Training ROI 101: How to Calculate the Impact of Training Activities
"Training is, quite simply, one of the highest-leverage activities a manager can perform," says entrepreneur and venture capitalist Ben Horowitz.
Ever poured resources into training only to ask, "Was it worth it?"
To extract the potential of training at your organization, you need a way to measure its impact. This helps you identify the most effective training for your people and prioritize training over other business initiatives.
In other words, you need to calculate the "return on investment" (ROI) on training at your organization.
This article will:
- Help you calculate the tangible, measurable impact of your training endeavors.
- Dig deeper into why you need to calculate training ROI (Spoiler: training ROI is a key metric you can use to amplify your training strategies).
- Raise awareness of the challenges of measuring training ROI.
💸 What is training ROI?
Training ROI is an organization's return on investment from its employee training programs. It's a measure of how much your organization gains, i.e., the benefits and outcomes, from the time, expenditure, and resources put towards training.
Training ROI is an objective metric measuring specific business outcomes from training. However, it won't measure how satisfied your people are with their training.
That said, good training usually results in higher satisfaction. But training ROI measures the end result—the business outcomes—rather than any associated benefits of training.
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When to use training ROI?
Not all of your organization's training needs training ROI.
Some of your company's training materials could relate to your code of conduct or regulatory frameworks your staff needs to know. It's hard to link these directly to business outcomes, so calculating training ROI isn't necessary.
However, other training programs designed to directly improve business results are worth measuring training ROI for.
Some examples include training for process improvements, sales techniques, and project management.
🕵️♀️ Why measure training ROI?
Any organization that wants to understand, monitor, and improve its training should measure its ROI.
Training ROI is a valuable tool for measuring training effectiveness and ensuring that your organization's training is delivering the outcomes it was designed for.
Here are some of the benefits of measuring training ROI.
Demonstrating the value of your organization's training to your executives (justifying budget allocations)
Allocating expense budgets is challenging, and training expenditures are no exception.
By showing your leadership how effective any proposed training is, it's easier to justify its budget allocation.
Training ROI shows the impact of past training, helping your leadership assess the value of training and make better comparisons against other business priorities.
Enabling data-driven decision-making (better-informed resource allocations)
Training ROI helps you understand how different training programs perform when compared. This allows your organization to prioritize between training programs and choose which has the best potential for delivering outcomes.
Being data-driven and objective, training ROI also helps compare training against other resource allocations. This helps your organization make more informed decisions about future training resource allocations.
Driving accountability (ensuring resources are well spent)
Suppose you're responsible for arranging and deploying training at your organization. In that case, you'll need to demonstrate that the resources allocated to training are well spent.
Training ROI helps you do this by giving you an objective measure to assess your training.
Measuring effectiveness (actual learner benefit)
When designing or choosing training programs for your people, you'll want to get feedback on how effective the training is.
Training ROI gives you a way of measuring this beyond subjective measures (like how satisfied your people are with their training) to assess whether the training benefits your people.
Training ROI helps you answer questions like:
- Are your people gaining knowledge or skills that can help increase efficiency or reduce costs at your workplace?
- Did the training help change behaviors?
- Has there been a shift in workplace culture because of the training?
Not only will this help you gauge how useful your past and present training programs are, but it will also help you improve the effectiveness of future programs.
🧠 How to measure training ROI: 6 Methods
Now that we've seen how beneficial training ROI is, let's look at how to actually measure it.
Here are the most popular approaches.
The traditional way to measure training ROI is to compare the benefits of training to the costs of delivering it.
This is calculated as a ratio of the training benefits (i.e., the profit that the training program generated, net of training costs) and the costs of the training program (multiplied by 100 to express as a percentage):
The payback period
Another way to measure training ROI is to use the payback period.
This is the total investment into training (i.e., the total costs of the training program) divided by the annual savings that accrue due to the training, expressed in years:
It usually takes a long time to see savings from training come through, so the payback period is more beneficial for longer-term considerations like improving employee retention or reducing healthcare costs.
The Kirkpatrick model
First developed in 1954, the Kirkpatrick model is a popular method for evaluating training effectiveness. It uses four criteria:
- Reaction—Gauging learners' responses to the training provided.
- Learning—Evaluating learners' outcomes and mapping them to learning objectives.
- Behavior—Assessing learners' behavioral changes and on-the-job application of training.
- Results—Measuring the impact of training at the business level.
You can gauge the reaction criteria by using surveys or asking learners questions about:
- the strengths and weaknesses of their training;
- the training methods and techniques used and whether they match your learners' personal learning styles;
- the most important takeaways from the training.
The learning criterion helps you understand how well your learners understood the training materials and whether they've gained new knowledge or skills. This is usually assessed through interviews.
