Every organization conducts a training session that helps the employees learn and sharpen their skills to become capable enough to work in the company. Training employees is essential to success in any company or business.
But the process of training employees can sometimes be costly and unaffordable for every organization.
That is why organizations first measure their progress while training employees. In case they get an optimistic estimation, then they invest in the process of preparing the employees.
To measure the organization’s progress, use the “Training Return ON Investment (ROI)” method. The Training ROI stands for Training Return on Investment. It is a statistical, financial measuring tool that helps measure the growth and success of the training process toward achieving the desired objective.
?ROI Training Meaning
Training Return on Investment helps in measuring an organization’s gains that it has achieved from its investments during the training period. The financial benchmark inflates the benefits gained from the respective training program.
But using the training return on investment method in all training programs is optional. For example, an organization might need to measure the return on investment for its two-year leadership training program. But it doesn’t need to measure the training progress for the code of conduct.
An organization’s management should measure the training return on investment, for which it would need to collect the following data, such as –
- Sales data
- Customer satisfaction report
- Production and output report
- The purpose behind the formation of the organization. Every organization has different goals; the standard and benchmark marked depend on the purpose.
- Computation of total training cost, i.e., that includes the trainer’s fees, training equipment and materials cost, electricity expense, and other miscellaneous expenses.
The formula to calculate the Training Return On Investment (ROI) is as follows,
(Net benefits – Total Training Cost) / Total Training Cost.
What Is ROI In Training And Development?
ROI, or return on investment, in training and development, refers to the company’s financial return from investing in employee training and development programs.
It is a measure of the effectiveness and impact of the training program in terms of the financial benefits generated by it.
Calculating ROI in training and development involves measuring the financial gains resulting from the program and comparing it to the program’s total cost.
The financial gains can include increased productivity, decreased turnover, improved quality of work, and other factors that contribute to the company’s overall success.
The cost of the program includes direct expenses, such as trainer fees and materials, as well as indirect costs, such as the time spent away from work.
A positive ROI indicates that the benefits of the training program outweigh the costs, resulting in a positive financial return on investment.
A negative ROI suggests that the program did not provide a sufficient return on investment and may require further evaluation or improvement.
By measuring ROI in training and development, companies can make informed decisions about their investment in employee development and identify areas for improvement.
Training Return On Investment Formula
The formula for calculating Return on Investment (ROI) for training is:
ROI = ((Monetary value of KPI improvements – Total cost of training) / Total cost of training) x 100%
Where:
- The monetary value of KPI improvements is the total monetary value of the key performance indicator improvements resulting from the training.
- The total cost of training is the total cost of the training program, including all direct and indirect costs.
The ROI formula calculates the percentage return on investment for the training program.
A positive ROI indicates that the training program effectively achieved its objectives and provided a positive return on investment.
A negative ROI indicates that the training program did not provide a positive return on investment and may require further evaluation or improvement.
?The Reasons Behind Measuring Training Return On Investment (Roi)
The reasons behind the measurement of training ROI are as follows –
?Make a report on the past training
Training ROI can sometimes prove to be an expensive investment because it is hard to get permission from all of a company’s investors to make such an investment.
But showing the success reports of the past training sessions might help influence the investors and the management team to agree to invest in the training program.
?It is necessary to be sure before initiating the investment
By measuring the training return on investment, an organization can compare its impact with its past training programs and decide on the investment.
Whenever an organization sees or feels a financial crisis, the management generally cuts down its training budget. So it is essential to make the right decision, as a wrong decision might
?Prioritize and create a sequence
After getting the details about the return on investment during the training period, please make a report based on it and prioritize the investments that attract the highest return on investment, have the highest impact on the organizational performance, and encourage improvements.
?Keep a detailed report about the impacts that took place due to training and the amount of gain made due to it
Keeping track via a detailed report about the profit brought in, and the financial,- economic growth that took place based on the past pieces of training can help the management secure a future budget.
The reports will help the management show the success and growth achieved due to the training that might make the investors eager to invest their money in or make a budget for future pieces of training.
