Why ROI/ROE in training is not only possible but necessary

“How can you prove that my business will get a return on our investment in this training (or coaching or mentoring) programme? What proof do we have that the training will provide a return on our expectations?”

 

These are questions that become more prevalent in training, and if you are the service provider who is negotiating with the client, you might be perplexed. How can you be expected to prove a return on investment or expectations when human development activities are complex and expected results difficult to control? The answer lies in understanding the difference between ROI and ROE, how they complement each other, and how to use both these measurements as strategic tools. The answer also lies in an adjustment of the mindset of occupational training and development professionals and their business partners.

 

What is ROI? What is ROE? How do they complement each other, and where do we go wrong?

ROI (Return on Investment) is a calculation based on the ratio between cost of training and expected financial benefit to business over a specified time. ROI can be calculated as follows:

ROE (Return on Expectations) can be understood as “beginning with the end in mind”. ROE, as Kirkpatrick[1] describes it, demonstrates the impact of training (or any other tactic employed by the organisation) on achieving the company’s mission. ROE defines the value of the intervention in terms of the stakeholder’s expectations. Calculating ROE is based on a collaborative process between the training provider and the client to clarify expectations to ensure these expectations can be met with the available resources, and with mutual understanding of limitations and barriers that could prevent the achievement of the expected results.

Both ROI and ROE require from the training professional to work closely with the stakeholder training departments, ensuring that the entire training process contributes to the required and expected results for the business. The key to successful training events lies in planning training with the end in mind. Following a process with the expected result stated upfront and providing relevant training based on needs and skills gap analyses will ensure that the business achieves its expected results.

Too often, however, both training providers and training managers are obsessed with legislation regarding employee training, to the detriment of the business. Workplace skills plans and annual training reports are aimed at obtaining tax refunds for the business on their skills development levy payments instead of planning training with the purpose of investing in the skills development of employees. The purpose of business training should be the business benefit that is aimed for, not a certificate that states competency against qualification standards, or a tax refund.

 

Should we aim for ROI or ROE?

ROI and ROE are both important measurements of success, and, by implication, a return on expectations for training should deliver a return on investment in training. However, the flip side of a focus on the financial side of training without following a process to ensure value is added, is the trend to cut down on costs while expecting the same value in return.

Cutting down on training time to cut cost does not pay in the long run, and it does not add value to the business. Similarly, enlarging learner groups to cut down on trainer’s fees or event costs might look good on the cost calculation, but will not benefit the learners or the business. Filling classes with random people so that the business can be refunded on skills development levies do not benefit the learners or the business.

As Jack Phillips of ROI Institute® writes, “For too long, the training and development process has escaped the scrutiny of accountability. While expenditures have grown, many training departments have not taken the extra step to show the payoff of their efforts…”.[2]

 

[1]  Kirkpatrick Partners, sourced from: http://www.kirkpatrickpartners.com/OurPhilosophy/ReturnonExpectations/tabid/317/Default.aspx on 3 Novembeer 2016.

[2] Jack J. Phillips, Measuring ROI: The fifth level of evaluation. Technical & Skills Training, April 1996, p. 10 sourced from: http://www.completelearning.co.nz/wp-content/uploads/2012/03/Measuring-ROI-The-Fifth-Level-of-Evaluation3.pdf on 3 November 2016.

 

 

Susan Williams
Susan Williams is an independent OD-ETD practitioner, business writer and OD facilitator who focuses on organisational culture, ethics and storytelling, leadership and communication development, and analytical and complex thinking skills development. She specialises in skills training, organisational storytelling and narrative facilitation

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