Proving return on investment (ROI) is crucial to any training plan. Leadership is going to want to know first, how much the training is going to cost, and second, what the value of it is. That’s why L&D has to be able to prove the ROI to decision makers.
The Cost of Not Training Employees
It’s common for companies to spin their wheels trying to find the right training strategy, and one of the main reasons is certainly cost. L&D has to complete research and sales calls, get leadership buy-in, find a great learning management system (LMS) if one isn’t already in place, hire instructors, pick the right content packages, and more.
But what’s the impact on an organization when they have no training program in place?
- Lower productivity
- Fewer sales
- High resignation
- Lower morale
Gallup estimates that $300 million is lost each year due to actively disengaged employees.
Let’s break that down.
According to Gallup, disengaged employees have 37% higher absenteeism, 18% lower productivity and 15% lower profitability. When that translates into dollars, you’re looking at the cost of 34% of a disengaged employee’s annual salary.
The median annual salary in the United States is roundabout $53,000.
34% of $53,000 is $19, 610.
That means a single disengaged employee at the median salary level could cost you almost $20,000 per year.
Taking the step to train employees and help them learn skills doesn’t just boost engagement and retention – it can boost your bottom line.
Ways to Evaluate Training Programs and Prove ROI
The struggle is real: this 2018 LinkedIn survey found that 27% of talent developers have a hard time demonstrating ROI.
That’s likely because they didn’t tie their training KPIs to business results at the onset of their program.
For example, if an organization wants to mitigate risk, they can launch compliance training to help with this initiative. But it’s important to identify what metrics to measure before launching – including KPIs like reduced safety incidents, cost of training versus cost of compliance violations, and job satisfaction.
Here is the simple calculation for ROI:
ROI = Net income / Cost of investment x 100
But this is simply just one way to measure success. It’s imperative to consider all the ways training impacts an organization.
So how do you evaluate and demonstrate this to leadership?
The Kirkpatrick Model
The Kirkpatrick Model is one of the most utilized methods for evaluating the effectiveness of training programs.
This model contains four levels: reaction, learning, behavior, and results.
- Reaction: Measure participants’ initial reaction to gain an understanding of the training program and valuable insights into material quality and more.
- Learning: Measure how much information was effectively absorbed and map it to the program or individual learning objectives.
- Behavior: Measure how much training has influenced the behavior of participants and evaluate how they apply this information on the job.
- Results: Measure and analyze the impact training has had at the business level and be sure to tie it to the individual program.
The Phillips Model
This model builds on the Kirkpatrick model by adding a cost-benefit analysis and more data.
- Level 1: Reaction: Gauge employees’ reactions to their training experience.
- Level 2: Learning: Assess whether employees retained the knowledge they received during training.
- Level 3: Application and Implementation: Instead of just identifying a change in behavior, this model accounts for factors outside of training that might help or hinder progress, such as someone using a new technique. This provides an opportunity to explain at a deeper level what specific action will improve output over time.
- Level 4: Impact: Impact is a more complete measure in this model since it considers both the positive and the negative impacts of training on the organization. This step is where L&D can gather the financial benefits caused by training, as well as the costs associated with it.
- Level 5: ROI: This is where a cost-benefit analysis occurs to help determine the ultimate value of the program. To determine ROI, take the cost benefit of training minus the cost of training and divide that by the cost of training.
Brinkerhoff’s Success Care Model
Data backed doesn’t always mean hard numbers. This model aims to gather qualitative evidence in order to create powerful examples and case studies to help sway decision-makers.
- Identify training goals and expectations. What results are expected due to the training experience? What does success look like?
- Identify outliers. Survey or evaluate training participants to identify those on each end of the spectrum – those who have done well and those that have not.
- Research. Conduct in-depth interviews with some of those employees from both groups to document the impact of training on their work. Use that time to identify what factors made the course successful or unsuccessful for them.
- Document your results. Prepare case studies that profile the most compelling success stories. Create a report that showcases the strengths and failures of the training program and where improvements can be made.
Now that everything has been calculated, it’s time to deliver the news to leadership and demonstrate ROI!
First, determine the audience. Sure, it’s senior leadership, but what is it that they care about? Think about how much they know about training and development, how they like information delivered to them, and what they think would be the most valuable information.
Second, keep the presentation simple. It’s easy to get lost in the data and want to share every insight gained but tying results to business goals is a way to keep in simple but still relevant to attendees.
Then, present the results and impact the program had on employees. Share the good and places where tweaks can be made. Come prepared with a plan of action!
ROI isn’t an easy metric to measure, but it’s important for prioritizing upcoming initiatives, generating buy-in for those initiatives, and getting training to your employees. The key to calculating ROI is to connect how much is sent and how much is saved, whether it is for recruitment, turnover, onboarding, or engagement.