Measuring the ROI of Employee Training and Development
We know, through external research, that investing in employee training and development can drive a positive employee experience and reap a 353% return on investment. But demonstrating the business value to key stakeholders with internal data can pose challenges. However, as David Green highlights on the Digital HR Leaders podcast, in order to really drive business value, we need to calculate ROI from a people analytics perspective.
The Importance of Measuring Training and Development ROI
We live in an age where businesses have access to more data than ever before, so utilising people analytics to measure your training management skills and development investments' impact is essential. It helps you:
Justify the training budget and allocate resources more strategically;
Determine the effectiveness of training initiatives and evaluate the chosen training methods;
Assess changes in behaviour, time, and cost as a result of the training;
Provide evidence to management and stakeholders of its effectiveness, building trust and respect;
Gain credibility with executives and demonstrate the impact of HR initiatives;
Identify areas for improvement and enhance future training programs.
Taking a Data-Driven Approach
The Kirkpatrick Model and The Phillips Model of Training Evaluation are two well-known models used to measure workplace training and development initiatives return on investment (ROI).
Donald Kirkpatrick developed the Kirkpatrick Model in the 1950s, and it is one of the most widely applied approaches to evaluate training ROI. It suggests four levels of evaluation:
Reaction: how did participants feel about the program?
Learning: did they acquire new knowledge, skills and abilities?
Behaviour: did their behaviour change as a result of the training?
Results: what kind of results did the organisation receive from the program?
Then in 2008, Patricia Pulliam Phillips and co-author Jack J. Phillips built on the Kirkpatrick Model and developed The Phillips Model of Training Evaluation. Along with the four levels of evaluation from the Kilpatrick Model, this evaluation model also adds a fifth level of 'Return on Investment'. This level looks at the benefits that resulted from the training and measures it against program costs to calculate the ROI.
Each of these levels can be measured using a combination of KPIs and HR metrics:
Reaction
You can determine the employees' training experience with surveys, feedback forms, and interviews. And if you use text data and voice data analysis, you can go further and understand more nuanced reactions to the program.
Learning
An assessment or quiz can be used to gauge the new knowledge, skills, and abilities that employees acquired due to the training. You can even use game-based assessments and simulations via virtual reality to evaluate the practical application of the learning process and newly acquired skills. You could use machine learning models to analyse daily performance data and observe improvements in employee productivity or accuracy post-training.
Behaviour
Measuring behaviour change resulting from training can be done by tracking employee performance metrics such as attendance and turnover or engagement metrics like job satisfaction, motivation, and productivity levels. And if you have invested in a learning platform or have created training around a new tool, analysing how employees use the platform can also provide valuable insights into measuring the impact of employee training.
Results
These can be evaluated through KPIs aligned with company objectives, and performance metrics improved due to the training. For example, if your organisation was looking to improve customer service, you could measure this by tracking the number of customer complaints, customer satisfaction scores, or average response time.
Return on Investment (ROI)
The ROI should be measured in terms of financial and non-financial gains. Financial gains could include cost savings, increased productivity or revenue, while non-financial gains could include changes in employee engagement or customer satisfaction scores.
When using HR analytics for data-driven training and development decisions, the HR metrics you measure will depend on the objectives of your learning and development program. Say, for example, that your objective is to reduce data entry errors by 50% within six months, increasing the amount of data entries per hour from 10 to 20. Here you could measure employee performance metrics such as time taken to complete the task, accuracy of data entries, and number of successful submissions before and after training.
But measuring ROI should be the primary focus if we focus purely on the investment of learning and measuring employee training effectiveness on the business.
Calculating Training and Development ROI
To calculate ROI, you can use the following formula:
ROI = (Gains from the program - Cost of the program) / Cost of program x 100
Gains from the program can include both financial gains and non-financial gains. Financial gains can be measured by quantifying the impact on cost savings, increased revenue, or improved efficiency. Non-financial gains (such as improved morale, motivation, engagement levels, and retention rates of new hires) can be measured through employee surveys or qualitative feedback.
When calculating the program's cost, consider all the direct and indirect costs associated with the training initiative. Direct costs may include trainers' fees, training materials, technology or equipment, and employee time spent on training. Indirect costs can include the time and effort of staff involved in planning, coordinating, and participating in the training program.
Presenting Data, Insights, and Benefits to Stakeholders
Once you have gathered the necessary data and calculated the ROI, it is essential to interpret the results meaningfully. Communicate the findings to stakeholders clearly and concisely, highlighting the training program's financial and non-financial benefits.
Visualisations such as charts or graphs can help present the data in an easily understandable format. You can also present insights into trends, patterns, and correlations you've uncovered from the data. It will help make more data-driven training and development decisions and can help HR teams to optimise their training and development investment towards key business targets and KPIs.
People Analytics as the Key to Measuring Training and Development ROI
People analytics is the key to measuring training and development ROI, as it can provide HR professionals with data-driven insights into program effectiveness. By applying models such as the Kilpatrick Model or The Phillips Model of Training Evaluation and considering relevant metrics at each level of evaluation, businesses can gain valuable insights into the effectiveness and value of their training investments. This, in turn, can help them optimise their training programs and ensure that they are getting the most out of their investments.
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