The behavior criterion looks for behavioral changes in your learners and how they translate to actual work practice. You can assess this through in-field inspections or discussions with your learners' managers.
The behavior criterion often receives the most attention from leadership, suggests Ajay Pangarkar, a workplace strategist, speaker, and author.
The results criterion considers the impact of training on business outcomes. If your training is about management, you would want to know if your learners improved their on-the-job performance (as managers) due to their training.
The results criterion gets to the heart of most training programs, i.e., business outcomes. You can assess it using employee surveys or information from employee appraisals.
Although the Kirkpatrick model appears to promote a linear process, i.e., start with the reaction criteria and proceed to the results criteria, in practice, you can get better results by adopting a different approach.
LinkedIn, for instance, suggests using the Kirkpatrick model in reverse order—start with the desired results from training and work back from there.
If your training is about improving engagement, for instance, work through the model in reverse order as follows:
- Start by evaluating your training results, i.e., is it enhancing engagement for people?
- Next, understand what behavior changes have occurred to improve engagement.
- Then, consider the learning objectives of the training and how your people benefitted from them.
- Finally, gauge the reactions of your people to the training to understand how it could be improved in the future.
The Phillips model
The Phillips model was first proposed in the early 2000s and builds on the Kirkpatrick model by adding a quantitative measure—the Phillips ROI—to Kirkpatrick's four criteria.
So, the Phillips model is made up of five levels—the four Kirkpatrick criteria and the Phillips ROI:
- Phillips ROI.
The Phillips ROI compares a training program's overall costs to its benefits in monetary terms, i.e., a benefit-to-cost ratio.
Expanding on the benefit-to-cost ratio we saw earlier, the Phillips ROI is expressed as:
By adding a quantitative ROI metric—a "dollar value"—to the four Kirkpatrick criteria, the Phillips model helps objectively demonstrate training effectiveness, explains Kevin Herrholtz, VP of Sales at Veracity Verification Solutions.
Adding a dollar value to the benefits of your training program helps build trust with your leaders and L&D teams much faster than you would without a number.
Performance reviews and supervisor assessments
Although the formula for training ROI may appear simple, it's not always easy to measure the "training benefits" that accrue.
Measuring the benefits of training for a structured process may seem straightforward (e.g., manufacturing production line or call center protocols), but how would you measure the benefits of training for an unstructured process?
Consider managerial training. Managerial roles are unstructured and more flexible than process-oriented roles, so it's not easy to measure improvements and isolate the impact of training.
One approach is to use performance reviews and supervisor assessments. Using these, your supervisors can make informed judgments about how your people have improved after receiving training.
Your supervisors should make observations both before and after training so that they can highlight the differences.
It also helps to have a "control group," i.e., people who did not receive training but performed the same (or similar) roles as those who did.
Here's a simple illustration:
- Identify key areas that define the output of the people receiving training, e.g., dealing with complexity, managing people, and delivering projects to minimum standards.
- Assess improvements in the key areas using reviews, assessments, and judgment, e.g., 5%, 10%, and 5% improvements.
- Calculate the overall improvement as an average, e.g., 6.7%
- Apply the overall improvement to the average annual salary of those who received training, e.g., 6.7% x $60,000 = $4,020 per person.
- Calculate the training ROI using the Phillips ROI formula.
Assuming the costs of training were $2,500 per person:
Training ROI (%) = ($4,020 – $2,500) / $2,500 = 61% per person
Another approach for calculating training ROI is to create a business impact study to assess the changes resulting from a training program. The changes could apply to market share or customer ratings, for instance.
Impact studies usually follow a 4-step process:
- Evaluation planning—Determine the metrics to measure your chosen impact, e.g., improvement in the proportion of market share by sales or increases in the net promoter score (i.e., NPS based on customer feedback)
- Data collection—Collect the data for your chosen metric, both before and after training, e.g., the sales market share or NPS before and after training
- Data analysis—Adjust the data if necessary and calculate the ROI using one of the relevant formulae, e.g., Phillips ROI
- Reporting—Report your qualitative and quantitative findings and any observations made during the process
🤯 5 Challenges of measuring training ROI
Jessie Kong, Professor of Instructional Design at Franklin University, highlights the following 5 challenges of measuring training ROI.
You need to work with reliable data for training ROI to make your results credible. Inaccurate data could lead to the wrong conclusions.
Getting access to reliable data, however, is a significant challenge for many organizations due to:
- a lack of sufficient data for realistic training ROI calculations;
- the costs associated with collecting or generating data;
- difficulties in identifying suitable data for training ROI calculations.
