MEASURING ROI OF TRAINING
PRE-AMBLE
Traditionally, most impact evaluation studies stop with a tabulation of business results, detailing improvements such as quality enhancements, reduced absenteeism, or improved customer satisfaction;
The aim however should be to show the value of the improvements in relation to cost;
To do this distinguish first between hard and soft data.
The first step in converting to monetary value is to sort out hard and soft data
CHARACTERISTICS OF HARD DATA
Objective;
Easy to measure and quantify;
Easy to assign monetary values;
Common measures of organizational performance;
Very credible with management.
EXAMPLE OF HARD DATA
A state government office approving applications for new drivers licenses;
It will have these four measures among its overall performance measures:
The number of applications processed (Output);
Cost per application processed (Cost);
The number of errors made processing applications (Quality);
The time it takes to process and approve an application (Time).
Ideally, performance improvement interventions in this unit should be linked to one or more hard data measures.
MAJOR CATEGORIES OF HARD DATA
Primary Measurementsof Improvement
“Hard Data”
OutputIncreases
Quality
Impro
vem
ent
Time
Savings
CostSavings
ACCRA BRICKWORKS EXERCISE
What category does your measure fall in?
OutputIncreases
Quality
Impro
vem
ent
Time
Savings
CostSavings
OUTPUTUnits ProducedTons ManufacturedItems AssembledMoney CollectedItems SoldForms ProcessedLoans ApprovedInventory TurnoverPatients VisitedApplications ProcessedStudents GraduatedTasks CompletedOutput Per HourProductivityWork BacklogIncentive BonusShipmentsNew Accounts GeneratedCOSTSBudget VariancesUnit CostsCost By AccountVariable CostsFixed CostsOverhead CostOperating CostsNumber of Cost ReductionsProject Cost SavingsAccident CostsProgram CostsSales Expense
TIMEEquipment DowntimeOvertimeOn Time ShipmentsTime to Project CompletionProcessing TimeSupervisory TimeBreak in Time for New EmployeesLearning TimeMeeting SchedulesRepair TimeEfficiencyWork StoppagesOrder ResponseLate ReportingLost Time DaysQUALITYScrapWasteRejectsError RatesReworkShortagesProduct DefectsDeviation From StandardProduct FailuresInventory AdjustmentsTime Card CorrectionsPercent of Tasks Completed ProperlyNumber of Accidents
MAJOR CATEGORIES OF HARD DATA
How to calculatePer category
OutputIncreases
Quality
Impro
vem
ent
Time
Savings
CostSavings
Units Cost Per Unit
Before Value After Value
Widget Produced
R 1 100 R 100 200 R 200
Units Cost Per Unit
Before Total cost After Total Cost
Widget Cost
R 1 100 R 100 R.5 R 150
Units Cost Per Unit
Before Value After Value
Widgets R 1 100 R 100 200 R 200
Units Cost Per Unit
Before Value After Value
Hours Worked for “n”
R 50 100 R 5000 50 R 2500
CHARACTERISTICS OF SOFT DATA
Subjectively based in many cases;
Difficult to measure and quantify, directly;
Difficult to assign monetary values;
Less credible as a performance measure;
Usually behaviorally oriented.
EXAMPLE OF SOFT DATA
Employee turnover, absenteeism, and grievances are considered soft data items;
Not because they are difficult to measure, but because it is difficult to accurately convert them to monetary value
WORK HABITS
AbsenteeismTardinessVisits to the DispensaryFirst Aid TreatmentsViolations of Safety RulesNumber of Communication Break-downsExcessive BreaksFollow-Up
WORK CLIMATE/SATISFACTION
Number of GrievancesNumber of Discrimination ChargesEmployee ComplaintsJob SatisfactionEmployee TurnoverLitigationOrganization CommitmentEmployee LoyaltyIncreased Confidence
CUSTOMER SERVICE
Customer ComplaintsCustomer SatisfactionCustomer DissatisfactionCustomer ImpressionsCustomer LoyaltyCustomer RetentionCustomer ValueLost Customers
EMPLOYEE DEVELOPMENT/ADVANCEMENT
Number of PromotionsNumber of Pay IncreasesNumber of Learning Programs AttendedRequests for TransferPerformance Appraisal RatingsIncreases in Job Effectiveness
INITIATIVE/INOVATION
Implementation of New IdeasSuccessful Completion of ProjectsNumber of Suggestions ImplementedSetting Goals and ObjectivesNew Products and Services DevelopedNew Patents and Copyrights
Soft Data Related Value Measure
Absenteeism
Labour unrest
Industrial Accident
Poor work climate
Staff loyalty
Customer loyalty
Customer complaints
EXAMPLE OF SOFT DATA
EXAMPLE OF SOFT DATA
EXAMPLE OF SOFT DATA
Converting Data Exercise Sheet
How then do you calculate the value of the improvement?
