ROI in training and development – is it a Myth? 23


I have done an ETDP course on ROI for T&D in the work place. Theoretically it seems sound however I find it difficult to isolate training as the main factor of improved revenue since there are too many variables that can influence the revenue.

Do you have a real world case study that you can share with me, where a major company is evaluating its training department on ROI as appose to cost?
One of our challenges is to convert our training department from a cost centre to a revenue generating department.

All comments are welcomed.

Rowan

Share on Social Media

Leave a comment

23 thoughts on “ROI in training and development – is it a Myth?

  • Tricia Jones

    Nicely said Des!

    Rowan, I like what Des is saying and think he may have hit the nail on the head here…
    After reading Des’s response, I went back and read your original blog post stating: “……One of our challenges is to convert our training department from a cost centre to a revenue generating department.”

    Whilst getting caught up in the ROI discussion I feel we may have neglected to provide you with adequate advice around your original concern…

    Although, I don’t necessarily agree that changing a training centre from a cost centre, to a profit centre is an ROI strategy, I do however believe that it elevates the training agenda within a business as it talks the language of “increasing bottom line”.

    I have extensive experience in developing an internal training division into a profit centre and would be happy to assist with advice on the phases of this as well as some tips and tricks. Let me know if this is still something you’re interested in exploring and maybe we can chat off line?

  • Des Squire

    Hi Rowan
    Obviously, if a company wants to determine their ROI for training, they must account for all the money spent, especially the hidden expenses. So in response to your query – 20th June – there is only one safe way of doing this – run the department as if it were a business. If there is no way to measure the effectiveness of the training, the company might be better off giving the people money to go on a vacation. If you run the training department as a “stand alone business” you would need to cost everything out and keep record of potential income and expenditure. This may all be a hypothetical situation but at lease it will give a very clear indication of the profitability of the venture. Costs would need to be agreed up front with management otherwise you can “cook the books” – keep it ethical. The reason to train should be to improve the company’s bottom line. The investment in training consists of the cost of the training and the time spent by the personnel from their jobs. By measuring the effect on the company profits before and after training, and then comparing with the costs of the training, a company can determine their return-on-investment.

  • Miro Bagrov

    Hi Rowan,

    I think, you have to establish a Training System, or a System of Teachimg. This is what I also wanted to do for a client (also sales).

    What makes a good system of learning is, it can be understood by all the students.
    For example, the government’s system of teaching for Matric, is intended that 30% of students will finnish matric with exemption. Of those 30%, they should all be able to acheive a univeristy entrance (the result). (Do you see that it’s not a good system at all?)

    First you establish a collection of good tested content (past experience, etc.);
    You need to involve the older Sales people’s experience and write it on paper. That is your tested content. Other content you can gain through experiment or research into sales practice.

    Then you must choose the most appropriate medium to transfer the material to your students. In a way that 100% of them can understand you. Some people understand pictures others words. You use both.

    After the learning, comes the test.
    The result is that 100% of students should be able to have a % success sales. That success rate is your measure. An increase in that rate shows that your system is better than no system.

    We still have to use abit of a “all things being the same” rule:
    If the inventory caused a shortage, you must obviouly NOT hold it against the student’s Sales per Day.
    If the economy causes a decrease in demand, the financial & economic department must adjust the price and dealing limits.

    So basically you adjust the learning system continously. You use a continous improvement process..
    Once you have established a system of learning that works you should be able to acheive the desired result.
    Once you develop the system you can sell it to other companies… IF you decide to take this up, I would actually like to see a good system like that for sales myself. Most Salesmen are given VERY BASIC TRAINING.
    If your company gives a VERY HARSH TRAINING it will make all the difference… agree?

    From a russian general: “Train easy, then fight is hard. Train hard, then fight is easy.”

    For this purpose: “Train easy, then sales are difficult. Train hard, then selling is easy.”

    Now I will also try to answer the question of “how is it even possible to remove the “us’” and “them”

    I agree with Malcolm A Birkin. …Only one thing is missing: Processes have steps… There must be a 1,2,3,4,5… step process to implement the above mentioned guidelines.

