How Do You Calculate ROI on Employee Education Reimbursement? Seeking Guidance!

Can anybody guide on how to calculate ROI on education reimbursement provided to employees?

Regards,
Ashit

To calculate ROI, value the student after a program minus his/her value before the program.

Full cost of education including his living allowances.

Best of luck.

I am interested in ABM Consult's explanation about ROI. My question is: How to calculate ROI for all employees' costs annually.

Best regards,

JD Kuncoro

Dear Ashit,

Just a thought which I would like to share.

Calculating ROI on education reimbursement is like calculating ROI on recruitment. For example, suppose one is to recruit a BTech+MBA candidate. There is a recruitment cost involved in getting this person. However, suppose there is an employee who is an engineer and wants to pursue an MBA. In this case, the education reimbursement should be equated to the recruitment cost. An added advantage is that the company is not spending any more money on training or inducting the employee.

The ROI of recruitment may be calculated by defining certain parameters, the satisfactory fulfillment of which may indicate the effectiveness of recruitment. Defining these parameters may need to be cascaded from the vision/mission of the company.

At the very core of it, proper quantification is required to denote that if the employee performs task 'A,' then the company is gaining 'x' amount of rupees. If this study is conducted, a breakeven analysis may be performed for the recruitment process. For instance, if the recruited employee fulfills all assigned tasks for a certain number of years, then the cost involved in recruitment can be compared to the gains. The moment the gains exceed the costs, there is a breakeven point and a positive ROI.

Any thoughts on this logic are most welcome...

Regards,

Mathew

Hi everybody,

I think it has become the order of the day to calculate ROI on anything and everything. ROI on training, education, etc.

I can definitely understand calculating ROI on investing in new machinery in a plant. But somehow, I am not able to appreciate the ROI calculation on such intangibles. In my opinion, there is no credibility or logic whatsoever in such ROI calculations. By this, I mean that justification for providing continuous training to employees cannot be the ROI calculation in simple Rupees or months or years.

Hi everybody,

I think it has become the order of the day to calculate ROI on anything and everything - ROI on training, education, etc.

I can understand calculating ROI on investing in new machinery in a plant. But somehow, I am not able to appreciate the ROI calculation on such intangibles. In my opinion, there is no credibility or logic whatsoever in such ROI calculations. By this, I mean that the justification for providing continuous training to employees cannot be the ROI calculation in simple rupees or months or years.

I beg to differ - justification for providing training to employees can, and sometimes (not always), be the ROI in simple financial terms and time.

Managers are accountable for the results their team delivers. Keeping the team suitably skilled and capable will enable the team to deliver. As the targets and objectives change (as the market and customer needs change), it is likely that new capabilities will be needed by the team.

Managers also have limited resources and need to decide how best to use these resources, including time and people, for maximum benefit.

Being able to determine in advance if a particular piece of training will provide better returns than investing in a new piece of equipment is a very valuable ability for a manager to have. Most managers don't have this ability, and investing in new equipment is something very easy to visualize and link in the minds of others to delivering tangible results.

As a former training manager and now an independent provider of training services and consultancy, I often have had to make the financial case for training, and often the decision on whether to proceed or not, or to delay the delivery of training, has been almost entirely financial. Success has tended to come where the returns have been clearly and credibly forecasted and demonstrated.

Best wishes,

Martin

I am absolutely certain that continuous training is the requirement of the day.

I am also in concurrence with your point, "Managers are accountable for the results their team delivers. Keeping the team suitably skilled and capable will enable the team to deliver. As the targets and objectives change (as the market and customer needs change), it is likely that new capabilities will be needed by the team."

However, I am not in a position to appreciate that investing in training could be a substitute for investing in a particular piece of machinery. Success definitely comes where the returns have been clearly and credibly forecast and demonstrated. No doubts. But the point is, is ROI if not only, the main justification for providing training?

When clients come to me with what they perceive as a training need, for example "can you send Gemma on a course for dealing with stress and difficult customers because she gets overwhelmed by angry customers and ends up losing her temper with them. If we can't get this problem fixed then we may have to move her or even fire her.", I have a tendency at first to say "no. We must understand the root causes of the problem here before we attempt to fix it - we might make things worse". There have been other cases where a company has terminated an employee who couldn't perform, and it later turned out there were many issues with management style, problems and stresses at home, and poor initial training in the first place, which only got resolved in the courts after the terminated employee took the company to a tribunal and won substantial damages.

Equally, there are instances where new equipment has been brought in to automate a process more effectively when in fact what was needed was better training on the existing equipment - the company spent many $100Ks and got no appreciable benefit from it - performance was pretty much the same - a little higher sure, but not worth the expense and disruption!

"Success definitely comes where the returns have been clearly and credibly forecast and demonstrated. No doubts. But the point is that is ROI if not only, the main justification for providing training?"