⭕Difficulties Faced During The Measuring Of The Training Return On Investment
The management department faces a few difficulties while measuring the training return on investment (ROI), a few of which are discussed below.
- Lack of goal-setting skills – when the team or the management has an unclear plan and a lack of clear goals, they might face a confusing situation to make the whole process less impactful. Sometimes it may also cause huge misunderstandings and confusion about the details that need to be collected regarding the ongoing training topic.
- Absence of essential data – the calculation of training Return on Investment requires several different details and data pieces, which sometimes can be very difficult to collect.If such data gets misplaced, it might create huge misunderstandings and confusion about the data that must be collected regarding the ongoing training topic.
- Pointing out the effects of training – apart from having gained and earning profits, a few other factors experience changes because of the training sessions.
These changes might be a development in the organization’s culture, market conditions, and many more. Sometimes it becomes complex and challenging to manage all the different training attributes.
?️The Process Of Measuring The Training Return On Investment (Roi)
There are several ways through which the user or the management team can measure the training return on investment. Three of them are discussed below. These are –
Kirkpatrick’s Model of training
It is a four-level-based measuring approach that helps to measure any course or any training session/program’s effectiveness.
The four levels are,
- Level 1 – describes the people’s reaction while they acknowledge the training process.
- Level 2 – describes the skills and knowledge gained by the employees due to and during the training program.
- Level 3 – describes the change in reactions of the trainees and how their behavior changes due to the training.
- Level 4 – describes how the businesses get impacted because of the training program and its impact on the employees.
It is further described below,
?️Level 1: Reaction
The first step is to analyze and evaluate the reactions and responses of the employees due to the training. It helps the management to know about his level of comfort and satisfaction.
The management can collect the information that impacts the management and are easily available for the management to get hold over. For example, the completion rate, total sales, promoter’s net score, and many more.
?️Level 2: Learning
The second stage is learning, which ensures that the trainee employees learn about new skills and increase their knowledge. It also helps in ensuring that the firm’s objective behind the training is achieved.
Make a list or report regarding the skills and knowledge gained by the trainees. It might include points related to the objective set, the skills the trainees intend to learn, and the skills they got to learn on a complimentary basis.
It also helps analyze the growth of the employees’ skills as the management can compare their past analysis with the current one and conclude if the training proved beneficial.
?️Level 3: Behavior
This stage describes the behavioral change among the employees that occurs as an impact of the training. Here the management encourages the trainees to have self-confidence, team spirit, group engagement, and many more.
?️Level 4: Impact
It is the fourth and last stage of the process. Here the impact of the trainees on the business and its future goals are checked. It is the stage where the training Return On Investment (ROI) is officially calculated.
Here the meaning of impact differs from person to person. As per the theory, impact means increased employee retention, customer satisfaction, and turnover. The company can select a few keys indicating customer satisfaction and many more.
?The Philips Model For Ranking And Evaluating Training
The Philips V-model is based and formed upon Kirkpatrick’s Model and follows a sequence of five stages of training evaluation.
?️Level 1: Reaction
This stage is used to have a deep view of the experiences gained by the people during the training period. The details related to this are collected via surveys, forms, personal reviews, and many more.
For example, a firm delivered sales training to over 400 consultants to teach them the process of being a knowledgeable consultant. To be one, they need to have a few attributes such as having good speaking skills, good customer care services, and many more.
These consultants are a part of the organization and its ambitions related to the future. They need to improve their skills and sharpen their knowledge.
In level 1, evaluation is performed via a survey with the training participants to get know-how about their satisfaction levels and set the objectives to get quality work done.
?️Level 2: Learning
The second stage is learning, which ensures that the trainee employees learn about new skills and increase their knowledge. It also helps in ensuring that the firm’s objective behind the training is achieved and that the participants have achieved the objectives.
It also helps analyze the growth of the employees’ skills as the management can compare their past analysis with the current one and conclude if the training proved beneficial.