    On the dictum:
    “We [the Japanese] are going to win and the industrial west is going to lose out: there’s nothing much you can do about it, because the reasons for your failure are within yourselves. Your firms are built on the Taylor model; even worse, so are your heads. With your bosses doing the thinking while workers wield the screwdrivers, you’re convinced deep down that this is the right way to run a business, for the essence of management is[seen to be] getting the ideas out of the heads of the bosses and into the hands of labor. We are beyond the Taylor model…”

    The japaneese have incorporated alot of their national traditions and traits (which are natural to them). Such as discipline, perfection, etc.. Meaning they looked at themselves to progress.

    The “Taylor” opinion focuses on efficiency – getting the most output out of the worker with the minimum input… That might also result in a decrease in training given to employees.
    However the “structure” of the modern company and the Top-Down approach comes from another “Western” barberian, named Fayol. Still it’s all been stolen from the army. I notice that is rightly critisized.
    Not many understands the strategy of the collective thinking. When you want to do something new, you will get as many experts and employees together and brainstorm the topic at hand.

    The thing is, this is abit old… We know that the world is beyond the Taylor model too… it seems to me the world is still stuck on greed and pride. That is why they will all fail.

    The East’s head is also wrongly wrapped around the West. Or else why would Japan invest into the West KNOWING that the West is flawed? I also think that the Fall of the East, like the Fall of the West is again “within themselves”. What I mean is, I don’t think that Japan, or the Internationals know much at all – otherwise why would Japan be in a surprise recession? It must mean that both are just as useless and using outdated philosohpy.

    The truth: The “interantional way” focuses on the use of debt. They think this is the way to progress. This is a form of inter-bank sex which results in everyone owing everyone else. The end result is bankruptsy and low growth since it leaves whole nations pinned down with fixed costs. If you follow their ways, you will also end up exactly like them.

    Most of the theories in business lack the same thing: Ignoring loyalty and training. Actually nothing is more important than loyalty and training. That is the answer to the “us” and “them” problem.
    When you give loyalty, you can get loyalty. When you give no loyalty, you can not get any back. If you do not give, then who will gve you?

  • Rowan Jacobs Post author

    Hi Miro

    Thank you for your comments. I am in a sales environment. This put a slightly different spin on things. Our training should enable a sale person to improve their sales. There are however many variable that could influence this, economy, national psyche, availability of stock, marketing etc.

  • Miro Bagrov

    The head of the company has many goals he/she tries to accomplish.
    1) Improve Speed of Production (Especially mass volume producing firms)
    2) Improve Creativity & Innovation (Especially engeneering firms)
    Both are indeed influenced by training, because the broader the knowledge base – the greater the speed and creativity of a human…

    Firstly, do not get tricked into MEASURING THE WHOLE company when it comes to training.
    Reason: The WHOLE might be growing, while the PART is shrinking. The PART might be growing while the WHOLE is still shrinking. Meaning that an increase in the PART does not = an increase in the WHOLE.
    (eg. A SAA might be growing it’s marketing department while simultaneously shrinking the whole comapny.. Therefore no WHOLE measure can correctly measure the final effect.)

    Therefore the ROI or any measure that measures the whole company is incorrect. It would not be a crime in a report, to include the ROI as an optional measure, as long as you list the DISADVANTAGES… Really, only a CEO knows what is going on in all divisions. If the CEO declares that all divisions, (HR, Marketing, Financial, Operations) are to grow, then if you use the ROI, you will get a favourable result – but it won’t be you.

    Another measure (more correct) would be to focus on the PART of the employees receiving training.
    Other measures include:
    – Increase of Speed of production/Income genereated by labour unit.
    – Decrease in errors/faults occuring in production.
    – Increase in proposal/ideas generation.
    – Increase in Morale. (assuming that the company wants to improve morale through training eg. EQ workshop)
    – Increase in Amount Turnover of labour unit.

    These can be measured as DAYS: (/365)
    Or by change %: (* 100)

    I will ask around to see if anyone I know has other ideas.

    I say, don’t let anyone cheat you out of your success. Use a measure that accurately measures the success boost only to the person in question, where no one else’s success or failure can interfere. Measures where other people’s successes and failures can meddle, should be utterly refuted.

