Return on investment (ROI), as far as this financial concept is concerned, is the difference between the gain which we get from the investment less the cost of the investment, which means the net gains divided by the cost of investment. Let us go to the method of calculation of the ROI, as far as training is concerned.
Calculating the return on investment for training involves four steps:
Collect Information – Gains and Costs
The first step concerns collecting information on the benefits gained and the costs incurred. Now, calculating the costs of a training program is pretty simple and straight forward, which we had discussed in the earlier blog post.
“Isolate” the results of training
The next step is to isolate the benefits which you get from training from the benefits you get from some other inputs. This means you have to put a percentage on training’s contribution. This can be a challenging step. It is not as simple as straightaway apportioning the benefits of the training to results.
Now, the best way to do this it to use a “CONTROL” group and a “TEST “group. The CONTROL” group is not put through training but the TEST group is. ALL other factors are kept constant. Whatever results accrue from the training group or the experimental group can be directly attributable to training.
The question then arises: How far is it practical to have control groups and explanatory groups in an organizational context?
Well, in a research organization or in a laboratory, this is how it is done and you will get pretty valid results when you have a control group. But as far as we are concerned, in a dynamic organizational context I don’t think it is practical to have a control group for each and every training program unless the program is of pretty high visibility and high investment. Then, it makes sense to do such an evaluation and isolation. We would like to do this especially when we want to scale it up across the organization and you would like to first see the pilot and the kind of results you get out of it.
In case you are not able to use the control group and the explanatory group method, you must measure the impact based on the estimates given by the participant supervisors, managers and the experts through questionnaires.
The questionnaire will ask them what they think is the percentage of contribution of training in the result they achieve? For example, if there is an increase in Sales, we ask the supervisors what they think the percentage of increase in sales is and whether they attribute it to the training which the sales people have undergone.
Likewise, we ask senior managers, participants and so-called industry experts or internal experts. You’ll immediately realize that there is a fair degree of subjectivity in this kind of estimate. Somebody may say its 25%, or 50% or even 60%, so it’s anybody’s assessment of how much that kind of impact is worth. So, isolating the results of training, as you can see, is not simple.
Put money value on gains
Once that is done, being able to monetize gains is pretty simple and straightforward because your finance and accounts will be able to give you the monetary value on the gains.
And then it is a straightforward application of the formula of ROI. So, you just take the gains subtracted from the investment you made or the cost and divided by the cost of investment to get the percentage. This is your Return on Investment.