreak in Time for New EmployeesLearning TimeMeeting SchedulesRepair TimeEfficiencyWork StoppagesOrder ResponseLate ReportingLost Time DaysQUALITYScrapWasteRejectsError RatesReworkShortagesProduct DefectsDeviation From StandardProduct FailuresInventory AdjustmentsTime Card CorrectionsPercent of Tasks Completed ProperlyNumber of Accidents

MAJOR CATEGORIES OF HARD DATA

How to calculatePer category

OutputIncreases

Quality

Impro

vem

ent

Time

Savings

CostSavings

Units Cost Per Unit

Before Value After Value

Widget Produced

R 1 100 R 100 200 R 200

Units Cost Per Unit

Before Total cost After Total Cost

Widget Cost

R 1 100 R 100 R.5 R 150

Units Cost Per Unit

Before Value After Value

Widgets R 1 100 R 100 200 R 200

Units Cost Per Unit

Before Value After Value

Hours Worked for “n”

R 50 100 R 5000 50 R 2500

CHARACTERISTICS OF SOFT DATA

Subjectively based in many cases;

Difficult to measure and quantify, directly;

Difficult to assign monetary values;

Less credible as a performance measure;

Usually behaviorally oriented.

EXAMPLE OF SOFT DATA

Employee turnover, absenteeism, and grievances are considered soft data items;

Not because they are difficult to measure, but because it is difficult to accurately convert them to monetary value

WORK HABITS

AbsenteeismTardinessVisits to the DispensaryFirst Aid TreatmentsViolations of Safety RulesNumber of Communication Break-downsExcessive BreaksFollow-Up

WORK CLIMATE/SATISFACTION

Number of GrievancesNumber of Discrimination ChargesEmployee ComplaintsJob SatisfactionEmployee TurnoverLitigationOrganization CommitmentEmployee LoyaltyIncreased Confidence

CUSTOMER SERVICE

Customer ComplaintsCustomer SatisfactionCustomer DissatisfactionCustomer ImpressionsCustomer LoyaltyCustomer RetentionCustomer ValueLost Customers

EMPLOYEE DEVELOPMENT/ADVANCEMENT

Number of PromotionsNumber of Pay IncreasesNumber of Learning Programs AttendedRequests for TransferPerformance Appraisal RatingsIncreases in Job Effectiveness

INITIATIVE/INOVATION

Implementation of New IdeasSuccessful Completion of ProjectsNumber of Suggestions ImplementedSetting Goals and ObjectivesNew Products and Services DevelopedNew Patents and Copyrights

Soft Data Related Value Measure

Absenteeism

Labour unrest

Industrial Accident

Poor work climate

Staff loyalty

Customer loyalty

Customer complaints

EXAMPLE OF SOFT DATA

EXAMPLE OF SOFT DATA

EXAMPLE OF SOFT DATA

Converting Data Exercise Sheet

How then do you calculate the value of the improvement?

CALCULATING THE VALUE OF AN IMPROVEMENT

Identify the unit of improvement;

Determine the value of each unit (V);

Determine the performance level change (Δ P);

Calculate the improvement value (V times Δ P);

CONVERTING THE COST OF QUALITY

The cost of quality is an important measure in most organizations;

Since many performance improvement interventions are designed to improve quality, the performance staff must place a value on the improvement in certain quality measures;

If quality is measured with a defect rate, the value of the improvement is the cost to repair or replace the product;

The most obvious cost of poor quality is the scrap or waste generated by mistakes;

CONVERTING EMPLOYEES TIME

Reduction in time for employees is a common performance improvement objective;

In a team environment, perhaps a program enabled the team to perform tasks in a shorter time frame or with fewer people;

On an individual basis, time management workshops are designed to help professional, sales, supervisory, and managerial employees save time in performing daily tasks;

The most obvious time savings are from labor reduction in labor costs for performing work;

The monetary savings are the hours saved times the labor cost per hour – however also a component of contribution to profit

