How to Measure the Impact of Training on Your Bottom Line

money_taxcreditsnet_640In conversation, we use terms like “great”, “exceptional,” or “very useful” to express opinions, such as what we think of a Christmas or gift or the performance of our favorite team. When we use these terms, there is an assumed measure of “value” expressed. But these same words cannot be used in the corporate world when it comes to justifying the value that any investment — like eLearning — brings to your organization. Where life makes room for subjective reactions, accounting requires numbers and facts.

This is why business entities need a different way to justify their investments in training and continuing education. Proving how an initiative will deliver a positive Return on Investment (ROI) is the best way to provide this justification.

Quantifying “Value” Through ROI

Research from over 66 studies shows a definite positive correlation between training and an organization’s performance. But how can that correlation be measured?

The goal of any training is to reliably produce improved outcomes. The less reliable that improvement is, or the lower its impact is on the overall outcome, the lower its ROI is, too. According to the Donald Kirkpatrick’ Evaluation Model for determining training effectiveness, Level 4 seeks to assess “the degree to which targeted outcomes occur as a result of the training and the support and accountability package”.

In other words, you implemented this training in order to be able to accomplish something new… so, can you now accomplish that new thing quickly and easily? If so, your ROI is high. But if not…

Given this need to prove learning’s value, how does one calculate the ROI of training? The answer is to quantify the degree to which eLearning or other training initiatives will contribute to “targeted outcomes” for a company’s bottom line.

Here are 4 best practices for how to measure training effectiveness:

  • Output Increases: If your training is targeted to enhance output, use the training-induced incremental unit costs to justify the ROI for implementing your eLearning course. How much more productive will your organization be post-training? How does that increase in output track against the cost of implementing and supporting the program?
  • Quality Improvements: Promised reductions in poor quality post-training should be quantified and used as a sign that “targeted outcomes” occurred as a result of training. What are those quality improvements worth in terms of increased customer satisfaction, reduced return rates, etc.?
  • Cost Savings: If the same eLearning or digital course were to be offered as an on-site instructor-led initiative (ILT), you would incur a number of additional overhead costs — travel, accommodations, meals, venue rentals, logistics, etc. Instead, demonstrate how those fees can be saved by eLearning and those resources allocated to benefiting the company’s bottom line.
  • Opportunity Costs: eLearning provides people with an opportunity to “learn on demand” at their time and pace. Calculate how such an arrangement can be used to avoid disruption of core work activities (using hourly salary and wage data), and apply those opportunity costs towards ROI justification.

Each of the above benefits — and several others — are quantifiable metrics that can be used, separately or in tandem, as part of any ROI calculation. To find your specific ROI, all that’s left to do is add all the benefits up and divide them by the cost of the proposed eLearning initiative using the following formula:

ROI% = (Benefits/Cost) x 100

For example, let’s say an eLearning project costs $10,000.

If that same project results in $50,000 savings for the company, it will yield an ROI of 500% — which means its benefits are worth five times its implementation cost, as seen in the formula: (50,000/10,000) x 100.

And if those savings or benefits will multiply over time against a single or recurring training investment, your long-term ROI may be even greater.

ROI Essentials

In order to put some of these best practices into use, it is imperative for professional development training and eLearning business cases to be steeped in data-driven arguments. To do this, instructional designer project managers should not only begin with a data-collection mindset regarding the organization’s environment before any training is implemented, but also measure and evaluate the training’s effectiveness post-implementation.

For example, your business case for a particular eLearning course may begin by revealing that $100,000 of a company’s production costs are wasted on manufacturing defects. If your $20,000 training on process improvements will result in a $60,000 annual reduction in those costs, your odds of management approving a project that yields a 300% ROI — and which pays for itself by year two — are greatly increased.

But you can’t justify the ROI if you don’t have real data to back up your business case. Therefore, taking the time to collect data before you try to build support for training implementation is absolutely crucial for any project’s success.

RELATED: Read our tips on how to make professional development training better, more enjoyable, and more effective.

Money image courtesy of a Creative Commons license by TaxCredits.net

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