Any initiative should have a return on investment—or why go through with the project in the first place?
When the performance of people is involved, it’s difficult to know whether the training worked. Leaders would like to measure the business impact, most importantly whether the training was able to bring about improved work performance that could be shown to have an effect on the bottom line.
What is ROI in training and development?
ROI in training and development is the ability to calculate that the value of a learner having received training was higher than the cost of developing and delivering that training.
There are two sides to size up: the value that a learner received from the training, and the cost of L&D development. Let’s start with the easier one: the cost of L&D development and delivery.
Costing out the development and delivery of learning
The following might comprise some of the costs associated with training:
- Salaries/hours for instructional designers, developers, editors, testers, project managers, and subject matter experts
- Seat licenses for design and development software
- IT costs related to the delivery of the course, assessments, and support materials to learners
- Leasing of space for in-person, instructor-led training
- Subscriptions for third-party, off-the-shelf courses
- Time away from their regular work-related duties for the employee to participate in the training and assessments afterward
This last bullet point is something often overlooked in costing out training. While budgets are usually created considering only the L&D’s resources, it’s important to understand that there is more that goes into the price. Employees taken away from their regular duties to participate in training is itself a cost that must be incorporated into the budget.
Costing out the value that the learner and the organization received
This is the harder part to figure out. Measuring learning effectiveness is often subjective.
LinkedIn Learning’s 2022 Workplace Learning Report asked learning leaders, How do you measure the impact of skill-building programs at your organization?
The top 3 responses were as follows:
- Qualitative feedback from employees using online courses
- Employee engagement survey scores
- Satisfaction of employees using online courses
Qualitative feedback, engagement scores, and satisfaction measures are certainly useful. They’re relatively easy to get—usually right after the course has ended. This type of training evaluation usually comprises Level 1 of the Kirkpatrick Evaluation Model.
The value of these measurements is that they can inform the efforts of the team of instructional designers and subject matter experts who developed the course, perhaps identifying ways to make improvements for the future.
However, while valuable to the L&D team, these business results might be of little interest to departments outside of L&D—especially the C-Suite, which usually needs hard numbers behind any corporate initiative. LinkedIn knows this, too.
“Challenges like upskilling an entire workforce can’t be solved with a single class — not even a really good one,” notes the 2022 Workplace Learning Report. “This means moving beyond feedback forms and course counts. It means working collaboratively with cross-functional partners to understand the organizational impact, not just the classroom experience.”
More than satisfaction or engagement scores, measurable changes in employee behavior are needed. These include skills acquired or processes learned post training that affect the employee’s work. These can more completely help cost out the financial benefits that the employee produced and the organization received as a result of the training.
In order to tie the learning experiences you produce directly to bottom line results, download this free Training ROI Calculator.
Why is ROI important in training?
ROI is important because no organization can keep doing something without fully understanding whether there is a positive contribution to the bottom line.
Some types of training, such as compliance training, are mandatory depending on the particular industry in which the company operates. Compliance training might be seen as a sunk cost, a need-to-have that the company must offer its employees. However, even compliance training can have a positive impact: it can be shown that in an organization that had invested in training, employees make fewer mistakes and the company pays less in fines, for example.
Employee onboarding training is another example of a need-to-have type of training where senior management might think that ROI would be difficult to capture. Conversely, improvements to onboarding training can have a measurable influence on the bottom line, when it can be shown that stronger onboarding leads to fewer mistakes, higher morale, and overall improved performance for new employees.
Research by Brandon Hall Group found that organizations with a strong onboarding process improve new hire retention by 82 percent and productivity by over 70 percent.
In general, once L&D leaders can prove ROI of training, they will receive more resources—namely, more budget.
Defining and managing your training budget needn’t be a challenging task. Download this free Training Budget Template & Tracker to plan your L&D spending more efficiently.
How do you calculate training ROI?
According to eLearning Industry, business leaders have developed the following simple formula for calculating ROI for corporate training:
ROI (%) = [(Monetary benefits – Training Costs)]/Training Costs * 100
However, as with any basic formula, each organization will need to tailor this based on several variables. There must also be a way to isolate the effects of the training program or learning experience the employee underwent, for the strongest way to calculate the ROI of training. Each organization is unique, operating in a particular industry and employing individuals with varying levels of experience.
Organizations most likely need a more robust calculator for computing training ROI. Cognota’s free Training ROI Calculator is Excel-based, with different sheets for onboarding, compliance, sales enablement, and customer service training.
In order to properly calculate the net benefit of training, a thorough assessment of the employee’s knowledge and skills before undergoing the training is important. For example, before undergoing training, a customer service representative might have been able to close X number of tickets in Y amount of time, over the last Z number of months.
However, after completing the training, measuring improvement based on the Before numbers can be valuable. Further, measuring even more improvement, perhaps over a 30-, 60-, or 90-day period can be helpful in determining how long it takes for the training impact to take hold.
Further, an organization can take a more holistic view of the training, by measuring not only each individual employee’s improvement but also the improvement of the team as a whole, and whether certain employees are responsible for “carrying the weight” of that improvement.
Maximize the ROI of learning in your organization
As L&D teams try to centralize learning operations and study performance in order to improve, they need the right tools for planning, organization, and collaboration in order to maximize team capacity, ensure proper resource utilization, seek efficiencies, and deliver ROI.
With Cognota, you can plan and manage training projects while standardizing L&D processes, ensuring that projects can stay within budget and are delivered on time to learners. Try it out with a 14-day free trial!
Less waste, more impact: download this free eBook to identify opportunities to maximize resource usage and reduce costs.