There has been a debate for years within the training industry on how you calculate the ROI of money spent on training and development. Articles have been written and theories advanced such as Kirkpatrick’s Four Levels of Measurement. Note: Don’t worry if you have no idea what that is – almost no one outside the training industry does!
The crazy thing is that all this complicated measurement theory does nothing to convince cynical leaders that spending time and energy on training is a truly worthwhile investment. While most operational leaders believe they should invest and train their people – they are cynical because they have a nagging feeling that much of that investment is wasted. As such, they are often reluctant to allocate critical resources (both time and money) to training their people. When they do decide to invest in developing their people, they often use the wrong measuring stick to see if it is effective. Too often companies survey participants after a training session with questions like: ‘Was the training effective?’ or ‘Did the trainer do a good job?’.
We have a far simpler solution. We believe that training dollars should indeed be an investment. And you do not have to guess if an investment is making money. It is a very simple calculation – what did you invest and what do you have now?
Based on this thinking, to calculate the ROI of training you would use the following formula: IMPACT ($) / COST ($) = ROI %
Here is what we tell operational leaders: You must raise your expectation of what you are getting for your training dollars. In fact, you must be crystal clear about what behaviors and skills need to change, how you will measure the change – and how much you expect those changes to impact the bottom line.
Consider the following example. We were recently engaged by a regional diverse company with over 300 offices to help them increase their production numbers in a segment of their business. Based on an analysis of the key strengths and challenges of the client company, we assessed that the key was the development of their top 40 leaders. The business impact was dramatic. To date there has been a 237% Year on Year increase in production, with an ROI of over 1600%.
So. if you manage a P&L and you would like to learn how to maximize your ROI on training dollars – measure the impact to the bottom line. It’s the only ROI that really matters.