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Measuring the benefits
Published on Friday, 15 Jan 2010
Illustration: Brian Wang

There is a cost attached to every kind of training. It can be explicit in the form of fees paid to an external provider or salaries for in-house employees in charge of training courses. Or it can be less easy to pin down, when, for example, trying to put a figure against having the whole sales team in a conference room rather than on the road for two or three days at a stretch.

Especially in stringent economic times, companies want to have a clear idea of the benefits and potential return on investment (ROI) that any training programme will bring. There is an understandable reluctance to "throw money" at projects or approve budget proposals unless they come with well-defined targets and some viable measure to assess financial expenditure against results.

Most organisations recognise the importance of training. They make a point of stressing it in their pitch to candidates and in their reports to shareholders. Even so, in the current environment, finance directors and their teams have to account for the value of every dollar spent.

That means HR managers and anyone else involved in training should be able to explain why the investment they advocate is necessary and where, within reasonable limits, the ROI will be seen.

It is by no means a new challenge. For years, consultants have been trying to come up with an accepted system of measures to demonstrate how outlay on training relates to the company's bottom line. Of course, there is no neat accounting formula or software program to spit out an answer.

Therefore, the best starting point is to establish what specific outcomes are required at board and departmental levels, as expressed in the corporate plan for the next year or two. These might include increasing the active customer base by 10 per cent, making each manager above a certain grade competent to act as a public spokesperson, or reducing staff turnover to half the industry average in the local market.

If those targets are already agreed, the basic ROI for training is plain enough. The debate can go on for ever about the precise numbers, best methods and what should be spent by whom, but if specific training programmes have helped to accomplish those headline objectives, the major questions have been answered.

What complicates matters is when the intended outcome is more nebulous. That happens when, rather than aligning their ambitions with something they already measure, companies veer instead into the abstract.

For instance, a decree will come down, or a brainstorming session will throw up the need for something such as better communication, enhanced problem-solving skills, or boosting employee morale.

The intention is laudable, but only the bravest among us would claim to have a scientific means to prove the lasting effect of training programmes designed to deliver these goals.

However, that doesn't mean we are absolved from trying to establish measures that are consistent and, at the very least, serve the immediate purpose. It is always possible to collate data and obtain feedback.

When analysed, this will give a feel for what works and what doesn't; what merits attention and what in future can be ignored; where change is apparent and where performance is static.

Taking this approach, any company can have its own simple diagnostic tool to determine aspects of ROI and construct a process to defuse debate about the value of training. 

Establishing the process The traditional way to judge the effectiveness of a training course is to ask those who attended to complete a survey. Sometimes, the questions are perhaps a little self-serving and predictable. They tend to ask, for example, whether attendees enjoyed the course, whether the facilitators were effective, and if the new skills learned will be useful in the workplace.

The data collected is largely subjective and, as a result, not that great a measure. What is needed is to go beyond the reflexive answers of a captive audience and look instead for indications of, say, improved efficiency or higher productivity in the workplace weeks or months down the road.

It is not hard to do. If someone went on a computer course, do they now use more programs with greater facility? If the training was in sales techniques, how many new customers have been secured three months later? If the course was on presentation skills, how many successful pitches have since been made to prospective clients? The equation between training costs and actual revenue will remain imprecise but measured by effectiveness, the outcomes should be sufficiently clear.

The key to the process is to know from the outset what you are looking for or what new competencies staff require. There should be no room for ambiguity or doubt. And, contrary to usual practice, there is no real need for everyone in a team to attend certain skills training together, when it is obvious some of them are already well beyond that stage.

The important thing is to ensure, as far as possible, that all training is tailor-made. In that way, it becomes more cost effective and the benefits for individuals are more easily discernible.

Deciding what is measurable Many training programmes claim to provide tangible gains in areas such as employee networking, knowledge sharing and staff morale. These are undoubtedly important for any business, especially when one considers how fast markets move and how dependent organisations are on the combination of teamwork and specialist skills.

However, these three areas are difficult to measure and do not make the case for inclusion in a powerful ROI model. They are valuable but cannot be evaluated in isolation. There is also the problem that any attempt to quantify them will lack objectivity.

Instead, it is better to look towards the impact training has on retention, recruitment and other measures of overall employee performance that the company already uses and generally accepts. 

Retention High attrition rates are expensive in terms of payouts, disruption and the costs that go with finding replacement staff. Importantly, though, consistent feedback from various types of management surveys shows that a training and coaching programme that gives employees relevant new skills is one of the key factors in influencing decisions to stay with an organisation. Therefore, it is fair to conclude that good training is an excellent retention tool. On one level, this can be tracked by studying internal data on employee turnover and, on another, by considering the feedback from satisfaction surveys and regular appraisals. If questions to current staff elicit responses that confirm they value training, it is a fair indication of the direct link between learning opportunities and retention. You can then start quantifying the training provided against variations in the medium-term retention rate and, thereby, make a stronger case for the ROI. 

Recruitment Different things attract applicants and potential recruits but near the top of most lists is the prospect of training that will support personal advancement and career development. Companies that offer a well-regarded programme may invest more, but there is a very real benefit of being able to attract a bigger pool of high quality candidates and, over time, becoming an "employer of choice". 

Overall performance Every business and type of industry has performance indicators. They may lean towards measures of productivity, operational efficiency, sales revenue, unit cost or completions of one kind or another. Whatever the case, systems are in place to track and analyse as necessary. To demonstrate the ROI of training, it is therefore vital to relate actual or intended outcomes to these established standards and to speak the same language as the rest of the organisation.

Remember that producing an ROI model for training is a process of discovery. As things progress, it requires systematic consideration of the major performance measures adopted by each internal department - sales visits made, incoming calls handled, fewer complaints received - to define which training programmes will have a positive impact on each of these areas and why.

Written by David Simpson, director, Team Building Asia