Analyzing ROI For Learning Development

Perspectives Of Corporate Learning Investment

The correct calculation can establish and justify corporate learning development budgets. Therefore, validating an organization’s ROI for learning development is an art and science contest. First, let’s relate training directly to industry quantifiable factors, such as value-added productivity or procedure improvement, increased profits, and customer satisfaction indices. As a result, a quantifiable result would associate the value of a corporate learning program to organizational success metrics.

There is a key element to the analysis, the selection of the right factors (Independent Variables—IV) to measure before, during, and after a corporate learning program is instituted. Based on industry standards, these factors enable an enterprise to demonstrate how corporate learning has resulted in the benefit factor (ROI) (the Dependent Variable—DV) to employees and ultimately to the organization.

Over time, business leaders have developed the typical-simple formula commonly known for calculating ROI for corporate training as:

ROI (%) = [(Monetary benefits – Training Costs)]/Training Costs x 100

However, it is evident that the above-depicted formula lacks the analytical power to consider a deeper understanding of the relationship between factors by industry standards, measures of learning and comprehension, and other metrics resulting in tangible corporate ROI. Nevertheless, this is the start of brainstorming measures of decreased per-item product cost or time per segment of the market. Let’s break down the calculations to make more sense of this step-by-step approach.

8-Step Approach To Analyzing ROI For Corporate Learning Programs

1. Select

Select discrete factors to measure based on what type of training is being offered and what areas of your enterprise it is designed to impact. If the learning program is intended to teach an improved process to produce a product or service, for example, a baseline criterion would measure how long it takes the average employee to produce one item or service and at a measurable cost.

2. Quantify

Quantify how long it takes a worker to produce a product or service before the start of the designed learning program. For example, if the average number of items produced or services provided per worker is X per 40-hour workweek, the worker averages (X/40) per day, or X number of items per the specified period of time.

3. Estimate

Estimate the organization’s pre-learning, per-item production cost. If it costs the enterprise $XXX.00 per week per worker for all costs, including wages, materials, equipment, facilities, distribution, and overhead. The employee produces ZZ items/services each week, so each item/service costs the company $XX.00 to make. The same ZZ items/services are sold for $X apiece, for a profit of $X each, or $XX per week. Over the course of a 50-week work year, assuming the standard two weeks of vacation time, the employee produces enough items/services to earn the company $X,000.00 in profits (not revenues).

4. Require

Require the process improvement learning program to the workers, at a cost of $X,000.00 per employee. For example, the theory is: the implementation of a learning program is successful when a greater number of items and services are produced per worker during the specified period, therefore, increasing the ROI index (DV).

5. Measure

Measure the amount of time it takes a worker to produce a product or service after they have successfully completed the learning program. If the worker produces more products and provides services each selected period of time, then, this would reflect an X percent increase in production by the worker following the training—a clear qualifiable improvement.

6. Re-Calculate

Re-calculate the new per-item/service production cost. As a result of completing a learning program, each worker could average an increase in production due to gained efficiencies per each specified period. Refer to step 3 to use the values to demonstrate the increased gains in production capabilities. Therefore, an average worker is now producing an exponential profit for the enterprise which is another clear influence on the ROI index (DV).

7. Determine

Determine the net benefit to your organization. For example, the benefit is the increased profitability for the enterprise by each worker over a period of time. Take the before the learning program annual profits produced per worker, then take the newly calculated worker production after the completion of the learning program. Then calculate the increased profitability per worker, per specified period, compared to industry standards.

8. Calculate

Lastly, calculate the ROI for each worker’s completion of the selected learning program, using an improved quantitative formula. Observe the included values for [(industry adjusted net benefit factor) – (Industry Added Value - Learning Cost)] not included in the original formula above. The intent is to apply a balanced objective approach to an art and science way to solve for ROI as follows:

ROI (Benefit)(DV)(Y) = [(Industry Added Value (IVs) (x1+ x2+ x3…) – Learning Cost (IV)(xa)]/Learning Cost (IVa)(xa) x 100] =(X%)

Therefore, a percentage Return On Investment is Y as in X percent. The learning program can thereby be shown to have been effective and worthwhile since you are getting a return of $X.00s for every $X spent on a corporate learning development program.