Magazine article Training & Development

How Much Is the Training Worth?

Magazine article Training & Development

How Much Is the Training Worth?

Article excerpt

Many HR practitioners consider a training evaluation complete when they can link business results to the program. But for the ultimate level of evaluation - return-on-investment - the process isn't complete until the results have been converted to monetary values and compared with the cost of the program. This shows the true contribution of training.

Here's a basic formula for calculating ROI:

* Collect level-4 evaluation data. Ask: Did on-the-job application produce measurable results?

* Isolate the effects of training from other factors that may have contributed to the results.

* Convert the results to monetary benefits.

* Total the costs of training.

* Compare the monetary benefits with the costs.

The nonmonetary benefits can be presented as additional - though intangible - evidence of the program's success.

It's useful to divide training results into hard data and soft data. Hard data are the traditional measures of organizational performance. They're objective, easy to measure, and easy to convert to monetary values. Management tends to find hard data highly credible. Hard data is available in most types of organizations, including manufacturing, service, not-for-profit, government, and educational.

Hard data represent the following areas of a work process:

* output

* quality

* time

* cost.

For example, a government office that approves applications for visas typically collects data in all four areas to measure overall performance: output (the number of applications processed), quality (the number of errors in processing applications), time (the time it takes to process and approve an application), and cost (for processing each application).

Soft data are needed on training programs that focus on developing such "soft" skills as communication. Typically, soft data - such as employee absenteeism and turnover - are subjective because they have to do with behavior. They're difficult to measure and convert to monetary values. And when compared with hard data, soft data are usually found to be less credible as a performance measure.

The conversion

Here are five steps for converting either hard or soft data to monetary values.

Step 1: Focus on a single unit. For hard data, identify a particular unit of improvement in output (such as products, services, and sales), quality (often measured in terms of errors, rework, and product defects or rejects), or time (to complete a project or respond to a customer order). A single unit of soft data can be one employee grievance, one case of employee turnover, or a one-point change in the customer-service index.

Step 2: Determine a value for each unit. Place a value on the unit identified in step 1. That's easy for measures of production, quality, time, and cost. Most organizations record the value of one unit of production or the cost of a product defect. But the cost of one employee absence, for example, is difficult to pinpoint.

Step 3: Calculate the change in performance. Determine the performance change after factoring out other potential influences on the training results. This change is the output performance, measured as hard or soft data, that is directly attributable to training.

Step 4: Obtain an annual amount. The industry standard for an annual-performance change is equal to the total change in performance data during one year. Actual benefits may vary over the course of a year or extend past one year.

Step 5: Determine the annual value. The annual value of improvement equals the annual performance change, multiplied by the unit value. Compare the product of this equation to the cost of the program, using this formula: ROI = net annual value of improvement - program cost.

There are several other ways to convert data to monetary values. Some are appropriate for a specific type of data or data category; others are appropriate for any type of data. …

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