Measuring ROI of Training

Agenda Measuring the Effectiveness of Training Program Measuring ‘Return on Investment’ of Training Enhancing the Effectiveness and ROI of Training

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Measuring the Effectiveness of Training Program

Training Need Analysis Training Objectives Training Delivery Training Evaluation Training Process What are the training needs for this person and/or job? Objective should be measurable and observable Techniques include on-the-job-training, action learning, etc. Measure reaction, learning, behavior, and results

The Four Levels of Evaluation Level 1 - Reaction Level 2 - Learning Level 3 – Behavior Application Level 4 – Business Impact Four Levels of Training Effectiveness

Test the trainees to determine if they learned the principles, skills, and facts they were to learn. Evaluate trainees’ reactions to the program. Did they like the program? Did they think it worthwhile? Level 1 - Reaction Level 2 - Learning The Four Levels of Evaluation If you find this presentation useful, please consider telling others about our site (www.exploreHR.org)

What final results were achieved in terms of the training objectives previously set? Did the number of customer complaints about employee drop? Did the reject rate improve? Was turnover reduced, and so forth. Ask whether the trainees’ behavior on the job changed because of the training program. For example, are employees in the store’s complaint department more courteous toward disgruntled customers than previously? Level 3 – Behavior Application Level 4 – Business Impact The Four Levels of Evaluation

Level I. Reaction II. Learning III. Behavior IV. Results Value of Information Frequency of Use Difficulty of Assessment The Four Levels of Evaluation Least valuable Most valuable Frequent Infrequent Easy Difficult

Level 1 - Reaction Evaluate trainees’ reactions to the program: Did they like the program? Did they like the facilitators? Did they like the training accommodation and facilities? Level 1 - Reaction

Guidelines for Evaluating Reaction Determine what you want to find out Design a form that will quantify reactions Encourage written comments and suggestions Get 100 percent immediate response Get honest response Develop acceptable standards Measure reactions against standards, and take appropriate action Communicate reaction as appropriate

Level 2 - Learning Measuring learning means determining one or more of the following : What knowledge was learned? What skills were developed or improved? What attitudes were changed? Level 2 - Learning

Guidelines for Evaluating Learning Use a control group if practical Evaluate knowledge, skills and/or attitudes both before and after the program Use a paper-and-pencil test to measure knowledge Use a performance test to measure skills Get 100 percent immediate response Use the results of evaluation to take appropriate action

Guidelines for Evaluating Learning Pretest and Posttest Scores on Change Management Training Example :

Level 3 – Behavior Application The frequency of application of new skills/knowledge/ attitudes (on the job) The effectiveness of the skills/knowledge/ attitudes (as applied on the job) Level 3 – Behavior Application

Guidelines for Evaluating Learning Use a control group if practical Allow time for behavior change and application to take place Evaluate both before and after the program if practical Survey and/or interview one or more of the following : trainees, their immediate supervisor, their subordinates, and others who often observe their behavior Get 100 percent response or a sampling Repeat the evaluation at appropriate times Consider cost versus benefits

Example of Survey to Measure Behavior Application Instruction: The objective of this questionnaire is to determine the extent to which those who attended the recent program on Leadership have applied the principles and techniques that they learned there to the job. Circle the answer that you consider appropriate for each question. 5 = Much more 4 = More 3 = Same 2 = Less 1 = Much less

Level 4 – Business Results Indicate the extent to which you think this program has influenced each of these measures in your work unit, department, or business unit: Productivity Quality Customer Response Time Cost Control Employee Satisfaction Customer Satisfaction Other Level 4 – Business Results

Guidelines for Evaluating Learning Use a control group if practical Allow time for results to be achieved Measure both before and after the program if practical Repeat the evaluation at appropriate times Consider cost versus benefits Be satisfied with evidence if proof is not possible

Performance Indicators HARD DATA INDICATORS Downtime duration Number of defect products Sales volume Production unit Customer satisfaction index Response time to orders Number of accidents at work Others

Performance Indicators SOFT DATA INDICATORS (intangible impacts) Job satisfaction Conducive working relationship Effective communication Stress rate Quality in decision-making

Example : Measuring Training Results Program : TQM Training Results after 3 months of training, number of defects dropped to 80 units/day 120 units 80 units Before training After training

