April 6, 2023
A Step By Step Approach to Determine Your Return on Training Investment
Calculate your return on a training investment (or the ROI of training) using the following steps.
1. DEFINE THE BUSINESS NEED
Whether it’s to orientate a new team member, to provide instruction on how to use a new computer system, or to support front-line leaders managing team performance, training is put in place to address a business need. Ask yourself:
- What is the business issue or challenge that you want to address?
A STEP-BY-STEP EXAMPLE
- A restaurant has recently introduced a more sophisticated and comprehensive wine list to appeal to a changing customer base. They are now facing challenges selling the new wines to their patrons.
- The bartenders and servers know how to up-sell food items to their customers, but they don’t “know” wine. Training is the right solution.
- The training needs to increase their basic knowledge of wines, and of the restaurant’s wine list.
- A sommelier is brought in to conduct a customized in-house training on basic wine knowledge and specifically, knowledge of the restaurant’s wine list, including pairings, etc.
- The success of the training will be measured using the wine sales figures.
- One month following the training the wine sales figures improved. The sales were approximately $8,000 better than the month prior to the training. The total cost of the training (including the time of the sommelier and staff to create the training, time of the sommelier to deliver the training, cost of printed materials and wine, and time for staff to attend) was $5,500. After one month the return on investment is: Return on Investment = $8,000/$5,500 x 100% = 145%
2. DETERMINE IF TRAINING IS THE RIGHT SOLUTION
Training is often a typical response to address issues occurring in an organization or on a team, but training isn’t always the right solution. In order to achieve a positive return on your training investment, make sure that training is the right solution to the issue or challenge you are facing. Ask yourself:
- Do employees know how to perform the job? Do they know the product?
- If they do, then training is likely not the best solution. Consider whether there’s a process that is out-of-date or needs to be improved, or if there is an issue of motivation.
- If they don’t know how to perform the job or don’t know the product, then it’s likely a training issue. Move on to the next step.
3. DEFINE THE OUTCOMES FOR THE TRAINING
Think back to the business issue or challenge that the training is intended to address. Identify the outcomes that the training should accomplish, and make sure they are directly related to the business need that you identified in Step 1. Ask yourself:
- What will the training ultimately achieve? What will be the outcomes for attendees and for the business?
4. DESIGN THE TRAINING PROGRAM
Whether you’re designing and delivering the training in-house, using consultants to develop the program, or sending an individual or group of employees to an existing online or in-person course, you need to understand what type of training is compatible with your target audience and the outcomes you need to achieve. Ask yourself:
- What type of training will work with this target audience (one-on-one, classroom, online, etc.)?
- Is there an existing training program that will meet your requirements? Do you need to retain a consultant to customize the training for you?
- What is the general scope/length of training required (one-time, ongoing, 2-hour, half-day, full-day, etc.)?
- For example, basic operational training may require as little as a half-day training module; to address larger knowledge and/or competency gaps it may be a much longer timeframe.
- What type of activities and experiences will enable attendees to implement their learning in the workplace (hands-on practice with equipment, role-plays, etc.)?
- What type of support is required after the training to make sure that new knowledge and skills are transferred into the workplace?
5. DEFINE YOUR METRICS
Look at the outcomes you identified in Step 3; determine how you will measure the success of the training program. For example, if hotel employees are consistently failing to correctly allocate loyalty points to customers because they don’t understand how to use the updated computer software, the hotel may provide training on this specific computer module. The intended outcome of the training would be to correctly allocate points through the loyalty system. The metrics to measure the success of the training could be: 1) time spent per week on making point adjustments and 2) time spent per week on addressing customer complaints regarding loyalty points. Ask yourself:
- What metrics are you already tracking that measure the outcome you are trying to achieve?
- Are there other metrics that you need to start measuring?
- If so, take your first measure prior to training and use it as a benchmark.
- How do you track the metrics? How often will you track them?
TIPS FOR DEFINING YOUR METRICS
- Don’t track an exhaustive list of metrics. Select those that most directly track the success of your training in achieving its intended outcomes.
- The metrics that will make the best business case for your training investment are those that translate into dollar figures.
- Make sure that you measure your metrics prior to your training so that you can accurately calculate the return on your training investment.
- Set goals for how you want your results to change following your training (e.g. if the training were successful, this metric would improve by 15% one month after the training and 20% two months after). These goals may become part of your business case for the investment in training.
6. CONDUCT THE TRAINING & MEASURE YOUR RETURN ON INVESTMENT
After the training, track the metrics you have identified. Remember that change will likely not be immediate as people need time to apply their new knowledge and practice their new skills. In addition to taking a benchmark measure prior to training, it may be worthwhile to measure the metrics immediately following the training; but be sure to monitor the changes at regular intervals (e.g. monthly) thereafter to determine the success of the training over time. The return on your investment is measured by the difference in your metrics. If the metrics improve, and this improvement is worth more than the total cost of the training, then there is a positive return on your training investment. To put it in mathematical terms:
Return on Investment = Change in Cost of Activity/Total Cost of Training x 100%
If the ROI is above 100%, then the training is considered a success and has achieved the intended outcomes.
Consider the example used in Step 5. Three months following the training the total time spent on making point adjustments and dealing with customer complaints improves. Based on the average hourly wage, this time savings represent approximately $4,000. The total cost of the computer training, including the cost of hiring a trainer, training supplies, room rental, and staff time to complete the training, was $2,500.
Return on Investment = $4,000/$2,500 x 100% = 160%
Business leaders aren’t going to find attendance numbers and satisfaction scores sufficient reasons to continue investing in training. And while it would be much easier to say that for every $150 invested in training you will see a return of $200, there is no universal ratio. In order to give your training initiatives credibility in the organization, you must be able to demonstrate the business impact that your training has had. This will depend on your ability to: 1) define business needs that must be addressed; 2) determine if training is the right solution; 3) identify the right outcomes for the training; 4) select appropriate training solutions; 5) track the right metrics; and 6) provide a meaningful assessment of the return on training investment. Use these numbers to establish a strong business case for training, make the case for ongoing/future training initiatives, and demonstrate your understanding of the business.
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