Return on investment (ROI) is one of the most important metrics for any business. Running a company consumes a lot of money and if your investments don't pay off, you need to change your strategy
The same is true for training. You may assume that training your employees is always a good investment. However, that is not always the case. For your company to succeed and generate revenue, you need to step up your game and check whether your employee development strategy is paying off. Investing in employee development may appear to be a profitable investment, but it is always better to make sure before making a decision.
But how do you figure out when your learning and development activities are suitable investments? Join me to find out how to calculate ROI and learn from it.
Every process and strategy in your business has the same big goal: to bring in more revenue or cut costs. The same applies to introducing employee development plans: by ensuring the proficiency and efficiency of your employees you indirectly contribute to the overall quality of your company's services and products. After all, successful companies often invest in employee development.
Training is like anything else in your business; to check whether it's working you need to gather data. If you’re seeing a positive return on your investment, then the training is working. You have introduced the right methods that engage and motivate your employees to do better. Employee career development appears to be going well and bringing you profits in some form.
A negative return means that something isn't quite working. Maybe the training programs are too expensive or simply not effective? Maybe you should focus on a different area of employee development. Whatever the reason, you need to be able to identify it and get to the bottom of the problem. That’s why having a robust ROI measurement system in place to analyze your training is so crucial.
To find out what is the ROI, the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage or ratio. The basic formula for return on investment is ROI = net profit / total investment.
When it comes to calculating training and development ROI, the formula is the same for all types of investments:
ROI = (benefit gained - investment) / investment x 100
When you convert these to percentages, it’s ideal to have an ROI of over 100%. A 100% ROI means that you’ve earned your money back, but haven’t increased revenue.
An ROI of less than 100% technically means you’ve actually lost money on the training. However, remember that not all investments pay off immediately; often you need to wait for a longer time to assess whether the training was worth the money. It might take a while until the employee will have a chance to put his new skills to good use. In the meantime, make sure to keep the trained employees motivated and satisfied.
To help you with creating a well-thought, comprehensive employee training and development process, I've put together a list of steps and actions you need to take to ensure the profitability of your employee development plan.
First of all, you need to establish what kind of development goals you want to achieve with your employee training and development plan. Of course, the final goal is to increase the profits of your company and improve the efficiency and proficiency of your employees. However, it's way better to break down these milestones into smaller, easier attainable objectives.
Whether you want to improve customer service, employee engagement or regulation compliance, always remember to organize the development program accordingly and ensure the highest profitability of employee training.
Providing your employees with valuable learning opportunities and satisfying their development needs can be a gift that keeps on giving. However, in order for your employee development plan to succeed, you need to find the right kind of training and professional provider.
Once you decide to invest in the professional development of your employees, start looking for specialists who have extensive knowledge of the subject matter and can share their knowledge with your staff. You can also ask your employees what kind of training they would enjoy, to ensure the program will be implemented seamlessly and successfully.
I know it's very tempting to include your entire company in the employee development plan. However, there's nothing worse than enfolding employees who won't benefit from the training. Not only do you waste your money, but also your employees' time and patience.
Think thoroughly about who should be covered by your employee development plan. If you need help, you can always contact your human resources department and discuss possible options for a better understanding of the matter. Employee engagement speaks volumes about their will to learn and to grow, so take a closer look at how they do their job. For a worker that genuinely wants to grow and develop, for example, new technical skills, training can raise the job satisfaction level.
Many employers choose to provide new hires with the skills needed on their own, on-premises training; when advertising to job seekers a company can then cite the excellent training as a benefit of working there. Prospective employees are more likely to be interested in a firm that offers professional training than one that does not. It is the same about already existing employees - that is why you need to carefully choose, how many of which can enter the training, especially if your company cannot afford to give it to all of them. Whoever you want to choose, make sure they are genuinely interested in learning - otherwise, the money spent on the training will be wasted.
Introducing a career development plan costs a lot. And I'm not only talking about the money you spend on conducting training. You should take a wide view when calculating the cost, and include not only the direct cost of the training session but also lost productivity, time spent and so on. Training employees can get expensive, not only in financial terms - for example, when your employee is working on their new skills, someone has to do their regular job, or it will have to wait for them to return from the training. You need to make sure the flow of the day-to-day operations will not be disrupted in the process.
Also, remember that after introducing employee development plans you may notice a decrease in productivity of your employees while they adjust to a new skill or process.
Once you have calculated the total cost of implementing your chosen employee development plans, it's time to choose the key training metrics that you want to analyse. Of course, you can use the metrics that are already being used by your company. However, if you need to introduce new measurements, don't hesitate to do so.
It's time to determine how much you have gained from implementing employee development plans. You can use the chosen metrics to measure the improvement in performance and efficiency of your employees.
You may also need to ask the participants of the training for their feedback and ask their supervisors about their performance to find out whether the introduced development plans have proven to be successful.
Now it's time for the final step. To determine the return on investment of your training, use the equation above. Of course, you can also dig deeper and explore more data, like the cost per successfully trained employee, to get the bigger picture. Employee learning is an abstract, quality difficult to calculate, but if you take the time to analyse it, you will see what is the real cost of training top talent.
However, you should not underestimate the importance of issues that are difficult to measure, such as the employee's sense of development, their identification with the company, the sense of fulfilment and motivation to continue working.
There’s no doubt that training is crucial for your organization. Employees need to develop skills to grow and, with time, become more efficient and independent. On the other hand though, if an employee development program that your company fails, the training can be just a loss of time and money. It is as important to think about ensuring proper training, as it is to think about the consequences. Every decision made in relation to employees and their development can have a direct impact on your company's future - with either many benefits or a feeling of failure.
There’s no single approach to measuring the training ROI. There are various factors to consider, such as the goal, current knowledge of the employees, their feedback, and performance results. You need to know what was their skill level before the training, so you can properly calculate how much did they grow professionally.
It is also important to know that training is not a one-time event. It is a continuous process allowing employees to learn and master skills they need to thrive on the job.
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