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The value of measuring ROI in L&D programs

The rewards of a learning and development program are many: increased employee retention, engagement, and productivity, just to name a few. Having a L&D strategy is especially crucial to capturing millennial talent – the largest segment of the workforce, for whom ongoing development support trumps all other benefits.

But despite the fact that many companies continue to pump money into L&D programs (to the tune of $90.6 billion last year), many companies don’t actually know whether their programs are working because they don’t test or quantify the impact of the training. In fact, one McKinsey study found that a mere 8 percent of organizations actually evaluate the value of their L&D initiatives by tracking return on investment (ROI).

Without proof of efficacy, development programs are the first to go when budgets tighten. If organizations want to keep their training programs, they must establish robust measures and go beyond a simple survey to capture ROI so that management can make a business case of their value during rounds of cost-cutting.

What’s the business case for measuring ROI?

Measuring how well a development program is working validates your efforts, not just to you and employees, but also to management. It identifies when the status quo isn’t working and where change is needed.

Passing out participant feedback forms to capture feedback once the program is finished is helpful but doesn’t cut it anymore when used alone.

Tech, creativity and innovation have changed how today’s L&D programs deliver training to employees, whether that means participating in a livestream or learning on an interactive platform. Technology has helped lower the cost of training programs and provided a better, more engaging experience for users. With so many changes in the L&D space, now is a good time to evaluate your current methods.

Step 1: Calculate your investment

The good news is that big data and technology have unearthed accurate, quantitative information, which HR professionals can use to justify the investment in training programs. To begin calculating ROI, organizations must define how much they’ve spent on L&D. Some factors to consider for an in-person training include fees for speakers, travel and lodging, and meals. It could also look at lost productivity time. For online methods, this could include the cost of the technology itself or the cost of teaching people how to use it.

Step 2: Identify what you’re going to measure

There are a number of different metrics companies can look at when trying to determine whether a L&D program is effective. A few measures that organizations use to evaluate development programs include:

  • Average change in performance appraisal ratings
  • Customer satisfaction ratings
  • Employee engagement survey scores
  • Turnover
  • Number of promotions
  • Productivity

Companies can weigh performance against industry benchmarks or their own goals. If, for example, a company wanted to improve customer service, the training could focus on best-practice customer-engagement techniques and measure hard business metrics, such as sales or conversion rates. Choosing the right factors to measure, both before (as a baseline measure) and after training, enables you to show how training has benefitted your employees or your customers.

Organizations can generate greater value from training programs and help ensure buy-in from management by connecting their training efforts to the right performance metrics. The next step is to measure the program’s impact.

A common formula for calculating ROI is to divide the expected financial benefits of the program by the program cost, then multiply by 100.

Use multiple data points over time

Your ROI analysis should include several strategies for isolating the effects of training. If you’re trying to determine, for example, whether a leadership training was effective, you might compare pre- and post-training results. You might also compare your post-training results against an organization with similar characteristics, such as budget size.

Calculating ROI also means capturing survey responses not just directly after training but over the next few months after participants have had the chance to apply what they have learned. By building ROI into a course evaluation process, planners can get continuous feedback on the course’s effectiveness and adjust as needed.

Examine non-numerical data

For some L&D programs, such as leadership training, qualitative information is extremely valuable and can carry as much influence as hard data when presenting a business case to stakeholders. Most people think of ROI solely as a number, but qualitative comments can be just as helpful and provide unique insights, especially for training managers.

When crafting a ROI strategy, companies should identify the non-numerical aspects associated with assessing a training program’s effectiveness, which can be done easily through interviews or surveys. Feedback is crucial in creating good L&D programs (especially when it’s anonymous) and can be gathered during training as well as following the event.