It also keeps track of attendance and whether the participants attend the session regularly. It also keeps an eye on whether the participants are attending the sessions with full attention.
For example, as a part of the after-training procedure, participants are questioned regarding the new skills and tasks learned by them if the new skills are helpful for their work. The survey results show if the training is a success or not.
?️Level 3: Application
In the third stage, the management collects qualitative data that provides a complete understanding of how the participants apply the knowledge and skills gained during the training.
It also helps in knowing why the participants didn’t understand or learn the skills that were supposed to be known to them. It helps in understanding if the training program topics need to change or if any other changes are required.
For example, a survey covering every department was conducted where participants were asked if they had any problem conducting and understanding the whole training process.
Along with the participants, the survey covered the managers, who were asked if they noticed any development in their skills and knowledge. After receiving the results, the management makes arrangements for further objectives that need to be achieved.
?️Level 4: Impact
In the fourth stage, the Model looks at the overall growth in the organization due to the training program. It is not just because of the training but also because of the organizational factors that hamper the successful execution of the skills gained by the participants.
For example, a group from the control department was assigned a task to accurately analyze whether the organization was affected due to the training sessions in terms of the Comparison of two different groups of skills held and performance.
Results revealed that the group that had to undergo the training had much better performance than the other employees who did not attend the training program. The training group had a great performance, and it increased overall sales.
?️Level 5: Return on Investment
The fifth stage of the Philips model links the business and training program, for which it uses various calculations like cost-benefit analysis and many more.
For example, to specifically understand the skills inherent in the training, the management needs to compare the work done by any individual, let us say, the performance of a sales consultant. Here the management needs to compare the sales made with the sales amount he generated.
As a last step, some factors that can affect the training outcomes must be compared. It includes
- Having an encouraging manager that allows learning on the job.
- Recognize the hurdles in training and solve them immediately.
- Even after training, there should be continuous coaching.
?Impactful study
The third method of determining the training ROI is conducting an impactful study. It denotes the changes made in the organization because of the training program, like increased sales, profit from market shares, positive customer feedback, and many more. There are four steps to have an impactful study. These are –
- Estimating the plan – once the impacts are known, the strategies and planning are made according to it.
- Data collection – here, the organization collects the data that is important and has an impact on training. The management collects pre- and post-training data and compares the data to see the changes made.
- Data analysis – with the help of the ROI formula, the management converts the data collected into monetary value and calculates the profit gained in terms of money.
- Disclosing the result via reporting includes the qualitative and quantitative reports that denote the organization’s changes and the completed impactful study.
Training ROI Calculation Example
Assume a company spends £10,000 on a sales training program for its sales team. The objective of the training is to increase sales revenue; the KPI is the percentage increase in sales revenue after the training.
Before the training, the sales revenue was £100,000. After the training, the sales revenue increased to £120,000.
To calculate the ROI:
- Monetary value of KPI improvements = (£120,000 – £100,000) = £20,000
- Total cost of training = £10,000
- ROI = ((£20,000 – £10,000) / £10,000) x 100% = 100%
In this example, the ROI is 100%, which means that for every £1 invested in the training programme, the company received £2 in return. This indicates that the training programme was effective in achieving its objective and provided a positive return on investment.
Conclusion
Training Return on Investment helps in measuring an organization’s gains that it has achieved from its investments during the training period. It is a financial benchmark that inflates the benefits gained from the respective training program.
There are three ways of measuring the training Return on Investment (ROI). These are –
- Kirkpatrick’s Model of training
- The Philips Model for ranking and evaluating training
- Impactful study
The organization measures the overall growth of the organization due to the training program. It helps to understand how the participants apply the knowledge and skills gained during the training. And informs the management if there is any error in the process.
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Business, marketing, and blogging – these three words describe me the best. I am the founder of Burban Branding and Media, and a self-taught marketer with 10 years of experience. My passion lies in helping startups enhance their business through marketing, HR, leadership, and finance. I am on a mission to assist businesses in achieving their goals.