Depending on the type of training you're evaluating, you may not have sufficient data from your organization's HR analytics or financial systems. In this case, you'll need to collect data using surveys, questionnaires, observations, interviews, or performance monitoring, amongst other methods.
Collecting data can be expensive, and you may need to spend significant time and resources to design, implement, and collate data. In deciding how to collect data, you'll need to balance the costs of data collection against the expected reliability of the results.
Surveys and questionnaires, for instance, are popular due to their cost and convenience. But in designing them, you'll need to think about the specific questions to ask so that you can isolate the effects of training and ultimately translate the survey responses to quantitative (monetary) values.
Measuring the long-term impact of training for a group of people or within a particular business function is also tricky. You would typically need to collect data over an extended period and focus on the benefits of training rather than other influences during the (long) measurement period.
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Beyond data collection costs, most organizations have difficulty deciding what costs to include and how they should be estimated.
For online learning programs, for instance, several factors affect costs: the number of courses on offer and how often they're revised, the types of learning media, the amount of student support, the flexibility of learning schedules, and learner completion rates, amongst others.
It's difficult to estimate a large number of variables to realistically capture the costs associated with training programs.
Difficulty in quantifying human (qualitative) outcomes
How do you put a dollar value on human behaviors affected by training? What are the right metrics to use for measuring qualitative results?
Many organizations use economic or psychological assumptions based on industrial-organizational models. Still, these may not accurately reflect the training circumstances at your organization.
Another approach is to use observation and judgment (including feedback from employee appraisals) to estimate the dollar value of qualitative training outcomes. However, this is prone to biases, inaccuracies, or gaps in understanding and can lead to unreliable results.
Estimating training impacts on business outcomes
When estimating the impacts of training on business results, it isn't easy to separate the effects of training from other intervening factors.
Businesses are complex environments with many interrelated factors: evolving organizational culture, changing market conditions, and the impacts of other business initiatives are examples of influences that are hard to separate from the effects of training.
For example, suppose a company finds that its sales have increased after training. How do you know if the sales increase directly results from the training?
There may have been organizational structure changes, improved incentive programs, or stronger economic conditions boosting sales. The training may or may not have had much effect in these circumstances.
Insufficient knowledge and support for ROI measurement
Kong points out that many organizations are unfamiliar with training ROI frameworks and measurements. They typically rely on informal approaches that focus on learner satisfaction surveys.
But while not all training requires ROI and the purpose of evaluation can vary, organizations would benefit from a more structured training ROI approach that captures learner performance and organizational outcomes.
📈 Employee training ROI evaluation metrics examples
While we've looked at how to calculate the ROI for training programs, we've only brushed over the metrics you can use to measure the benefits that result from training.
As we've seen, understanding the impacts of a training program—and quantifying it—can be challenging.
Organizations today have access to vast amounts of data and significant computing technology to analyze and process data. However, the key to successful training ROI measurement is deciding which data and metrics are most relevant for showing the impact of training in your organization.
Here are some examples of the data that organizations use:
- productivity and performance;
- employee retention (turnover and retention surveys);
- revenue and sales;
- customer satisfaction scores;
- employee engagement and satisfaction;
- incidents and error rates;
- leadership capabilities;
- brand image and reputation;
- skills development and career advancement opportunities.
How would you go about measuring these?
Some are easier than others—error rates and sales are easy to quantify using available data, for instance. Still, as we've seen, the assessment of leadership capabilities is more qualitative and nuanced.
It's also essential to connect the impact of your training to business outcomes—this helps you get the most out of your training evaluation.
It will give your training ROI calculations credibility with your organization's leadership and be more useful in evaluating the training impact relative to other business initiatives.
But as the above list shows, the impacts of training could affect many areas of your organization. To help identify the most useful metrics, management researchers Ramesh Sounderarajan and Kuldeep Singh suggest using the following criteria:
- usable across different organizations (although your organization may need specific parameters for its circumstances);
- easy to understand and deploy;
- easy availability and access to data;
- uses current data and can incorporate new data;
- provides insights into both leading and lagging indicators;
- linked or connected to business performance, e.g., financial performance, cost reduction, or employee engagement;
- credible with your organization's stakeholders.
➡️ Get a higher ROI on your training initiatives with Zavvy
At Zavvy, we bridge the gaps between performance feedback, development plans, and training. All in one place.
This helps your people and their managers get the most out of your organization's resources and deliver a higher ROI.
Rather than waste time with generic courses that bring little or no value, identify the most helpful training programs and approaches for your people by measuring the impact of training at your organization.
Develop your people's knowledge and skills with relevant training to advance their careers and help them bring their best to work.
Zavvy empowers people by acknowledging their individual strengths, interests, and potential.
Giving your people the most relevant training will ensure a higher training ROI at your organization.
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