Understanding ROI for Training Programs: A Comprehensive Guide (Full Transcript)

Speaker 1: Welcome to Rhodes Business School's free resource videos. In this video, I'm going to give a basic overview of how to calculate return on investment for training programs. When people are sent to a training session, do we know what the return on investment or ROI is and are we sending them to develop and learn new skills and gain more knowledge so they can increase efficiency back in the workplace? How do we measure what the cost of doing such an exercise against the benefits of both the individual and the organisation? ROI often creates various images, ideas and concerns about how to use it. In particular, what to focus on and what value to place on the results. If senior managers share those views, then there will be little hope of using the results from ROI unless it has an impact on the bottom line. Some organisations lack the trust and supportive climate that ROI requires. The successful champion of return on investment must be willing to learn, change and try new things, as return on investment is a process improvement tool. Without this attitude and approach, it may be best not to try. Therefore, the calculation of ROI follows a process. Evaluation planning, data collection, data analysis and reporting. In evaluation planning, we look at the development of objectives for the HR program and develop evaluation plans and baseline data. In data collection, we collect the data during the HR program implementation, measuring satisfaction and reaction and learning. We collect the data after the HR implementation, such as application, implementation and business impact. In data analysis, we isolate the effects of the HR program, convert data to monetary value, calculate the return on investment. This includes capturing the costs of the HR program and identifying intangible measures. Lastly, reporting. Here we generate an impact study. One of the earliest methods of evaluating HR investments is the benefit-cost ratio. The benefit-cost ratio is the program benefits divided by the program cost. This will indicate that for every dollar spent on a program, what the dollar is returned as a benefit. This can also be converted to a percentage by multiplying by 100. In addition to the traditional ROI formula, several other measures are occasionally used under the general term return on investment. One such is payback period. Payback period is the total investment divided by the annual savings expressed in years. For further information and an explanation of a formula that you can use to calculate ROI, go to our free resources page on our website at www.roadsbusinessschool.com.au or call us free phone on 1300 746 287.