How Do You Calculate ROI on Training? Seeking Advice on Quantifying Its Impact

Hi,

If anyone could help me, how do we calculate ROI on training? How do we quantify training?

Thank you.

Hi Sakshi,

Calculating ROI is a challenging task. I am attaching an interesting article on the same (I have already posted it earlier). Hope it'll be helpful.

Cheers!

Dear Sudhir,

ROI stands for Return On Investment. For training, it is usually measured through the change in performance after the training has taken place. It is a quantitative measure for training.

Cheers!
Sughosh

Hi,

I am enclosing a PT on ROI on HR practices. If you have a very sound mathematical and analytical background, you can venture into this.

All the best!

Regards,
Sathya

Please find enclosed the PPT again. Hope this time it gets displayed!

Hi Sakshi,

I have little material on ROI concept on training and also the methods used to calculate training. I believe it will help you. Take care and see the attachment.

Thanks and regards,
Vijay Bojja

Hello Sudhir,

I'll try to provide some information on ROI, though a bit theoretical! In recent years, everything boils down to money. Nowadays, HRD is seen as a valuable tool that involves investing in humans to achieve organizational goals. Any investment should yield revenue. ROI includes the benefits that the organization gains from training programs, enabling the results of the programs to be measurable.

The two most common measures are the Cost Benefit Ratio (CBR) and the Return On Investment (ROI) formula. CBR compares the annual economic benefits of the program to the program's cost. A CBR of 1 means that the benefits equal the cost, while a CBR of 2 (written as 2:1) indicates that for every rupee spent on the program, two rupees were returned as benefits.

The ROI formula is as follows:
Net Program Benefits / Program cost * 100
Net Benefits = Program Benefits - Program cost

I hope I could be of some help to you.

Regards,
Rakhee

I am loading the attachment again. Hope it comes through this time.

Regards,
Sathiyamoorthy Iyer

Hello friend,

Training can be evaluated in monetary terms. I am familiar with two methods:

1. HRV (Human Resources Value) method
2. DIF (Difficulty, Importance, Frequency) analysis

The first method is simple and can be explained as follows:

Step 1: Create the Performance Grid for each employee

The Performance Grid is a matrix combining two factors: competency and commitment. It is expressed graphically, with competency on the horizontal axis and commitment on the vertical axis. The values range from zero to 100 as a percentage.

Let's assume we want to create the performance grid for employee A. His supervisor needs to indicate where he is positioned in terms of competency and commitment. Let's assume these values are 60 and 70. The average grid value is therefore (60 + 70) / 2 = 65%.

Step 2: Calculate Human Resource Value (HRV)

HRV = Average employee cost x grid value
Employee cost is the total cost of maintaining the services of the employee at current rates. For A, the employee cost is Rs.1.2 lakh per annum. Therefore, the average employee cost is Rs.10,000. Hence, HRV for A = 10,000 x 65% = Rs.6,500. This means that even though we are paying Rs.10,000 to maintain A, we are getting only Rs.6,500 value from him.

Step 3: Send A for training to improve gaps in competency.

Step 4: Make a fresh performance grid after training and calculate HRV. Assume that after training, his supervisor assesses him at 70 on competency and 80 on commitment; the average grid value becomes 75%. New HRV after training = 10,000 x 75% = Rs.7,500.

Step 5: Calculate the incremental increase in HRV after training. In this case, 7,500 - 6,500 = Rs.1,000. This incremental increase represents the ROI on training for A. Taken for a whole group, it gives the ROI for that particular training program.

Step 6: Calculate, in the above manner, the ROI for all the training programs in a calendar year to give the total value.

The above scheme is ideally suited for a small organization where these calculations could be effectively done. Success depends on how well the supervisors evaluate the performance of their subordinates. The scheme has a subjective element in the evaluation process, so the values obtained need not be considered accurate but as trend values useful for our contextual purpose. The whole scheme, even with subjective errors discounted, provides a tangible indicator regarding the effectiveness of training.

I hope this is of use to you.

Best wishes,
Rajeev.V

Hi,

ROI can be measured once the person is on the job, by comparing their current performance with their past performance, assessing the skills acquired from training programs, and determining whether they are applying those skills in their role. In my opinion, this is the most effective approach.

Regards, Derek Gomes