Example : Measuring Training Results Program : Sales Training Results after 3 months training , number of sales per salesman increase to 30 units/month. 20 units 30 units Before training After training

Measuring Return on Investment of Training

Level 5 : Return on Investment of Training Level 1 - Reaction Level 2 - Learning Level 3 – Behavior Application Level 4 – Business Impact Level 5 – Return on Investment of Training

Criteria for Selecting Programs for Levels 4 and 5 Evaluation Importance of the program in meeting the organization’s goals Cost of the program Visibility of the program Size of the target audience Extent of management interest

Benefits of ROI of Training Measure contribution Set priorities Focus on results Alter management perceptions of training

ROI of Training Model Collect Data Isolate the Effects of Training Convert Data to Monetary Values Calculate ROI of Training Tabulate Program Costs Identify Intangible Benefits

Net Program Benefits Program Costs X 100 Return on Investment Formula ROI = Example : Costs per program (25 participants) $ 88,500 Benefits per program (1st year) $230,625 $ 230,625 – 88,500 $ 88,500 ROI = X 100 ROI = 161 %

Collecting Data Identify appropriate performance indicators Develop a collection plan Collect Data

Example of Performance Indicators Units produced Items sold Work backlog New accounts opened Productivity Inventory turnover Etc. Output Equipment downtime Overtime Time to project completion Processing time Repair time Lost time days Etc Time

Example of Hard Indicators Unit costs Variable costs Overhead costs Operating costs Number of cost reduction Etc. Cost Scrap Waste Rejects Error rates Rework Product defects Product failure Quality

Example of Performance Results Some performance results after training program: Scrap was reduced from 11 % to 7.4 % Absenteeism was reduce from 7 % to 3.25 % The annual turnover rate was reduced from 30 % to 16 % Lost time accidents were reduced 95 %

Isolating the Effects of Training Methods to Isolate the Effects of Training Using Control Group Trend Lines Participants Estimate Supervisors of Participants Estimate

Using Control Group A control group arrangement can be used to isolate training impact. With this strategy, one group receives training, while another, similar group does not receive training. The difference in the performance of the two groups is attributed to the training program. Isolating the Effects of Training

Trend Lines Trend lines are used to project the values of specific output variables if training had not been undertaken. The projection is compared to the actual data after training, and the difference represents the estimate impact of training. Isolating the Effects of Training

Trend Lines Analysis Jan Feb Mar Apr Jul Jun May Aug At the beginning of May, a Sales training Program session was held Volume of Sales The difference represents the estimate impact of training. Trend Projection Actual sales performance

Participants and Supervisors of Participants Estimate of Training’s Impact This method rests on the assumption that participants (and their supervisors) are capable of estimating how much a performance improvement is related to the training program. Because their actions have produced the improvement, participants (and their supervisors) may have very accurate input on the issue. They should know how much of the change was caused by applying what they have learned in the program. Isolating the Effects of Training

Participants and Supervisors of Participants Estimate of Training’s Impact Typical Questions to Estimate : What percent this improvement can be attributed to the application of skills/techniques/knowledge gained in the training program? What confidence do you have in this estimate, expresses as a percent? What other factors contributed to this improvement in performance? Isolating the Effects of Training

Isolating the Effects of Training Example of a Participant’s Estimation The confidence percentage is multiplied by the estimate (50 % x 70 %) to produce a usable training factor value of 35 %

Isolating the Effects of Training Example of a Participant’s Estimation The confidence percentage is multiplied by the estimate (50 % x 70 %) to produce a usable training factor value of 35 % This adjusted percentage is then multiplied by the actual amount of improvement (post-program minus pre-program value) to isolate the portion attributed to training The adjusted improvement is now ready for conversion to monetary values, and used in the return on investment

Converting Data to Monetary Values Converting Data to Monetary Values Steps to Convert Data to Monetary Values Focus on a unit of improvement Determine a value of each unit Calculate the change in performance data Determine an annual amount of change Calculate the annual value of improvement

Steps to Convert Data to Monetary Values An example to illustrate the steps to convert data to monetary values 1. Focus on unit improvement One grievance reaching step two in the four-step grievance resolution process Steps Illustration 2. Determine a value of each unit Using internal experts, the cost of an average grievance was estimated to be $ 6,500 when considering time and direct costs (V = $ 6,500)

