Second-guessing the effectiveness of training programs is easy. This is why it is critical for organizations to calculate the ROI of their training programs.
You could have the best training program in the world, but if you are not measuring its effectiveness, you are essentially shooting blind. According to research, despite organizations spending billions of dollars in learning and development, they are failing to engage people, and this "disengagement" is costing the US economy up to $550 billion in lost productivity each year. Another report titled "State of Learning" claims that in order to determine the impact of leadership development programs, the top-two metrics that L&D leaders look at are - employee engagement (48.8%) and retention/attrition of top performers (48.6%). Surprisingly, ROI was one of the bottom metrics used by L&D leaders to demonstrate the impact of training programs on the broader enterprise — a bad sign.
Evaluating the effectiveness of training programs is critical. Here's why:
- Are the learning programs meeting the organizational objectives?
- What kind of topics are most valuable to the learners?
- Are the trainers leveraging the right mix of delivery methods?
- Are the learners engaged and applying the content in their respective roles?
- Are the learning programs able to demonstrate tangible benefits (read: higher productivity, reduced errors, etc.) for every dollar invested?
The first step involves gathering accurate and quantitative information to justify the cost of your training programs. To calculate the ROI, start by asking yourself the following questions:
- Does your enterprise have the required systems in place to conduct the training and gather real-time data?
- Can the data be mined and analyzed accurately?
- What are the expectations of the stakeholders when looking for an ROI study?
- Do you need to consult with the executive sponsors to manage their expectations?
- Is self-reported data (read: information from surveys and interviews) a part of the company's culture?
Once you have the answers to these questions, you can define how much you have spent on L&D. Important factors to consider include fees for speakers (digital or in-person), travel and lodging, meal costs, etc. You can also look at the lost productivity time as well as the cost of technology.
The next step is to identify the right mix of metrics to understand whether or not the L&D program is effective. Some common metrics that companies use include:
You can weigh the performance against industry benchmarks or your own goals to gauge the efficacy. For instance, say your brand wants to enhance customer service. Your training can drive best-practice customer-engagement techniques. In terms of the metrics, your organization can measure "hard" metrics such as sales or conversion rates. It is critical that you select the right factors to measure, both before and after the training. Here's the formula for calculating ROI:
An impactful and accurate ROI analysis should:
The end goal here is to understand:
For L&D programs, qualitative information is as important as quantitative information (read: hard data), especially when presenting a business case to key stakeholders. This step incorporates understanding the level of "learning" that is being imparted to the participants, which includes three elements:
After all, ROI is not just a number. Qualitative feedback and comments also need to be factored in to gather unique insights that can be useful for training managers. So make sure to identify the non-numerical aspects related to the program, such as interviews or surveys. Feedback is central to building a robust and value-driven L&D program.
In addition to the points mentioned above, here are a few best practices to keep in mind: