Magazine article Talent Development

ROI: The Report of My Death Is an Exaggeration: Recent Dialogue about Return-on-Investment Has Raised Questions about Its Value and Utility in the Learning Industry. Is This Criticism a Death Knell for the Metric? Likely Not

Magazine article Talent Development

ROI: The Report of My Death Is an Exaggeration: Recent Dialogue about Return-on-Investment Has Raised Questions about Its Value and Utility in the Learning Industry. Is This Criticism a Death Knell for the Metric? Likely Not

Article excerpt

What do Mark Twain, Ernest Hemingway, and return-on-investment (ROI) have in common? All have been reported dead, prematurely. Twain was quite resilient, and reporting was so inaccurate in the 19th century that he was reported deceased twice! Almost a century later, reporting was no better: Hemingway was widely reported dead after a single plane crash in Africa, when in fact he was involved in two separate plane accidents and survived both.

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Today, a general misunderstanding about measurement, rather than poor reporting, has fueled a controversy over the vitality of ROI as a viable metric in the learning and development industry.

Why the controversy?

Recent controversy has grown about the use of ROI to measure learning's impact. Detractors claim that it is too quantitative, too difficult to implement, and not relevant to some stakeholders. Jack J. Phillips, chairman of the ROI institute, indicates that recent controversy stems from three sources: evaluation consultants, end users of ROI results, and suppliers and vendors who work with learning and development professionals.

Some evaluation consultants disparage the metric because they misunderstand it, are incapable of applying the ROI methodology, or simply choose not to pursue it. End users of ROI results are skeptical because they do not fully understand how to isolate the impact of training. Finally, suppliers and vendors feel threatened by the measurement of their performance.

Back to the basics

It is worth briefly examining how ROI is defined and calculated. Essentially, ROI is a cost-effectiveness measure and is computed by monetizing the benefits (for example, converting business results such as increased sales into revenue) and calculating the complete set of training costs. Once these figures are obtained, the computation is simple math:

ROI = ((Benefits-Costs)/Costs)

ROI is often viewed as the ultimate measure of effectiveness, because it sits at the apex of Phillips's ROI methodology. But the "higher is better" notion is not as compelling as several other reasons. First, ROI is a business metric that the C-suite understands. Second, it is useful because it provides a view of both effectiveness and cost, all in one metric. Lastly, learning and development professionals can use ROI for several valuable training purposes.

Using ROI

Traditionally, ROI is used to demonstrate a program's cost effectiveness after training has been delivered. However, there are three other points during the standard ADDIE course development process when ROI is valuable. ROI should be used to

* forecast the value of a training program before it is designed

* plan the most cost-effective training by selecting the training methods and tools that will maximize learning while minimizing costs

* demonstrate the effectiveness of training after it has been deployed

* make decisions about future versions of the program, especially in comparison to other programs in the curriculum.

Forecast. Forecasts are best estimates--predictions of the future--but so is the budgeting process, which is widely accepted within businesses. With time and practice, learning and development professionals get better at estimating inputs and outcomes, and forecasted ROI values become more realistic and closer to the actual ROI values computed after training.

Plan. Many learning and development managers use a cost-benefit process when designing their programs. And in most cases, the decision to implement training in one form or another is driven by costs. Program managers answer the question, "What can we achieve within our budget?" However, most do not combine costs with a fully detailed estimate of the benefits. The advantage of ROI at this point is that the benefits could heavily outweigh the costs and even justify asking for an increased budget to achieve desired outcomes. …

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