Training Return on Investment (ROI)

Pitfalls & Problems

Cost vs. Investment

•Cost: An amount paid, price; a loss, sacrifice or penalty

Cost vs. Investment

•Invest: To spend or utilize for future advantage or benefit

Accounting Questions

• How are “fixed” costs allocated & distributed?

• Which “variable” costs are included?• Over what time frame is the

measurement made: Quarterly, Annually, Longer?

• How is lowered productivity measured when people are being trained?

Accounting Questions

• Discounted Cash flow Rate of Return (DCFROR) depends on discount rate, time frame, cash flow, etc.

• Internal Rate of Return-depends on a management established ‘threshold’

• KEY QUESTION: Should training decisions meet the same investment criteria as other capital investments?

Accounting Questions

•“Break-Even Point” is a simple technique

•KEY QUESTION: When is the cost of training not worth the benefit?

Management Focus

• Cost vs. Investment “philosophy”

• Training “costs” get cut or eliminated during economic downturns

Management Focus

• Some skills are “perishable”; training effectiveness may decline over time.

• Dangerous Oversimplification: training is the only influencing variable.

Management Focus

• Identify the expected outcomes from the beginning

• Know the “rules of the game” before you start

The “ex-post facto” calculation

• Done “after the fact”

• Lack of proactive stance

• “Reproduce” original baselines

The “ex-post facto” calculation

• Justification of an outcome with no influence or control of the variables

• Variables outside organization’s control

• Questionable conclusions about measured effects

Reliable & Valid Measures

• Valid: measures what it is supposed to measure

• Reliable: consistent and reproducible

Reliable & Valid Measures

• Simple for physical output

• Somewhat easy for Psychomotor

• More difficult for cognitive domain

• Most difficult for affective domain

If you are going to use ROI:

• Know your accounting system.• This analysis approach is

complex, time consuming & costly: Is it worth it?

• Determine the organizational “philosophy” about “cost” versus “investment”.

Final Advice

•Using ROI as the “bottom line” may not be the best criteria for determining the value of training. It can be a good indicator, but it may not be the indicator.