ROI = Return on Investment

As we well and truly enter an international recession if not depression if we listen to the pessimists I am seeing more and more concern about Return on Investment (ROI. I am not going to go through the detail on how to establish ROI as there are many self proclaimed experts who will give any number of models for working out ROI.

Using a good overarching training system like a SAT you should have estimate this anyway as part of your analysis and will only be confirming your analysis come the final phase anyway.

ROI is the 5th step in Kirkpatrick theory on evaluation of training. What interests me is the number of people who do not use intangibles in there ROI summaries. "Unless it is monetary value my boss/management are not interested" Well I prefer to take the more holistic look at the whole evaluation of ROI.

The return on investment (ROI) is achieved by producing a financial estimate of both the benefits and costs to determine whether the benefits exceed the costs. The difficulty with ROI is placing a dollar value on many of the intangibles achieved through training, for example, changed attitudes, improved timings and increased leadership skills. Where these intangibles cannot be costed, they should be reported with the ROI results so that their benefits are not lost. This will enable better informed decision making.

So here is my calculation method.

How to calculate the ROI
The following information must be known (or estimated) and costed to enable the ROI to be calculated:
a. Operational savings generated by the training e.g., fewer accidents, less damage to equipment, fewer errors, reduced travel costs, less complaints about service.
b. Increased productivity arising from the training eg, higher levels of output or service, SAR team performance targets achieved in less time, improved operational readiness of units.
c. Training costs refers to all the costs associated with conducting the training e.g., resources, trainee travel, course development, course delivery and overheads.

ROI as a Net Amount

ROI = Operational Savings + Increased Productivity – Training Cost

Results are interpreted as:
If a positive dollar value then benefits exceed the costs.
If a negative dollar value then the costs exceed the benefits.

ROI as a Percentage

ROI = Operational Savings + Increased Productivity X 100
Training Costs 1
Results are interpreted as:
If ROI is less than 100% then training is not cost effective
If ROI is greater than 100% then training is cost effective

Where possible put a % against an intangible so that it can be added to our overall ROI evaluation. Other intangibles will still need to be listed but at least now they are actually part of your calculations.