For training and development professionals, measuring the effectiveness and ROI (return on investment) of training programs is the closest thing to the Holy Grail. This figure not only serves to satisfy the growing demands of your company and the CEO, but it will also help you check the effectiveness of each of your programs and adjust them to the needs of the company.
This mission; however, is more difficult than it seems. Getting feedback from students and obtaining high course completion rates s is relatively straightforward, but getting an exact figure of the impact it has on the business is much more complex. How do you isolate the effects of your training program from other variables such as market developments, competitive movements, or possible price changes? What should you measure and how? What are the steps to follow?
At first glance, the mission seems so overwhelming that few companies are even trying. According to a recent McKinsey study, only 50% of organizations are concerned about asking their students for feedback on the courses they’ve taken, while only around 30% use other, more in-depth metrics. More detailed studies indicate that only between 5% and 8% of implemented courses involve an ROI study.
Measuring your training programs’ effectiveness and ROI is possible, and in this guide, we’ll give you some tips to take into account before starting. We’ll explain the different stages for measuring the impact of training programs, and we’ll also give you the formula to use to measure your programs’ ROI (with an example included).
Tips for measuring your training programs’ ROI
Before you get down to work, follow these tips to successfully measure the effectiveness of your training program:
1. Plan in advance. Before launching any training program, you’ll need to be clear about what results you’re looking for, how the course will impact the company’s business, and how you’re going to measure it. Take your time to analyze the content of your training program and align it with the company’s goals. Define all the actions you are going to carry out and their timelines.
2. Look at hard data. The key to figuring out your training program’s ROI is to link it to a concrete, measurable result that impacts the company’s business (if possible, in dollars). Student feedback or recommendation ratios are not enough. What you’re looking for are figures that show an improvement in the company or department’s key indicators. Although it depends on each business area, here are some ideas:
- Number of units produced
- Items sold
- Increase in sales
- New accounts opened
- Time needed to complete a project
- Repair time of a product
- Days missed per employee
- Unit cost
- Company operations costs
- Decrease in costs
- Decrease in the number of defective products
- Decrease in production errors
- Decrease in user complaints
- Customer satisfaction ratio
- Number of occupational accidents
- Number of fines for a lack of compliance
- Response time for customer queries
3. Uses pre-training established metrics. One of the easiest and most effective ways to measure your programs’ ROI is to use metrics that are already in place and see how they change thanks to your programs. This data is going to be particularly useful to you since, first, you will know how to obtain it; and, second, you’ll be able to compare it over time.
4. Involve the whole company. The only way to get a legitimate ROI that is accepted by the company is to involve as many departments as possible. Make sure to explain the project to the areas involved, get their feedback and, above all, agree on a joint metric that you can measure your training program with.
5. Avoid external factors. For virtually any of your company’s metrics, other factors are likely to come into play (these could be an economic crisis, the entry of a new competitor, or the launch of a new product). Therefore, when you select your metrics make sure they remain as stable as can be for as long as possible and that no significant external cause is involved.
6. Take advantage of technology. With e-learning training programs and the new opportunities offered by big data, you can open a new world of options for measuring training program effectiveness. Use all the feedback tools and indicators offered by online platforms, whether they’re to measure the degree of satisfaction, the problems faced by students, or their recommendation rates.
5 steps for measuring your training programs’ ROI
When it comes to measuring the effectiveness of any training program, the Donald Kirkpatrick model established in the 1950s continues to be a solid reference point. Its four assessment levels are the perfect precursor to calculating the ROI and to getting all the information you’ll need about your courses’ effectiveness:
1 – Reaction. Kirkpatrick’s model starts off by analyzing students’ responses to training. Through structured interviews and surveys (before, during, and after the course), employees are asked if they think they’ve learned something, if they are going to use it in their daily life, if they liked the program, and if they would recommend it to their colleagues. Students must explain what their expectations were, give full feedback on the experience, and say whether they felt engaged by the training course.
2 – Learning. The next step is to evaluate whether or not students have obtained the skills and knowledge presented in the course. This is achieved through pre and post-training exams, simulations, and evaluations. For example, if a training program has been carried out to improve employees’ presentation and communication skills, it makes sense for part of the evaluation to be on the proper use of Microsoft PowerPoint.
3 – Behavior. Many training programs seek not only to transmit knowledge, but also to change employee habits and behavior. These types of transformations are impossible to measure during a training program and often need to be monitored and reinforced over time (even several months or years later, to ensure that new habits are kept up). Often, it is the department managers themselves who evaluate whether there has been a change in employee behavior, using a checklist involving questions like these (depending on the content of the course):
- Has the employee stopped being late for work?
- Has the employee improved when it comes to complying with established deadlines?
- Have they started using the calendar effectively?
- Has the employee stopped wasting time in unproductive activities?
4 – Results. After analyzing these three steps, it’s time for the most important: the impact on the business. This is where you must analyze if the training program has achieved the objectives you were looking for. This could be an increase in sales, better conversion ratios, more units produced per hour, or an increase in the number of subscribers.
Once you have covered these four steps and obtained all the necessary figures, it’s time to move on to the fifth and final step.
The fifth step: calculating your training programs’ ROI
Following Donald Kirkpatrick’s model, researcher Patti Phillips added a final step to complete the evaluation model: the ROI. The goal, as we’ve already indicated, is to measure the economic return that a training program can generate in a company.
The formula for measuring the ROI is relatively simple. First, calculate the training’s net profit for the company (following some of the metrics identified in the previous steps) and then divide it by its total cost (payment to providers, use of computer equipment, reservation of rooms, transportation, time invested by participants, and any other associated investment). The complete formula is as follows: (Net profit for the company) / Program costs x 100.
If the result of the formula is more than 100%, then the training program can be considered a success and is profitable for the company. For example, a figure of 150% would mean that for every dollar invested in the training course, the company has earned 1.5 dollars.
Example of how to measure the ROI of your training program
To finish the guide, we’d like to show you an example of how to measure a training program’s ROI. Although every company and every course has their particularities (and the key is precisely to find and apply them), perhaps this can be of some help:
1 – In December 2017, a financial institution, which until then only offered savings and consumer credit services, decided to introduce a new product into its business portfolio: mortgages. The idea was to be able to enter this new market and offer housing financing to its current customers.
2 – The problem was that the company’s sales agents, accustomed to other types of financial products, did not know about the complex mortgage sector (interest rates, links, added costs, etc.). The company opted for a training program to solve the problem and increase the sales of this new product.
3 – The company’s training and development department decided to use video game learning and the serious game ADA to transfer all this new knowledge to its employees. Through a customization process carried out by its team of experts, it was possible to include all the necessary content to prepare the sales team.
4 – One month after completing this training program (which reached completion rates close to 100%), the bank’s monthly mortgage sales had grown by $200,000. The cost of the entire training course (provider payment, time spent by workers, and customization costs) was $100,000.
5 – Therefore, using this data, the training program’s ROI (on a provisional basis and pending a review of the evolution over the following months) would be calculated as follows: (200,000) / 100,000 x 100 = 200%. For every euro invested in the training program, the company was earning two.