Return on investment: In search of the Holy Grail

Long seen as the Holy Grail for learning and development professionals, measuring the financial return training can bring to an organisation is a complex yet inexact science. And, whatever methodology learning and development heads use to gauge the commercial value of a piece of training, they will never get a completely true picture.

How can they? Training is just one factor that can affect an employee’s performance. Others include objective setting, the quality of line management, equipment, attitude etc. This means that any attempt to pin down the return on investment (ROI) training brings is as tricky as pinning a donkey’s tail on a flea.

Evaluating your training

But, while admitting that no evaluation of ROI on training can be perfect, Hedda Bird, managing director of training company 3C Associates, claims she and her colleagues have developed an approach that will “get you pretty close”.

It is called Performance Pound. And, says Bird, it enables companies to build a model of their organisation and the skills and competencies that make up the business. Firms can then attach a notional value to different soft skills – attributing more weight to those competencies that are vital to the success of the company.

For example, if a company wants to improve customer service, it should first look at all the aspects of service that add value or directly take cost out of the business, such as increasing first-time resolution of queries, meeting clients’ needs or handling a complaint positively.

The organisation then needs to identify the behaviour and skills, such as good listening or showing empathy, that the top 10 best performers in the company exhibit, and from this create a model.

Suppose everybody dealing with customers was as good as the top 10 performers. What would that mean to a company in terms of customer loyalty, conversion rates, fewer staff and the ability to divert resources elsewhere?

From here, the company can put an approximate value on bringing everybody up to that level using a metric that fits the business.

“By investing in a programme that develops those skills identified as driving excellence, you are more likely to deliver on business plans while attributing a meaningful business value to any improvements made,” says Bird.

Will Doherty, a senior consultant at human capital consultancy OnTrack International, stresses another key measure. He says it is essential, when quantify­ing the improvement any learning and development delivers, to measure the current level of performance in a given area before training starts.

But, says Bird, an organisation should not attempt to look for ROI from every piece of training its employees receive.

Compliance training, for example, should be regarded as statutory obligation and simply the cost of doing business. Likewise, trying to gauge the impact of business-critical training, such as induction or tuition in the use of software, is a pointless exercise.

But it is in the realm of people development that real, competitive advantages can be gained and the ROI measured.

Training company Bray Leino’s managing director, Doreen Nelson, says there are several areas where she has seen companies appraise their soft skills training in terms of financial return.

For example, learning and development in recruitment and retention skills can be valued by looking for improvements in reducing staff churn and assessing the savings made. Or, the success of a course that trains managers to conduct return-to-work interviews can be measured in terms of a lowering of absence levels and the cost benefits that brings.

ROI obsession

But an obsession with charting the ROI of training may be a distraction that is stopping learning and development professionals from driving the change their organisations require, says Kate Charlton, a research leader at Ashridge, a business school.

A recent Ashridge report found that when it comes to leadership development, it was the HR and development professionals who were overly concerned with finding a ROI. Chief executives and managing directors were more concerned with maximising the training and ensuring it was applied.

It is a point echoed by Peter Case­bow, CEO at business consultancy Goodpractice.net, who feels this constant quest for ROI from training smacks of HR trying too hard to justify itself.

Real change and improvement, he says, cannot be delivered by training alone. Learning and development professionals should be having conversations with senior managers about how their remit fits into an overall corporate strategy.

Case study: 3C

3C worked with a consumer goods company to deliver a basic finance course that all staff had to take so they could read the company accounts.

“The HR director also asked us to devise an ROI model as the CEO had requested a ‘numbers and pictures’ account of the value of the training,” says 3C managing director Hedda Bird.

It became clear that the training was of particular use to people from the marketing department, who have to develop a profit and loss projection model with each new product they intend to launch.

By giving them the ability to do it in line with the company management accounts and using the same proportional measures, efficiencies were created in the process of launching a new product, according to Bird. “People will argue about what values should be apportioned but the more you do it, the better you get. There’s also a value that comes from the process that clarifies why the training adds value and for whom.”

Comments are closed.