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The Promise of L&D ROI

By August 20, 2020 August 31st, 2020 No Comments
Written by: Colt Alton, Solutions Engineer

Read Part II here

Transforming the Training Dept from a Cost Center to an Investment Partner

Return on Investment (ROI) is not a new concept. Quantifying success relative to costs first emerged in the 1970s in the manufacturing field. Over the past 40 years, the desire to stamp a ROI metric on an initiative has spread to multiple industries. Now, nearly everyone involved with a project feels the need to measure the contributions they are making to the business.

The training and development landscape is no different. This post will explore 3 critical steps to establishing a strong plan for demonstrating the ROI of your training initiatives. Before we go any further, though, let’s set the stage with a scenario:

Tammy Trainer has just led a training initiative aimed at improving employee communication by highlighting different personality types and their impact on the workforce. Responses from post-training survey feedback reported the training was “exceptional”, “a great use of my time”, “eye opening”, and one person actually said “it was life changing”!

Thrilled with the response, Tammy eagerly takes this feedback to leadership. Leadership compliments Tammy on a job well done and then asks, “So how will this impact our bottom line?” Tammy is caught off guard – don’t the responses speak for themselves?

The misalignment of expectations in this scenario spotlights the importance of establishing clear evaluation criteria at the outset of a training program if ROI is to be clearly demonstrated. The first of our 3 steps digs deeper into that concept.

Step 1: Calibrating the Evaluation of a Training Program

The effort to effectively measure ROI in training starts long before anyone is registered for a training session. Careful planning is required to properly define a program’s objectives and ensure an appropriate evaluation of the training is conducted and aligned with the business objectives.

If you are not evaluating a training program, it will be nearly impossible to measure the effectiveness and link the outcomes to value for the business.

Common Models of Evaluation

The most universally adopted practice of evaluation of training is the Kirkpatrick Model. It was created by Dr. Donald Kirkpatrick in the mid-1950s and looks at four distinct levels to evaluate a training program.

Level 1: Reaction – The participant’s reaction to the training
Level 2: Learning – What participants learn in the training
Level 3: Behavior – New on-the-job behaviors as a result of the training
Level 4: Results – The business results achieved because of the training

Several decades later, Dr. Jack Phillips of the ROI Institute built on the Kirkpatrick model to add a level zero (to capture program inputs) and a 5th level as a way to add a financial component to the measurement. Combining the Kirkpatrick Model with the Phillips Model would present an evaluation hierarchy that looked like this.

Every training initiative needs a plan for the level at which you intend to evaluate the effectiveness of that initiative.

Not every training effort will be measured at Level 5. In the planning phase, you will align business objectives with training needs to determine what level you intended to evaluate the success of a program at. You may have training that needs to measure the competency of the learning material (Level 2); or a training program whose primary objective is for participants to change an on-the-job behavior as a result of the training (Level 3).

The path to achieving a Level 4 evaluation requires that you be able to articulate the value and impact a successful training program would have on the business. It’s more than simply showing that people learned something (Level 2) or they are performing their job better as a result of the training (Level 3). A Level 4 evaluation can connect and demonstrate the impact of Level 2 and 3 outcomes have on the business.

Finally, a Level 5 evaluation quantifies the monetary benefit of a program compared to its cost to determine its ROI. There are two critical elements of a training program that you must know in order to perform the ROI calculation: Program Benefits (business improvement converted to monetary value) & Program Costs.

Start with the end in mind. Align business objectives with the level you want to evaluate and demonstrate effectiveness. These are measures that you can explore with each level.
Level 1 Measures satisfaction, relevance and efficiency of the training initiative.
Level 2 Measures change in knowledge, skills, attitudes, and action items from the program.
Level 3 Measures change in on-the-job performance. Are outcomes put into use?
Level 4 Measures change in business impact variables: productivity, expenses and value.
Level 5 Calculates monetary benefit of the training compared to costs of the training program.
Tip: Don’t launch a training initiative unless you know what you want to measure.

In order to reach the ultimate Level 5 ROI, you will need to be able to put a monetary value on the successful outcomes of the training. To determine the ROI, take the “net program benefits” (benefits minus the costs) and then divide the net program benefits by the costs and multiply the result by 100. This will present the training program’s ROI as a percentage.

Step 2: Isolating the Effects of the Training

Now that you know the level at which you intend to evaluate the effectiveness of a training program, the next step is to isolate the impact of the training. To determine a program’s true benefits, you will need to measure outcomes from the training program. You must find ways to identify and eliminate any outside influences that result in a positive outcome.

For example, let’s say a local bank has noticed an increase in their loan origination and the bank’s training manager attributes the success to a new loan officer training program. While the program can certainly have an impact, you will need to also look at other contributing forces, such as loan interest rates and market dynamics.

The Phillips ROI model provides guidance on different techniques that can be used to isolate the impact of a training program.

  • Control Group: One cluster receives the training, the other doesn’t.
  • Trend Line Analysis: Follow past benchmarking to predict future performance.
  • Forecasting: Compare current and future performance.
  • Gathering Input: Analyze survey and focus-group feedback from participants.
  • Expert Estimates: Consult with subject matter experts to validate results.

The important takeaway from this step is to be aware that there could be external forces that are influencing business outcomes (positive or negative). The best approach is simply to have a plan in place prior to launching the training that gathers data and measures the impact of the training in conjunction with all other factors contributing to the organization’s success.

Step 3: Overcoming Roadblocks Through Effective Communication

No matter how well versed you are in an ROI model, your efforts will stall if your organization is not aligned with the goals, objectives, and process. If you encounter obstacles, explore these “building blocks” of collaboration:

  • Identify an ambassador/champion – Pick an “internal leader” for the process.
  • Tap into a network – Assemble a group of colleagues to broaden the support.
  • Prepare the HR staff – HR professionals are typically responsible for the training ROI, so it can help to empower them.
  • Prepare the management team – Leadership is vital to the planning because they manage both up and down the organization.
  • Frequently observe and communicate your results – You must have a comprehensive, ongoing “communications plan” that keeps everyone in the loop and encourages ownership of the measurable, positive return on investment in training and development.

Understanding the evaluation and ROI model can help you better manage the present and plan for the future. It can help position the L&D team to maximize strategic value, reduce uncertainty and justify future training endeavors. As you explore this topic, consider tackling a pilot project that measures the different levels of the evaluation as a way to ease into the process.

Demonstrating ROI

In next week’s post, we will look at applying an evaluation model to a real-world organizational scenario to see how each step relates to the training program and its impact on the business.

If you are considering launching a new training initiative, we would love to connect with you to determine how the complete solution can be structured to measure the effectiveness of the program.

Read Part II Here!