CALCULATING THE VALUE OF AN IMPROVEMENT
Identify the unit of improvement;
Determine the value of each unit (V);
Determine the performance level change (Δ P);
Calculate the improvement value (V times Δ P);
CONVERTING THE COST OF QUALITY
The cost of quality is an important measure in most organizations;
Since many performance improvement interventions are designed to improve quality, the performance staff must place a value on the improvement in certain quality measures;
If quality is measured with a defect rate, the value of the improvement is the cost to repair or replace the product;
The most obvious cost of poor quality is the scrap or waste generated by mistakes;
CONVERTING EMPLOYEES TIME
Reduction in time for employees is a common performance improvement objective;
In a team environment, perhaps a program enabled the team to perform tasks in a shorter time frame or with fewer people;
On an individual basis, time management workshops are designed to help professional, sales, supervisory, and managerial employees save time in performing daily tasks;
The most obvious time savings are from labor reduction in labor costs for performing work;
The monetary savings are the hours saved times the labor cost per hour – however also a component of contribution to profit
Cost per Unit
Cost Per Unit Less
INCREASE/DECREASEIN EXPENDITURE
- IMPACT ON PROFITProduction
More
Time; Quality; Output
Contribution to profit
Contribution toprofit
More
INCREASE/DECREASEIN EXPENDITURE
- IMPACT ON PROFITSales
Less
USING HISTORICAL COSTS
This strategy involves identifying the appropriate records and tabulating the actual cost components for the item in question;
For example, a training program was implemented to improve safety performance for a large construction firm. The program was designed to reduce the number of accidents;
Actual cost from records
Estimated additional from staff
Staff time;Management
time
Cost R 285,000
Total of 35 complaints
Legal fee;Settlement
cost
R 285,000/35 = Cost per complaint
Cost of Sexual Harassment Complaint
The Cost of an Accident
Direct Medical Costs Related to Accidents 114,390.00
Worker Compensation Payments 327,430.00
Insurance Premiums 120,750.00
Legal Expenses 75,600.00
Total Operating Budget for Safety and Health Department (Minus the Above Values) Including Salaries and Benefits of Safety Staff 455,280.00
Management and Supervisory Time Devoted to Accident Prevention and Investigation 105,000.00
Safety Training Costs Not Included in Above Operating Budget31,000.00
Safety Awareness Materials 31,000.00
Lost Productivity for Safety Training, Safety Meetings, Accident Investigation, and Replacement Staff 95,000.00
Total R 1,347,450.00
Total Number of Accidents 53
Cost Per Accident 25,423.60
USING INTERNAL AND EXTERNAL EXPERTS
When faced with converting soft data items where historical records are not available, it might be feasible to consider input from experts very knowledgeable with the processes;
Because the credibility of the value is directly related to his or her reputation, the credibility and reputation of the expert is critical.
USING DATA FROM EXTERNAL DATA BASES
Data are available on the cost of turnover, absenteeism, grievances, accidents, and even customer satisfaction. The difficulty lies in finding a database with studies or research efforts for a situation similar to the program under evaluation.
USING PARTICIPANT ESTIMATES
In some situations, program participants can estimate the value of a soft data improvement. This strategy is appropriate where participants are capable of providing estimates of the cost (or value) of the unit of measure improved by applying the skills learned in the program.
LINKING WITH OTHER MEASURES
When standard values, records, experts, and external studies are not available, a feasible approach might be developing a relationship between the measure in question and some other measure that may be easily converted to a monetary value. This involves identifying existing relationships, if possible, that show a strong correlation between one measure and another with a standard value.
USING SUPERVISOR/MANAGER
ESTIMATES In some situations, participants
may be incapable of placing a value on the improvement. Their work may be so far removed from the output of the process that they cannot reliably provide estimates. In these cases, the team leaders, supervisors, or managers of participants may be asked to provide a value for a unit of improvement linked to the program.
USING LEARNING STAFF ESTIMATES
The final strategy for converting data to monetary values is to use performance improvement staff estimates. Using all the available information and experience, the staff members most familiar with the situation provide estimates of the value.
Converting Data – Exercise !!! – See Worksheet
Still not finished….the cost of the intervention!
REASONS FOR DEVELOPING COST DATA
To determine the overall expenditure for human resource development
To determine the relative cost of each individual HRD program
To predict future program costs To calculate benefits versus costs for a
specific program To improve the efficiency of the HRD
department To evaluate alternatives to a proposed
HRD intervention To plan and budget To integrate data into the Human
Resource Information System.
TABULATING PROGRAM COSTS
Development Costs (Prorated); Program Materials; Instructor/Facilitator Costs; Facilities Costs; Travel/Lodging/Meals; Participant Salaries and Benefits; Administrative/Overhead Costs; Evaluation costs;
MEASURING FINANCIAL PAYOFF
Benefit/Cost Ratio =
BenefitsROI =
Program Benefits
Program Costs
Net Program Benefit
Program Costs
Measuring Financial Payoff
X 1001
Guidelines for Successful Benefit-Cost Analysis
Keep the process simple;
Use sampling for ROI calculations;
Always account for the influence of other factors;
Involve management in the process;
Educate the management team;
Communicate results carefully;
Give credit to participants and managers;
Plan for ROI calculations.
Final Case Study !