  • Tricia Jones

    In light of the discussions which this blog has brought to light, I thought some may be intested in the following link:

    http://marketing.bersin.com/Learning_Measurement_Primer.html?mkt_tok=3RkMMJWWfF9wsRols67fLqzsmxzEJ8r67OUoXrHr08Yy0EZ5VunJEUWy34sJ

    “Primer for the Measurement of Corporate Training” includes anImpact Measurement Framework, a comprehensive guide to practical and effective training measurement.

    The Impact Measurement Framework provides a whole set of measures to help clearly gauge and validate business alignment throughout all phases of a training program – from problem definition through program rollout and course updates.

    The research bulletin provides an in-depth look into the influencing elements on business impact and the nine types of measurements that can be used at various stages of a training program. These measurements range from the most basic, such as satisfaction and learning adoption to the more sophisticated metrics for efficiency and business alignment.
    The bulletin also provides many examples and practical suggestions.

    Use it, don’t use it….. Just thought I’d share what’s out there and hope it adds value to someone, somewhere…

  • Anthony Kreiner

    Ok, my last word on it then. I believe this was going somewhere, for it falls to us as HR practitioners to realize that a “them” does exist and that we fall into the category of “us” if we fail to recognize the shadow of our profession. I use the term shadow in the psychological context as that negative aspect that we repress, the shadow complex that presents us with the greatest challenge because we refuse to see it for what it is. This is relevant to the question of measuring ROI because integrating the shadow makes you a “them” and gets you focused on what must be measured. Training managers also have to drop the passive approach and get into the first-line action to really understand whats going on. The problem Westerners have with implementing Japanese philosophies is that we fail to understand the yin and yang of it all.
    The best practices have the best spin doctors, the conditioning is brilliant, and this is what the top training managers are learning.
    Till next time then.
    A

  • Anthony Kreiner

    Hi Malcolm.
    If the answer is simply that one moves to being ‘less strong on hierarchy and control’ and allow for a healthy psychological contract to develop, then cool. But the “them” includes share-holders, and capitalism has this really greedy side that makes the assets sweat, so who are we talking about here?
    What you have written is typical of the spin we all place on our role as HR professionals, because that’s our job. Words like ‘process’, moving beyond’, inclusive’, ‘commonalities’, ‘accomplishments’, ‘shared decision making’, are all designed to indoctrinate, to brainwash. As consultants [SHRM] we make our money by providing the “them” with this spin service, and to be honest about it means that you have integrated that aspect of your shadow. Our collective shadow is there on the flip side of the TQM coin, it’s not the side that people want to look at and with good reason.
    Yes, create high levels of people skills … ‘management innovation’. That says it all: the ‘them” get smarter. So tell it like it is.

    The problem that the philosophy of TECHNIQUE exposes, is that everyone strives to improve technique with the best of intentions but remain oblivious to the long term consequences of unsustainable development.

    Now, if you were to introduce TAO …

  • Anthony Kreiner

    Way to go Macolm.
    Back to the question of how do to measure the value of a training department within a large corporation?
    Rowan, on a lighter note: I have found that training managers need insight into the paradox of hopes and fears if they are to answer this question, which is to say that one needs to get into the trenches and prove that you are delivering skills that make a difference. To this end consider a setting up a pilot project and then make sure you jump into the right trench with a supervisor who wants to drive productivity. First-line supervision is the critical interface, and unfortunately also the level most service departments run away from because of the demand to put theories to the test. As an example, when viewed from a supv’s perspective: MY performance mngt system is THIS; and MY team performs to this Std; I WANT to raise the bar; but before I do I MUST take my weakest worker through an incapacity process; I NEED help with my productivity drivers; I MUST know what skills training can help this person; and I DEMAND you provide me with a skills assessment if I need to dismiss him; or TRAIN ME to do the skills assessment myself; and WHAT if there is an element of misconduct? My manager demands a positive trend on my productivity stats, so YOU MUST train me in how to drive our most valuable assets, and YOU KNOW that we line managers NEVER (hardly ever) get released for training.
    Remember to drop me a line if you ever try this and tell me how many professional first-line supervisors you eventually found in your large corp. Also, of the training skills you teach, how many can be measured within the productivity drivers at this level and are paid for out of the SD FUND? … Extracts from “How to eat an elephant.”

