In today’s economic climate, the importance of measuring training ROI cannot be overstated. Although the advantages of workplace learning have been proven time and again, employee development is a significant investment. In 2021 alone, nationwide expenditures cost upwards of $92 billion.
As such, L&D leaders need to show that training initiatives go beyond employees’ skills, knowledge, and behaviors. To truly gain leadership buy-in, they must demonstrate a return on investment.
Unfortunately, some organizations still view L&D as a discretionary expense. When making financial cuts, learning budgets are often the first to go. But proving training ROI helps L&D teams substantiate their spending budgets and make the case for continued investment in employee development.
ROI data can be further used to identify gaps and set companies up for continuous improvement. However, as learning professionals know, measuring ROI is no easy task.
How to measure training ROI
Measuring training ROI requires converting learning outcomes into monetary value. The formula for calculating the percentage is simple:
ROI = (Net Benefits of Training – Total Cost of Training) / Total Cost of Training) x 100
Here’s an example of the formula in action. If a company invests $100,000 in sales training (the total cost of training), and declares an increase of $300,000 in sales revenue after completion of the training (the net benefits of training), the calculated ROI is 200%. Based on this figure, it can be concluded that investing in this training is worthwhile.
However, calculating ROI in practice is rarely so straightforward, and translating learning data to dollars can be complex. For instance, soft skills such as emotional intelligence and team building are difficult to measure with numbers.
Even if the data can be expressed numerically, there remain challenges. To be useful, data should be taken at different points in the training cycle to ensure that baseline comparisons are accurate. It may also require accessing and analyzing reports from numerous systems, such as performance management, customer relationship management, and enterprise resource management. This process can be time-consuming and require long-term tracking.
Further challenges may arise when interpreting the data as well. Advances in performance or other metrics may stem from a myriad of external elements, such as marketing conditions and technology updates. This can make attributing performance improvement to training difficult.
As a result, learning teams risk inaccurate measures if they don’t have a high level of expertise in data analytics, financial concepts, and evaluation methodologies that enable them to isolate training impact and calculate ROI effectively. Below are a few best practices to get on the right track.
Models for measuring ROI
Due to the effort and resources required to measure training ROI, it isn’t practical or necessary to measure it for every initiative. This practice should be limited to high-impact, high-stakes training as well as initiatives that involve a large investment of time and money. For these types of training, many approaches can be used to measure ROI, but the most common is the Kirkpatrick Model.
The Kirkpatrick Model has four levels that collect substantial data to draw a holistic picture of immediate training consequences. When used correctly, it goes beyond demonstrating learner satisfaction, knowledge retention, and behavior change to assess how the training influences the company’s bottom line.
Here’s how each level can help measure training ROI:
- Level 1 – Reaction. Learning leaders use tools such as post-training surveys to gather surface-level data on training perception. Perception contributes to ROI because a positive reaction points to a higher likelihood of participants applying what they learned outside of training. For example, many training surveys explicitly ask how likely participants are to apply their new knowledge or skills.
- Level 2 – Learning. Assessments measure retention by comparing the differences in knowledge or skill before and after training. Post-training assessments that demonstrate improvement may indicate increased ROI, as well.
- Level 3 – Behavior. By following up with managers and supervisors after training, learning leaders can identify behavioral changes that may have resulted from the training. This indicates a greater likelihood of achieving outcomes and thus, increasing ROI.
- Level 4 – Results. Learning leaders directly deduce training impact by examining previously identified learning objectives and linking them to the key performance indicators that can then be used to determine ROI.
However, the Kirkpatrick model does not explicitly calculate an actual ROI percentage. To do this, learning leaders must turn to the Phillips Model for training evaluation. This model adds a fifth level: return on investment. This level uses the formula above to perform a cost-effectiveness analysis that quantifies the financial gains from training against the cost incurred. The result assigns a data-backed pecuniary value to training.
A lesser-known, yet compelling method for evaluating ROI is the Success Case Method (SCM). Unlike the Kirkpatrick and Phillips models which rely on quantitative data, SCM looks at qualitative data such as responses from interviews and case studies. It aims to identify a link between training and organizational outcomes.
This method studies the most successful and least successful participants through observations and in-depth interviews. By obtaining information from these outlier groups, learning leaders create a story detailing the utility of the training and how it can be improved. While anecdotal and subjective, in the absence of numerical data, this method is a credible way to showcase the effect of training initiatives on the business as experienced by employees.
It’s critical to delineate the metrics used to measure learning objectives before training begins. This clarity helps eliminate confusion around what data will need to be evaluated later. For instance, if a desired outcome is for learners to handle client inquiries more effectively, then one of the KPIs for measuring ROI can be customer satisfaction or net promoter scores.
Additionally, before training begins, it’s important to collect baseline data. This data can also be gathered through surveys, proctoring tests, and needs assessments. Needs assessments help determine employees’ current skill levels and performance gaps. The learning team can then focus on addressing any needs during training.
Diversity of data is crucial when measuring training ROI, as having multiple data types allows for a more complete appraisal of impact (e.g., quantitative and qualitative). It’s also imperative to gather data consistently.
Learning professionals must ensure that the pre- and post-training assessments utilize the same metrics. If using control and experimental groups, the only major difference should be that the latter attended training while the former did not. Similarly, if comparing data from similar departments, the time period examined should be the same. Such consistency helps isolate the impact of training and differentiate it from other factors that may influence performance.
The calculation of training ROI takes into account both training costs and the benefits derived. A cost analysis should include all applicable items — such as payments for materials, technology, facilitator fees, instructional design, and so on. It should also consider the cost per participant. Training benefits should be just as comprehensive and include tangible returns, such as increased sales, as well as intangible ones, such as improved morale.
Cost analysis methods should be reviewed and updated regularly so that they remain relevant as the organization grows and develops. It’s also helpful to compare ROI results to industry benchmarks to ensure they’re in line with those of similar organizations. This can help learning teams identify opportunities for improvement, prioritize the areas that have the highest impact on business performance, and focus resources on the areas that will generate the greatest ROI.
When it comes to increasing the impact of training initiatives, learning leaders must acknowledge the role of culture. A strong learning culture supports personal and professional development, while elevating employee performance and engagement.
Additionally, a program’s design must be tailored to the needs of learners. This can be done by ensuring that the training is relevant and engaging to learners, as well as taking into account their different learning styles, job roles, and skill levels. Such customization, along with incorporating practical exercises that strengthen learning transfer, lead to better training ROI.