Training ROI: How To Know If Your Learning Management System Is Worth The Investment
Being able to express the value of what you do in the workplace is a vital professional skill. Trainers, for example, are often asked by management to put together a spreadsheet, report or presentation about their training ROI (return on investment) to gauge the effectiveness of operations.
As many readers know, ROI —usually expressed as a percentage— is the net benefit of an investment, the amount gained relative to the amount spent. It’s a key metric for the success or failure of a project, and can even determine whether the project will continue. For major training projects, ROI is the primary insight that shows upper management that they are getting their money’s worth.
But what many readers also know is that showing the ROI of some investments is more challenging than a simple math equation.
For example, proving the value of a Learning Management System (LMS), is essentially proving the value of training. Some of the most substantial rewards of effective training (improved workplace morale, increased customer satisfaction, greater enthusiasm for learning) are hard to quantify, let alone tie to a financial benefit for your company.
However, if you know where to look, you’ll find that effective training creates plenty of business value that you can track.
1. To Calculate Training ROI, Start With Training Costs
The most obvious place to begin is the cost of the training itself. According to the Association for Talent Development (ATD) [1], U.S. organizations spent an average of $1,252 per employee on training and development in 2015. Some of the expenses associated with training included:
- LMS implementation, administration, and maintenance.
- Content acquisition and development.
- Trainers’ time.
- Tools and resources (such as exams and study guides).
- Registration for courses, e-schools and events.
Anytime you pursue a new approach to training that lowers (or eliminates) costs in these areas, it’s a gain for your business and an area of return to include in your ROI calculation.
Some learning management systems enable you to administer courses faster by using built-in authoring tools to create courses instead of purchasing them. That reduces the cost of setting up your online training infrastructure while also allowing for a greater degree of customization.
2. Employee Time
One of the most substantial costs associated with training is your staff’s time. Every second your staff spends in training costs your company in lost productivity. When you can reduce the number of hours your employees spend away from their work, it’s a gain for your business.
But there is another way in which the staff’s time represents a cost: the time that accrues with little to no productivity as an employee becomes effective in a new role. According to Towards Maturity CEO Laura Overton, “'time to competency' is among the 12 value metrics for learning and development a company can examine to measure “the bottom-line impact of learning interventions on their organizations”.
Autodesk product manager Samudra Neelam Bhuyan refers to the same concept as “learning curve cost” [2], or the “cost of time needed for your employees to adapt to new practices and ways of working after the training program.”
When the adaptation period for new knowledge shrinks, losses are reduced because you won’t have to wait as long for your employees to achieve the required skill capacity for their roles.
To calculate the financial benefit of reduced time to competency, multiply the cost of having a trainee on staff by the amount of time saved. For example, if a trainee costs an extra 15 hours in overtime per week compared to other staff members, and a new training initiative reduces their learning curve by two weeks, then that initiative has saved your company 30 hours in overtime.
3. Productivity
Training is also widely considered to be essential for productivity. Executive coach and trainer Victor Lipman includes training for all levels of management as one of his 7 Management Practices That Can Improve Employee Productivity [3].
The reason for this is pretty straightforward: learning helps us discover new, more efficient ways to complete processes. Naturally, this efficiency is good for your company’s bottom line —and your training ROI— because when people can complete the same amount of work in less time, your business’ labor costs decrease.
Another way to think about this is with organizational efficiency. Training can broaden your employees’ skill sets to the point where certain dedicated positions are no longer necessary. If you train your marketing department to manage their own shipping and delivery processes, for example, you may be able to eliminate the shipping specialist role in your marketing department, which potentially saves your company an entire salary and benefits package.
4. Retention
Turnover is costly. As University of Southern California business professor Edward E. Lawler III explains [4], the financial impact of replacing a departing staff member “can equal one month’s to several years’ salary,” with costs increasing as the job level increases.
The time spent posting a job, holding interviews, negotiating an offer and, of course, training a new staff member adds up fast. Fortunately, though, good training can raise employee morale and, in turn, reduce turnover.
Eric Feigenbaum, director of business development for Business Licenses, LLC, says that training boosts workers’ motivation [5] by helping them understand their roles, improve their skills, develop as professionals and feel more valued — all of which, Feigenbaum says, “foster loyalty and retention.”
Changes in turnover may take a while to become evident, but they’re an absolutely valid part of the ROI equation.
That said, turnover can be affected by many factors. If you’re going to include reduced turnover in the ROI calculation of your new training initiative, survey your staff to see how this initiative has impacted their morale and job satisfaction. If the effect is positive, the connection you’re drawing between training and lower turnover will be more credible.
5. Reduced Mistakes
Accidents cost your company money, whether it’s workplace injuries and illnesses (which, per the Economic Policy Institute, cost the U.S. $250 billion annually) [6], a bad deployment that knocks your customers offline for an hour or a typo in pricing that sells a product for a fraction of its value. When your training enables your staff to avoid these costly mistakes, factor the savings into your ROI equation.
Whatever the mistake in question is, estimate what it costs your business to fix it and then compare the number of times it happened before and after your training on the subject. No mistake is too small — even a minor computer error that only takes five minutes to fix takes money out of your budget.
6. Revenues
The value of training is not only in cutting costs, but also in boosting income. The ultimate success of a learning initiative is in increased earnings.
The link between training and increased earnings will probably be most evident in sales, the department with the clearest influence over the money your business brings in. Impactful training helps your sales team increase conversion on your products and services, resulting in higher revenues.
At the end of his six-step approach to sales training ROI [7], author and human resources executive Louis Efron offers a solid model for establishing the correlation between training and increased revenues. Efron recommends recording sales representatives’ individual sales numbers before and after training to obtain the most accurate possible data on the revenue impact and then tracking these numbers on an ongoing basis to gauge the training impact over time.
Find Other Metrics Of ROI
Don’t limit yourself to these six areas. Your training improves your bottom line in all kinds of ways, some of which are hard to find. The more you look and the more value you discover, the more complete your training ROI will become.
If both ROI and training are important to you, you need SchoolKeep. Get started today with a free 14-day trial.
Footnotes:
- ATD Releases 2016 State of the Industry Report
- How to Measure the Impact of Your Training Program
- 7 Management Practices That Can Improve Employee Productivity
- Rethinking Employee Turnover
- How Does Training Motivate Employees?
- Workplace injuries and illnesses cost U.S. $250 billion annually
- Is Your Sales Training Generating Sales?