    Malcolm, can you explain how it is even possible to remove the “us and them” division?
    No short answers please 😉

  • Rowan Jacobs Post author

    Thanks Tricia

    I agree that IIP can be very valuable to the organisation if implemented with the right approach so i will revisit IIP and see how it can be of benefit.
    Malcolm I’m very interest in your comments regarding High Performance Management Systems. Is this a generic term or a specific “product”? how can I find out more about it.

  • Tricia Jones

    Hi Rowan/Malcolm,

    I guess we could debate this point till the cows come home and it posses some very interesting arguments…
    Rowan, in terms of IIP implementation, maybe you want to learn from your experiences and try another approach. We’ve identified the potential risks as you’ve highlighted above and also were concerned that it would just become a “meet the grade” exercise, so what we decided to do was implement it inhouse (rebranded) with a team of “change agents” and only once we were satisfied with the change and results did we call in IIP for the official accreditation. The success factor here would definately be stakeholder buy-in, so I’d focus all my time and attention there!
    Malcolm, in terms of performance management systems, we’ve found that to be equally ineffective as some of the other suggestions as it effects everyone where it hurts the most… their back pocket. I’m sure not every organisation is like this, but in my experience I’ve found that anything with HR proposes which has the potential to impact on one’s ability to maximise on financial rewards is usually pushed aside or scrapped.

    Anyhoo, just wanted to add my two cents worth and hope that it helps someone somewhere….

    Regards,

    Tricia

  • Rowan Jacobs Post author

    I absolutely agree. We need to have a holistic approach to training as it is a part in a much bigger whole. I like the IIP suggestion however I’ve dealt with it before where staff were coached how to deal with questions from IIP to allow the company to achieve its accreditation. I’ll definitely put IIP forward as a proposal.

  • Tricia Jones

    Hi Rowan,

    I’ve been there… trying to justify your existence in a “bottom line, budget chasing corporate”, is soul destroying! May I advise that you look at the IIP (Investors in People) accreditation. This gives one a structured approach at raising the level of people practices including training and development whilst impacting tangibly on the bottom line! DoL has recently introduced something similar, Good Practice Awards, however I don’t find it to be of the same standard and definately doesn’t have the same structure or support!
    Another way to “justify your existence” is to engage with the BBBEE scorecard, you’ll be suprised to learn how much impact a training department has in terms of maximising points on the scorecard. Don’t forget that a lot of corporate companies rely very heavily on winning new business through their scorecard. What about maximising on discretionary grant funding and maximising on funded training and development opportunities? If necessary, attend training on this and network with people who have mastered this!

    Keep us posted on the outcomes and progress you make…

    Regards,

    Tricia

  • sylvia hammond

    Hi all, I find this debate very interesting & I agree with the criticism raised about ROI. From my perspective the problem arises because of the disjunct between training activities & the human resource management – & development – role. We have created a disjunct by structures & roles such as the SDF which have been interpreted as somehow separated from human resource development.
    The HR role is to take the organisation’s strategic plan – or whatever other document directs the business in its future growth. There should then be an HR strategy document that sets out how this company growth will be supported by human resource activities – including development. Then the measurement is very easily achieved – as Des suggests, yes start with measuring the HR activities (including training), but then the ultimate measurement is – how did these activities contribute to the growth, development and profitability of the organisation.
    Finally Malcolm, I agree with your comments about the Setas except that it is the specific ETQA role of the Setas that has been the problem. However, the good news is we’re looking forward to the new QCTO structures due in 2010 that will change the Seta ETQA & they will no longer accredit training service providers. We’ll have to see how the new system works

  • Johan van Dyk

    Hi Rowan,
    Do you have insight into a strategic plan that defines the growth and maintenance plans for your company?
    These should direct your training content and provide all of the measures you need.
    Malcolm is very right when he says that the environment needs to be managed to implement and accommodate any changes brought about through learning interventions. You are looking to link your activity to the figures that the C level executives watch, so you need a sponsor at that level.
    Anthony provides a nice solution for quick results though…

  • Rowan Jacobs Post author

    Lady & Gentlemen, thank you for all your contributions. I have read through all of them (some twice) and have learnt a lot. I cannot comment on everyone’s contributions so I’ll pick a few.

