Measuring the ROI in Training
Jamin Djuang
Chief Learning Officer of LDI Training - Developing people - Author of The Story of Oil and Gas - Motto "Keep learning, keep discovering, and keep becoming the better person in you."
Training and development have become ever more important as companies are facing significant skills gaps during this rapidly changing environment.
How do you know if your training meets the skills gaps and generates the desired impacts that will make your company successful?
Here are the five levels of evaluation that give you information on the results and effectiveness of your training programs.
Level 1 Evaluation
At level one, the results of training are assessed based on participants’ reactions to the training and the action plans submitted by the participants. This is commonly done immediately after the training.
Level 2 Evaluation
At level two, the impacts of training are assessed by how much learning is acquired by participants. This is done by conducting some forms of testing.
Level 3 Evaluation
At level three, the training evaluator will find out if the acquired skills, knowledge, or attitude (SKA) are applied and implemented by the trainees. This is usually done several weeks or months after training.
Level 4 Evaluation
At level four, evaluators assess the impact, both tangible and intangible, of the training several weeks or months after the training. Examples of tangible impacts are cost savings, higher productivity, better product quality, sale increase, etc. Examples of intangible benefits are attitude improvement, better communication, etc.
Level 5 Evaluation
At level 5, training evaluators measure the return on investment (ROI) of training to determine the profitability of the training that companies conduct.
ROI is a performance measure that management and stakeholders commonly use to evaluate the profitability of a project or an investment. Management is interested in ROI as it compares the actual monetary benefits of the training relative to the total costs of the training.
STEPS TO MEASURE THE ROI
Here are the steps to measure the ROI of a training program.
1. Design the training based on business needs and define the objectives of the training explicitly.
2. Plan the training to be evaluated at all levels.
3. Design the training such the skills, knowledge, or attitude taught can be applied and implemented on the job.
4. Collect Level 1 data – the reactions and action plans of trainees - at the end of training.
5. Collect Level 2 data – learning - at the end of training.
6. Collect Level 3 data – application and implementation - several weeks or months after training.
7. Collect Level 4 data – the tangible business impacts and the intangible impacts - several weeks or months after training.
8. Isolate the effect of the program by identifying external factors that may impact the outcomes of the program. This is a critical aspect in producing credible ROI results.
9. Convert Level 4 data into monetary values of the training benefits.
10. Annualize the monetary values to determine the monetary benefit of the training over 12 months.
11. Collect data on the total costs of training.
12. Calculate the ROI using this formula. ROI = (Benefits – Costs)/Costs x 100%
WHY MEASURING ROI IS IMPORTANT
As the need for skill-building is increasing and the training budget is getting bigger, it is important to know whether you are getting positive values from your investment in training.
When you have the ROI data to prove to management the value of your training, you will get more supports for training programs you will conduct in the future.
Also, the quality and benefits of your training will increase when you quantify them by measuring the ROI. In doing so, it will make you look at the entire life cycle of training beginning from needs assessment, training design, training delivery, training evaluation, and finally to future training improvements. The ROI measurement puts your training into the path of continuous improvement.
Dr. Jack J. Phillips is the pioneer in measuring the ROI in training. Over the past 20 years, Dr. Jack Phillips and Dr. Patti Phillips have trained and certified thousands of training professionals on the ROI Methodology. More than two-thirds of the Fortune 500 companies are applying this methodology in the training they conduct.
Do you know the financial benefits of your training programs? Have you ever measured the ROI of the training your company conducts?
Finally, it is important the ROI result you come out with is correct and credible. As the implementation in each step of the measuring process can be quite involved, you need to fully understand the whole process of ROI measurement.