ROI in the purely financial sense is not the only justification. Non-financial ROI - just asking the question "is it worth doing?" can help clarify and justify. I have worked in a number of organizations where money was provided for employees to do training that had nothing to do with their jobs - deliberately so. Spending say $150 each per year on learning in general, learning that was fun and of value to the individual employee (such as learning a new language ready for going on holiday in Europe) was considered a good thing to do by the company (they were a major global with very tough shareholders!!) - showing that you value your employees can bring many benefits in productivity and good faith that are often unmeasurable - sometimes you have to do things purely on faith, but in a way you justify it against your cultural core values. So, it isn't always, nor should it be, just about money!!

Kind regards,

Martin

Greetings, all:

The definitive guide on the development of ROI in Training is entitled "Running Training Like a Business: Delivering Unmistakable Value," authored by David van Adelsberg and Edward A. Trolley. ISBN 1-57675-059-0.

I have mentioned this book previously in this forum and have found over the last few years that it answers the questions of ROI for Senior Management in companies in which I consult and addresses the concerns of Training Directors who, for some reason, simply don't understand the perceptions between deliverables and tangibles.

When you decide to affix an ROI to Training, you must first create a mindspace where Transformation is a necessary and critical first part. Simply trying to offer a tangible XX% ROI always leads to fly-bys.

I've personally witnessed Boardroom arguments in which neither party taking adversarial positions wins, and the losers are the employees who, for whatever reason, don't get the necessary training to progress in their positions.

Sound familiar?

And yet, affix a relative value in this new and bold business environment we must.

When Trolley and van Adelsberg wrote this book (1999), the investment in Training and Development in the USA alone was estimated at $56 Billion USD. Add in the rest of the world, advance it to 2005, and you have a worldwide expenditure on Training and Development at a staggering USD 144 Billion. Who would not expect Senior Management to seek out ROI on such a staggering investment?

Better yet, and to the point, is there any industry that does not measure the benefit of training? I can think of only two—and those are fairly secure positions: meteorologists and economists; both of whom have a high negative performance rate. As a matter of fact, those are the only two positions where you continue to get paid whether you make the correct decision or not. And in both, if you wait around long enough, your decisions and predictions will be proven correct.

Even the profession of Funeral Director/Undertaker requires ongoing training, and the larger organizations measure the ROI against the funds expended for training extensions.

Let me suggest that you consider van Adelsberg and Trolley's book as a text for determining the ROI which you will compute on your training efforts.

All the best.

Alan Guinn, Managing Director

The Guinn Consultancy Group, Inc.

Hi Martin,

Thanks for the detailed response. ROI in pure financial terms alone cannot be the justification for training. There are several intangible benefits that need to be considered.

Thanks once again.

I think I understand your point now. Might I suggest that the criteria for justifying any training, or for that matter any other activity, will be set by the party that is paying for it. Directly, this is often the senior management team or the head of the department that holds the budget that is paying for the training, or that is sending people on the training. Indirectly, the criteria will be set by the customer. So, there are times when it can be argued it is all about finance and ROI. I agree that the reality is it will be other things too, such as delivery method, training objectives, how it fits into the strategic picture, what the customers or competition are doing, and so on.

Have a good weekend!

Regards,
Martin

This will vary from situation to situation.

First, you have to calculate the current value of the employee (it need not be his CTC package). It also includes the current assignments that he is handling. By giving education reimbursement if you are assigning him the critical assignments, that is the value in monetary terms. Here is an example:

A HR Executive who is in the Generalist function applied for the Education support scheme and went for a Diploma in Training and Development, which cost you approximately 20000 (per se). After attaining that diploma, his profile can be enriched to the Training function, and some of the trainings can be handed over to him (you may get ROI in three trainings sometimes).

But it also depends on the assignment to assignment. You need to figure out the assignment value also.

Regards,
Srinivasu

It will of course vary from situation to situation and organization to organization. In actual situations, at least some, if not many, organizations, ROI will be calculated in monetary terms with a certain amount of presumptions.

If looked at from a positive perspective, the majority of the training programs add value to the individual and the organization. Now, this is what could be primarily looked at: Is it going to add any tangible/intangible value to the person and thereby the organization? If so, can it be quantified? If it satisfies the parameters the organization has set for itself, then the training should go ahead.

This topic is one of the toughest in training and education. How do you justify your training or education costs? Please refer to Jack Phillips' papers where he shows how the calculation should be done in measuring the impact of training/education. You need to have before and after figures to show the impact as a result of training or education. The positive gaps must be further analyzed to isolate other variables apart from training; these variables are volume inputs and trends. The true performance outcomes are then compared against your initial investment to come out with the ROI.

Arriffin, Kuala Lumpur