    Anthony there no pressure 🙂 and thanks for the KPI point I’m working on a draft KPI for trainers currently and that in itself is very challenging.
    Phil I will have a look at your page for those case studies.
    This is my circumstance. I supervise trainers and report to a national training manager. I report bum-on-seats and we measure how many (%) staff have completed each of our set courses. My job has become more marketing than training because I build relationships with managers and encourage them to attend our training. a drive to have bums-in-seats and all complete our set courses have caused some of my peers to ignore the relevance of training or the quality of our content their drive is to get the staff in and show good figures. I disagree with this approach and have agreed with my manager that I will seek an alternative way of measuring our impact and success. That’s where this blog title comes from.
    So my real question is how do you measure the value of a training department within a large corporation?

  • Anthony Kreiner

    Rowan appears to be under pressure to create a revenue generating dept. While this may be typical of a company without an SHRM sitting at the left hand of the CEO, the opposite may also be true. I haven’t heard anyone comment on the potential to make a significant profit with the returns one can get from the training funds. Go do the sums and don’t be surprised when you discover that your training budget can generate ROI of around 150% without all the drama of trying to measure it at the theoretical level.

    Another tip is to get creative on measuring the critical thinking skills that management is meant to have. Turn the tables on them and expose this as a bigger problem. I raise this point because of the increasing problem relating to the Peter principle/Brain drain.

    I said get creative: there is a need to acknowledge that very few managers know how to create an effective KPI. So who gets to do it if not the managers, so beware of falling in the trap of trying to do it all yourself. This is a creative process that is seriously beyond the reach of most corporate types who are generally not employed for this level of skill.

    I think that what it comes down to is whether you have the aptitude to manipulate the situation to your advantage. I don’t see how a case study will help. The training funds represent a massive resource that others have learned to tap into, so can one ignore it? The MerSETA e.g. have a voucher program running that pays service providers direct in order to provide free training to companies <150 ees, and there is nothing to prevent one from sharing this funding.

    I can see why Malcolm writes such long messages: sharing can become a time trap, but I’ve read some good stuff tonight, so thanks.
    A

  • Miro Bagrov

    All of the above facts have been true, it seems to me that the core of the problem has not been defined.

    The ROI has certain downfalls… All of which come from the fact that it takes into account a static measure excluding all variables except, basically put, recources lost and recources gained.

    The mere fact that knoledge (training) is intangible shows to me that it can not be measured by a tangible measure. If the question here is does training increase Return on Intangible Assets, then we have to immediatly see that we are dealing with one assumption: The Law of Large Numbers, so again it is statistical.
    The culture of the company alone differs from company to company, so the results from company to company will be varient. Again, to add to the confusion, the concept of time (which applies to everything) has been ignored.

    The confusion of this debate I feel is because of the following:
    The trainers of staff in the programs need a Objective, and they need a Measure to prove that they have acheived their Objective.
    Humorously, they invent their own definition and their own Measure to prove to themselves what they want to prove.. This is easy, since they make the Definition (or Formula).
    It is very funny becasue there is a % chance that Profitability will increase weather training is done or not – so they will always be a % that they can claim success – this is just cleaver gambling.

    They way of thinking here is that a single magic bullet exists (training, or some a model) to magically improve productivity – this is clearly impossible. When the part increase it does not mean that the whole increase simultaneously. The “part” needs to be strategically alighned with the rest of the factors involved to produce the desired result. Otherwise it’s like a person that takes medicine while simultaneously exposing himself to a virus – No cure will work…

    I ultimately agree with only one thing: Training in any relevant form increases productivity as long as it goes hand hand with all other things that also increase productivity.
    The exact amount increased is not as important as sharpening any blunt tool. Further the training of an employee is a matter of strategy not of pure productivity.

    In Conclusion:
    Managers observing the financial aspects and the “need to decrease cost” and “maximise sales” clouds their own judgement. However everyone knows that you want to improve your ROI so they try to trick you. Therefore the ROI is inapropriate. It is not only a myth, it is a lie.