Steps to Convert Data to Monetary Values 3. Calculate the change in performance data Six months after the program was completed, total grievances per month reaching step two declined by ten. Seven of the then grievance reductions were related to the program as determined by supervisors (isolating the effects of training) Steps Illustration 4. Determine an annual amount for the change Using the six month value, seven per month (grievance reductions), yields an annual improvement of 84 (7 x 12 months)

Steps to Convert Data to Monetary Values 5. Calculate the annual value of improvement Annual value = 84 x $ 6,500 = $ 546,000 Steps Illustration

Tabulating cost of the program Tabulating the costs involves monitoring or developing all of the related costs of the program targeted for the ROI calculation. Tabulating Cost of the Program

Tabulating cost of the program Cost components that should be included are : The cost to design and develop the program The cost of all program materials provided to each participant The cost for facilitator The cost of the facilities of the training program Tabulating Cost of the Program

Tabulating cost of the program Cost components that should be included are : Travel, lodging, and meal costs for the participants Salaries, plus employee benefits of the participants who attend the training Administrative and overhead costs of the training function, allocated in some convenient way Tabulating Cost of the Program

An Example to Illustrate ROI analysis Average Weekly Sales

An Example to Illustrate ROI analysis Annualized Program Benefits Note : 46 participants were still in job after 3 months

An Example to Illustrate ROI analysis Cost Summary : An Illustration ROI (%): $ 71,760 - $ 29,090 $ 29,090 146 % x 100 = =

Enhancing Training Effectiveness

How Effective is Your Training Program? Broad and Newstrom (1992) report studies have shown less than 30% of what is actually taught transfers to the job in a way that enhances performance . Source : Broad, M., & Newstrom, J. W. (1992). Transfer of training: Action packed strategies to ensure high payoff from training investments. Reading, MA: Addison-Wesley.

Source of Barriers to Training Transfer Lack of reinforcement on the job Interference from immediate (work) environment Nonsupportive organizational culture Trainees’ perception of impractical training programs Separation from the inspiration or support of the trainer

The Transfer Partnership Trainee Trainee recognizes need for new skills Trainee Trainer Trainer designs and/or delivers learning experiences Trainee Trainer Manager supports learning and application on the job Manager

The Transfer Matrix Before During After Manager Trainer Trainee Time Periods Role Players

Manager Before Training Build transfer of training into supervisory performance standards Collect baseline performance data Involve supervisors and trainees in needs analysis process Involve trainees in program planning Brief trainees on the importance of the training (course objective, content, process, and application on the job) Review instructional content and materials Plan to participate in training sessions Encourage trainees attendance at all sessions

Trainer Before Training Align the training plan with the organization's strategic plan Systematically design instruction Provide proactive opportunities Design a peer coaching component for the program and its follow-up activities

Trainee Before Training Provide input into program planning Actively explore training options Participate in advance activities

Manager During Training Prevent interruptions Transfer work assignment to others Monitor attendance and attention to training Recognize trainee participation Participate in transfer action planning Review information on employee in training Plan assessment of transfer of new skills to the job

Trainer During Training Develop application-oriented objectives Answer the “WIIFM” question Manage the unlearning process Provide realistic work-related tasks Give individualized feedback Provide job performance aid

Trainee During Training Maintain an ideas and application notebook Participate actively Form support groups Plan for applications Create behavioral contracts

Manager After Training Plan trainees’ reentry Provide opportunities to practice new skills Have trainees participate in transfer-related decisions Reduce job pressures initially Give positive reinforcement Schedule trainee briefings for co-workers Set mutual expectations for improvement Arrange proactive (refresher) sessions Provide and support the use of job aids

Trainer After Training Provide follow-up support Conduct evaluation surveys and provide feedback Develop and administer recognition system Provide refresher/problem-solving sessions

Trainee After Training Practice self-management Review training content and learned skills Develop a mentoring relationship Maintain contact with training ‘buddies’

Recommended Further Readings Donald Kirkpatrick, Evaluating Training Programs : The Four Levels , Berrett-Koehler Publishers Jack J. Phillips and Patricia Phillips, In Action : Measuring Return On Investment , American Society for Training & Development Mary Broad and John Newstrom, Transfer of training: Action P acked S trategies to E nsure H igh P ayoff from T raining I nvestments , Addison-Wesley.

Measuring ROI of Training

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