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Calculating ROI in L & D

Posted by Bob Little | 17-Jul-2019 18:25:00
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It’s commonly accepted – at least by those who pretend to know about these things - that learning brings benefits. Yet – for the benefit of C-suite executives who tend to deal in figures - assessing the value of corporate learning, via its return on investment (ROI), is a frustratingly imprecise science.thought-2123970_960_720

In determining the ROI of any piece of learning, you can’t measure progress, development or improvement unless you’ve also measured performance at the beginning of the exercise. After this - at the very least - you must answer five key questions:

  • How simple or complex do you want this exercise to be? In other words, do you want to measure what you can or what you should?
  • Is it more meaningful to measure individual - or the aggregate - development/ROI?
  • Is your ROI purely expressed in money terms, or are other development areas included (worker retention, engagement and so on)?
  • What’s the cost of not learning? This is especially relevant for compliance learning.
  • Over what period is the ROI of this learning being measured?

Opting for a subjective approach to learning measurement is simple, if cynical. Decide upon the answer you want and then assemble the figures to prove it. Ensure that this figure is over 100% - to give a positive ROI - but not so over-the-top that it looks unbelievable.

An objective approach

Trying to be objective about measuring ROI is far more complex. You must bear in mind, at least, that:

  1. There’s no ‘approved’ way of calculating the ROI of learning.
  2. A simple ROI calculation takes the (monetary) cost of the L&D programme from the (measurable, monetary) increase in learners’ on-the-job performance once they’ve completed the programme. It expresses this figure as a percentage of the cost.
  3. However, there’s much more to ‘value’ than mere money.
  4. There are also unquantifiable costs in L&D programme development and delivery. You must decide whether or not to account for them in the ROI calculation. If you do, it’ll reduce the ROI percentage.
  5. The programme may confer benefits – to the business and the learners - that aren’t immediately apparent. These benefits increase the ROI but may be difficult to discover, quantify and, indeed, justify.
  6. Determining ROI objectively means identifying a clear, causal chain that both links and isolates learning input with the quantifiable output. Yet, usually, isolating ROI is impossible because there are too many variables involved.
  7. Moreover, does a ‘piece of learning’ have a finite period over which it produces an ROI? Or does that learning last a lifetime and, thus, continue to produce an ROI even after the measuring has stopped? And, if it’s continuing to produce business benefits, how should you account for the ROI of these benefits?
  8. Each learner has individual learning needs; previous experience; knowledge and skills; aptitudes; motivation, and – importantly – encouragement (from line managers, for example) as well as different opportunities to put that learning into practice. So, there’s likely to be a different ROI for each learner. Consequently, could the aggregate ROI give a false impression of the learning’s efficacy?
  9. When do you start – and stop – measuring the ROI of any piece of learning? This is easy to define for some L&D programmes – such as those related to a finite marketing campaign – but impossible to calculate objectively in relation to soft skills learning programmes, such as leadership skills.
  10. For an accurate ROI, you must assess the cost of what’s likely to happen if, say, the learning isn’t What are the likely costs of something going wrong if the appropriate people aren’t trained properly? Take account of both the cost of the actual damage that could be done to your business and the on-going cost of the damage to your business’ reputation. Then, you should take account of all the costs that’ll accrue from the de-motivation that’ll affect the potential learners when, having not been trained, they make the costly mistakes that the learning would have prevented them making. This involves estimating probabilities and possibilities, rather than facts. That merely adds to the impreciseness and subjectivity of what, with the best will in the world, starts out as an exercise to measure ROI objectively.

The ROI of Teambuilding

If, for example, you had to provide an ROI for a teambuilding exercise, you might cost – in both money and time terms - specific situations or events in the past year involving members of the team where reduced efficiency and effectiveness in decision making resulted in increased costs; difficulty in completing an initiative, and/or delays. For each situation, you must identify the cost in terms of time and money to resolve the situation and the opportunity cost. Then you should include indirect costs - such as the negative impact on morale, customer churn, turnover and productivity losses.

Then, you should identify and calculate the value of the opportunities that could be generated by more cohesive teamwork and improved decision making. Add up the money that would have been saved or generated if the team had been able to work together more cohesively. Use these figures to determine the time and budget requirements, as well as what it would be reasonable and worthwhile to invest in teambuilding.

Carry out the teambuilding programme; then generate a new ROI along the same lines. Hopefully, the situation will have improved – but that might mean that the ROI of running further teambuilding training has fallen 

Once you’ve produced the ROI figures, you can prove that, say, a department is now performing more efficiently and/or effectively than before – and attribute at least some of that improvement to the L&D input its members have received. However, bear in mind that the resulting performance improvement is also due, in part, to changes in the department’s personnel. So, L&D, along with HR-moderated talent management, is contributing to an improvement package whose value is maximised in the medium-to-long term, rather than the short term

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