  • Rowan Jacobs Post author

    Thanks Malcolm.

    You make a very strong case indeed. You do however seem ignore the effectiveness of the training event itself. How do I measure effectivenes of the trainers/facilitators and ultimately of the department itself. Surely this can not only hinge on the value of the content? What criteria do you use to evaluate content?

    Do trainers/facilitators not have an oppertunity to influence learners to a degree, even the unwilling learner?

    I absolutely agree that it starts and havily depends on the qulity of the content.

    Has anyone implemented a ROI model and what were your results ( not theory, practicle)?

    All comments welcomed.

  • Rowan Jacobs Post author

    Thanks Des. I appreciate the information. Great stuff. Do you have any case studies I can use to present to management? Currently our training department is valued according to how much money we save on our budget and not what impact we have on the bottom line. To convince management to change our stategy I need to prove to them that other companies have implemented this method of measuring and that it was successfull.

  • Des Squire

    Measuring training success and return on investment
    “The form of evaluation that we undertake is determined by the criteria we choose, or are told to use, to measure success”.
    The ultimate reason for training employees should be to empower the employee while at the same time improving, productivity and profits.
    This improvement should be measurable, so that an effective “Return on Investment” (ROI) can be determined.
    The reason for training general employees and managers is so they will learn to do their jobs better or perhaps learn new skills or technologies that can be applied while at the same time achieving company training goals.
    Sometimes workers and managers are trained to satisfy government requirements, SETA requirements, to ensure safety, or to prevent lawsuits or other forms of company losses.
    In order to train staff a company must pay for the development of training material and the time spent by the trainers in the classroom.
    This is either absorbed through an in-house training department, paid to outside training companies, or a combination of the two.
    Obviously, if a company wants to determine their ROI for training, they must account for all the money spent, especially the hidden expenses.
    At AMSI we like to consider the Return on Investment (ROI) based on the impact training will have on the individual learner and the resulting impact this will have on the company or group as a whole.
    This approach if correctly applied will result in a return on capital invested
    One way of measuring the success of training is the good old ‘bums on seats’ approach.
    Although by no means a true measure of the effectiveness of training, learner numbers do reflect the fact that the training is addressing a need and that the design and methodology is meeting expectations.
    In addition the direct costs must be considered together with the indirect costs.
    In considering any proposed training companies should consider the ROI and should feel confident success can be measured on the following basis
    The extent to which trainees mix and communicate: A justification often made for training, particularly group events, is that it provides an opportunity for students who work in different departments or regions to meet with each other, share experiences and make contacts.
    Because this is a valued outcome of training, it needs to be considered when comparing training methods. Similarly, some training may be regarded as a perk, a benefit of some value, even if this is not directly related to learning.
    Reactions: Reactions are what you measure with the ‘happy sheet’. Reactions are important because, if learners react negatively to courses, they are less likely to transfer what they learned to their work and more likely to give bad reports to their peers
    Learning: Learning, in terms of new or improved skills, knowledge and attitudes, is the primary aim of a training event.
    Learning can be measured objectively using a test or exam or some acceptable form of assessment.
    If a learner has to achieve a certain level of learning to obtain the desired level of competency then the number of learners assessed as competent may be used as an evaluation measure.
    Another important aspect of learning is the degree of retention and application – how much of the learning has stuck after the course is over and more importantly how much of what has been learned is applied.
    Change in behaviour: If a student has learned something from a course, you hope that this will be reflected in their behaviour on the job. If a learner applies what they have learned appropriately, their work behaviour should meet the desired criteria.
    Behaviour can be measured through observation or, in some cases, through some automated means.
    To assess behaviour change requires that the measurements are taken before and after the training. Unfortunately this is not always the case.
    Performance change: If, as a result of training, learners are using appropriate behaviours on the job, then you would expect that to have a positive impact on performance.
    A wide variety of indicators can be employed to measure the impact of training on performance – numbers of complaints, sales made, output per hour and so on.
    It is hard to be sure it was the training that made the difference without making comparisons to a control group – a group of employees who have not been through the training.
    Des Squire (Director)
    Applied Management Studies International (Pty) Ltd
    011 646 9369 or dsquire@amsi.co.za