Dear Without a Clue:
There are two parts to an ROI calculation: the financial benefits of the training or other performance-improvement program, and the costs of that program. The ROI equation is stated as:
Benefits (minus) Costs (divided by) Costs x 100 = ROI percent
For example, if the financial benefit derived from a program is $4,000, but it costs $2,500 to provide the program, the ROI would be 60 percent. Another way to look at this would be to determine the cost-benefit ratio, which divides the benefits by the costs. In the above case, the ratio equals 1.6:1. Simply put, it means the company can expect to get $1.60 back for every dollar invested in the program.
As you see above, you have costs and you have benefits. Let’s talk about benefits first.
Before you can derive the financial benefits of the program, you must first establish its business objectives. Start with the question: What is the company expecting to gain or save from this program in financial terms? Then determine the job-performance requirements needed to meet that financial goal. Last, you have the learning objectives. A very simple example of this in a call center may be:
| Business Objective |
Performance Objective |
Learning Objective |
| Increase product revenue by 30 percent |
Offer at least two products on each call |
Explain product advantages |
There may be “intangible” benefits for many programs that can’t be converted to a monetary value, but have to be captured anyway. For example, most executives agree that improving customer satisfaction eventually helps the business, even if that benefit cannot be converted to a monetary value initially. Still, efforts should be made to tie each program outcome to a financial value. For instance, improved motivation should lead to improved performance. The key is to anticipate and measure that performance.
So now you’ve showed how your training generates benefits. The other part of the equation is costs. The costs that should be included in your cost-benefit calculation include:
- Needs assessment
- Development and acquisition
- Program materials
- Instructor/facilitator
- Facilities
- Travel/lodging/meals
- Participants’ salaries and benefits
- Evaluation
- Administrative/overhead
SOURCE: Toni Hodges,consultant, Annapolis, Maryland, Oct. 28, 2003.
LEARN MORE:Make Training More Accountable.
The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.