Cost per Unit

Cost Per Unit Less

INCREASE/DECREASEIN EXPENDITURE

- IMPACT ON PROFITProduction

More

Time; Quality; Output

Contribution to profit

Contribution toprofit

More

INCREASE/DECREASEIN EXPENDITURE

- IMPACT ON PROFITSales

Less

USING HISTORICAL COSTS

This strategy involves identifying the appropriate records and tabulating the actual cost components for the item in question;

For example, a training program was implemented to improve safety performance for a large construction firm. The program was designed to reduce the number of accidents;

Actual cost from records

Estimated additional from staff

Staff time;Management

time

Cost R 285,000

Total of 35 complaints

Legal fee;Settlement

cost

R 285,000/35 = Cost per complaint

Cost of Sexual Harassment Complaint

The Cost of an Accident

Direct Medical Costs Related to Accidents 114,390.00

Worker Compensation Payments 327,430.00

Insurance Premiums 120,750.00

Legal Expenses 75,600.00

Total Operating Budget for Safety and Health Department (Minus the Above Values) Including Salaries and Benefits of Safety Staff 455,280.00

Management and Supervisory Time Devoted to Accident Prevention and Investigation 105,000.00

Safety Training Costs Not Included in Above Operating Budget31,000.00

Safety Awareness Materials 31,000.00

Lost Productivity for Safety Training, Safety Meetings, Accident Investigation, and Replacement Staff 95,000.00

Total R 1,347,450.00

Total Number of Accidents 53

Cost Per Accident 25,423.60

USING INTERNAL AND EXTERNAL EXPERTS

When faced with converting soft data items where historical records are not available, it might be feasible to consider input from experts very knowledgeable with the processes;

Because the credibility of the value is directly related to his or her reputation, the credibility and reputation of the expert is critical.

USING DATA FROM EXTERNAL DATA BASES

Data are available on the cost of turnover, absenteeism, grievances, accidents, and even customer satisfaction. The difficulty lies in finding a database with studies or research efforts for a situation similar to the program under evaluation.

USING PARTICIPANT ESTIMATES

In some situations, program participants can estimate the value of a soft data improvement. This strategy is appropriate where participants are capable of providing estimates of the cost (or value) of the unit of measure improved by applying the skills learned in the program.

LINKING WITH OTHER MEASURES

When standard values, records, experts, and external studies are not available, a feasible approach might be developing a relationship between the measure in question and some other measure that may be easily converted to a monetary value. This involves identifying existing relationships, if possible, that show a strong correlation between one measure and another with a standard value.

USING SUPERVISOR/MANAGER

ESTIMATES In some situations, participants

may be incapable of placing a value on the improvement. Their work may be so far removed from the output of the process that they cannot reliably provide estimates. In these cases, the team leaders, supervisors, or managers of participants may be asked to provide a value for a unit of improvement linked to the program.

USING LEARNING STAFF ESTIMATES

The final strategy for converting data to monetary values is to use performance improvement staff estimates. Using all the available information and experience, the staff members most familiar with the situation provide estimates of the value.

Converting Data – Exercise !!! – See Worksheet

Still not finished….the cost of the intervention!

REASONS FOR DEVELOPING COST DATA

To determine the overall expenditure for human resource development

To determine the relative cost of each individual HRD program

To predict future program costs To calculate benefits versus costs for a

specific program To improve the efficiency of the HRD

department To evaluate alternatives to a proposed

HRD intervention To plan and budget To integrate data into the Human

Resource Information System.

TABULATING PROGRAM COSTS

Development Costs (Prorated); Program Materials; Instructor/Facilitator Costs; Facilities Costs; Travel/Lodging/Meals; Participant Salaries and Benefits; Administrative/Overhead Costs; Evaluation costs;

MEASURING FINANCIAL PAYOFF

Benefit/Cost Ratio =

BenefitsROI =

Program Benefits

Program Costs

Net Program Benefit

Program Costs

Measuring Financial Payoff

X 1001

Guidelines for Successful Benefit-Cost Analysis

Keep the process simple;

Use sampling for ROI calculations;

Always account for the influence of other factors;

Involve management in the process;

Educate the management team;

Communicate results carefully;

Give credit to participants and managers;

Plan for ROI calculations.

Final Case Study !