Employee training is the most frequently used tool in human resources management that is realized in organizations to provide employees with new competencies. Each training, no matter the form, involves a certain expenditure. Hence the managers of the higher ranks treat training as an investment and expect measurable benefits. One of the methods of evaluating of effectiveness of coaching activities is the ROI indicator. However, you need to consider that this indicator is not based on hard numbers and does not include all of the factors, that can have a decisive impact on the profitability of the company.
Employee training ROI – table of contents:
Employee training – cost or benefit
One of the methods of the professional development of the employee is training. Those methods aim to help the employees to acquire new knowledge and skill. In business practice, there are used different forms of teaching that can be provided by their organizational resources or by specialized external coaching companies.
The training process, no matter the way or form of the realization, always aims to use optimally the resources of the company and to develop new mechanisms of creativity. The companies that decide to increase the cost connected with the organization of the training expect a return on the investment. The impact of newly acquired knowledge on to direct income of the company is hard to measure.
Companies that wish to keep their leading position in the market decide to increase their expenditure on training and professional development of employees. The training is a cost, but on the other hand, despite the final financial result, it can be seen as a gain for the company.
Strengthening the brand image, change of organizational culture, and improvement of loyalty of employees are the factors that are hard to measure that are key to achieving success in the market. Therefore it is worth investing in human capital, even if the profitability of training doesn’t seem to be high.
Return On Investment (ROI) is the indicator of the profitability of the investment used to measure the effectiveness of the company expressed in numbers. ROI measures the amount of return on an investment relative to the cost. The value of the indicator can be presented as a percentage or number. ROI is one of the simple methods, that assumes that the net profit is measured by real gains, while the value of the money is steady at this time.
The indicator can take negative and positive values. The negative result of the ROI means that the investment is unprofitable and brings loss. The higher the ROI indicator the higher profitability of the transaction. Repetitive measurement of ROI indicator is necessary for the key decision of the company related to the development and capital engagement.
ROI as the indicator of training effectiveness
If we wish to use ROI to measure the effectiveness of training we have to define business needs and determine the purpose of development activities. The company needs to know what should be improved and how to measure the effectiveness of those processes.
Before starting any coaching the company needs to check the present state of the specific factors (the level of sales, time, cost) that have to be changed. The method of measurement of the results of the training should be established before the training. It is not an easy task, it is difficult to check the impact of the training on the results, usually, the estimates are more or less subjective, and one cannot get finished values.
For example, one of the companies has offered sales techniques and customer service training for the salespersons. After 6 months of training, the sales profit was measured with an ROI indicator. The profit was just slightly bigger than before and increased by several percent. How can we assess if the raise in profit was a direct result of the training?
There were other factors involved. There were changes in leading, managerial positions, the main product was modified, and the price of the product was lowered. Additionally, the competition had problems with the delivery of their product. In this case, it is impossible to access the impact of the training on the increase in sales.
In another company, the management has decided to buy and implement a new program for online customer service. The part of the project involved training in functionalities and operation of the system. In this case, ROI for the investment can be measured – the profit should be diminished by the cost of implementation. The ROI will be calculated for the whole investment, not only for the training. Such an approach to ROI calculating has a solid justification in accounting and financial analysis.
While measurement of the training profitability in the company, all the influencing factors have to be taken into account. If there was a rapid increase in key business indicators after the implementation of the project the question should be asked: was the right technique used to isolate the results of the training? Hence in the case of huge projects, it is good to perform a preliminary study, and only after the assessment of effectiveness decide on further continuation of a career development program.