CHAPTER 9

Calculating Return on Investment

The primary purpose of calculating return on investment (ROI) is to demonstrate the value of learning and development to the organization, and provide a financial summation of the contribution that learning and development has made toward the achievement of the organization’s strategic priorities. For this reason, what financial outcome and advantage variables are chosen to calculate ROI are specific to the organization in which the learning practitioner operates. The formula for ROI, however, is the same regardless of the organization.

Therefore; in order to evaluate the ROI for any intervention, the learning practitioner needs to know how much the intervention cost and what the intervention delivered in terms of net benefits to the organization.

Organizational Husbandry ROI Case Study

• Situation: Request to retrain 400 strong commercial teams on the use of a customer relationship management system because there were costly adjustments every month as the result of incorrect data input.
• Task: To enhance user adoption of the new system and drive positive behavior change to ensure right first time data entry. Stakeholder analysis revealed that the functional heads were not using the systems and duplicating work by asking employees to deliver the information outside of the system. Diagnostic demonstrated that the users knew the processes they should be following but found short cuts to save time.
• Action: Worked alongside various departments in the business to understand where the issues were impacting the business, plus the IT department on system updates. Delivered one to one coaching and training for functional head and 18 × 2 day business workshops delivered by the functional heads supported by facilitators.
• Result: Reinforced culture of good data input.
  • Data variance dropped by 62 percent, leading to a £9 million improvement in profit contribution in the six weeks following the workshop.
  • Forecast accuracy improved by 92 percent reducing costs from £2.7 million to £404,000 and resulting in fewer invoice queries.
  • Materials, room, technology, and facilitator costs were £2.5 million for the program.
  • Cost based on an average salary over 290 working days per annum for:
    • Nine months’ time for two × learning practitioners at £45,000 average salary per annum
    • Two days’ time for 400 × Commercial Team at £50,000 average salary per annum
    • Ten days’ time for six × Functional Heads at £100,000 average salary per annum

      

Financial Outcome and Advantage Variables

In regards to calculating the benefits delivered by an intervention, there are myriad of variables, which the learning practitioner can identify and use to measure financial outcomes and advantages, which contribute to organizational performance. The finance department is a good source of financial outcome and advantage variables and support in terms of how to calculate the variable. The metrics used to measure outcomes will be dependent on the organization’s strategic priorities and performance metrics. Table 9.1 shows a small sample of financial outcome and advantage variables that may be used, but this is in no way a complete or comprehensive list.

Table 9.1 Financial outcome and advantage variables

Return on Expectation

In addition to ROI calculations, return on expectation (ROE) is a meaningful way to measure learning and development outcomes and advantages within the business. Expectations are success measures, which have been expressed in terms of what the future state organization will look and feel like by the people in the business. It is a less tangible elucidation of how things will be different when we get to the strategic destination, and therefore is based on a long-term evaluation of what success will look like. Examples include the following:

• We get more done in business meetings
• People come up with more ideas and share those ideas
• There’s less conflict
• People complete their actions from a meeting
• There’s a respect for other people in time keeping or attending meetings
• There is an increase in face-to-face conversation
• There is a reduction in copying everyone into every e-mail conversation
• People collaborate more, we’re working as one organization instead of separate fiefdoms

Although ROE measures don’t provide an evaluation measure in the sense of having a financial outcome or advantage, they do express a cultural shift or change which is seen as an advantage or outcome that makes the organization a better place to work, and therefore has a value to the key stakeholders who are seeking a change in the way in which employees interact and work within the organization. Capturing expectations at the start of the learning and development cycle (LDC) enables the learning practitioner to communicate an evaluation of additional value factors, which although are not financial, are valued by the organization’s stakeholders.

Reporting Results

Calculating ROI and ROE is only an input to a process of demonstrating the value of learning and development to the organization. Reporting the results of learning and development training audit, ROI, and ROE completes the LDC. Even if added value results are produced, they aren’t always shared with key decision makers or stakeholders within the business. Having relationships with organizational leaders and key stakeholders is important. Communicating results helps build those relationships and supports the development of an organizationwide understanding of what exactly it is that the learning and development function does, and, of course, what value it delivers.

Depending on the size of the organization and function, monthly, quarterly, and annual reporting of ROI, ROE, and activity are an essential output and input of the LDC. Not only does reporting results build momentum for programs and projects being designed and implemented, but it opens a communication channel which increases the richness of diagnostic and dialogic data collection for identifying needs, making the process iterative.

Summary

• The primary purpose of calculating ROI is to demonstrate the value of learning and development to the organization.
• ROI provides a financial summation of the contribution that learning and development has made toward the achievement of the organization’s strategic priorities.
• In order to evaluate the ROI, the learning practitioner needs to know the costs and the net benefits of the intervention.
• Expectations are an expression of success measures as to what the future state organization will look and feel like.
• Communicating results helps build stakeholder relationships and develops an organizationwide understanding of what value the learning and development function delivers.
• Reporting results is an iterative process, which increases the richness of diagnostic and dialogic data collection for identifying needs.