RETURN ON INVESTMENT: UNDERSTANDING WHAT ROI IS AND HOW IT’S USED TO HELP BUSINESSES IMPROVE THEMSELVES

Just how important is a return on investment (or ROI)? Well, it’s so important that many organizations are gradually more concerned in measuring the return on investment than the typically used training and organizational change programs, which can be quite costly. 

Return On Investment: What Is It and Why Is It Considered So Important 

According to Ravinder Tulsiani, an ROI is basically a calculation that looks at an organization’s gained benefits compared to the company’s expenditure.  The four key trends that dictate the ROI (accountability needs and evaluation in-training and development) include:

1. Saving money and time using ROIs over costly training programs, which often means conducting a detailed investigation of their impact to the company’s performance. 
2. More organizations are executing other measures to evaluate a company’s success and its progress. Training must be accurately gauged, watched and assessed, and should be included in the trend. 
3. Accountability is important if an organization is to meet its strategic goals. Therefore, training to meet those objectives is important.
4. Upper-level management ensures that training and development processes are looked at even closer and more in-depth, ensuring accountability for important training expenses. 

What Is The Return On Investment Method 

Ravinder said the basic idea behind the method is to figure out – in percentages – a development’s return by taking away the activity’s costs from its complete benefits. The key problem behind this is that not every benefit can be numerically measured – leadership, confidence level, etc.  There are five steps to determine what the ROI process is:

1. Gather Supportive Program Information 

Before anything else is done, it’s imperative to collect baseline and follow-up information about a company’s performance, said Ravinder. There are numerous data collection techniques available – examinations, tests, survey sheets, etc.  Questionnaires are seen as the most common method of following up, as they provide a good deal of information about how much knowledge was put forth in what they learned and the successes they attained.  

Now, the data should only be collected from folks who have been through the training experience because this ensures there is an unbiased process and there are little chances for mistakes. 

Ravinder said timing is also an issue that must be dealt with in data collection. The trick with ROI calculations is they’re typically done at random. Still the training benefits are often felt way after an event. Some programs were created so there was a long-term impact. However, identifying certain kinds of improvements from the programs can be difficult if they’re evaluated years after the completion of a program. 

Despite the existing connection between performance and training, it’s hard for employees to understand the connection between training and improvements happening months or years after training has commenced. 

2. Division Of Training Effects 

In all businesses, there are factors that affect the company’s output measures. It’s tricky to determine if training by itself was effective, as it’s just one of the multitudes of influences that drive a certain measure such as:

• Measureable decline in absences
• Rise in productivity
• Improvement in product and service quality
• Improvement in employee satisfaction
• Improvement in employee turnover
• Improvement in company’s bottom line

Some techniques that may be used in the assessment process of the training include:

• Forecasting models
• Trend lines
• Control groups

Of course, at least one strategy (more, if you want) should be used to determine the training’s effect. 

3. Calculate Your Costs

A very important step in getting the program costs to find out what the whole investment is. Every cost about the training programs needs to be taken into consideration:

• Facilities 
• Facilitator/instructor
• Intervention development
• Training needs investigation
• Evaluation
• Overhead/administrative
• Participant benefits and salaries
• Meals/travel/lodging
• Program materials 

4. Determine The ROI

The return on investment is figured out and shown as a percentage with net benefits divided by the whole investment in a training program. This ensures, Ravinder said, that the ROI formula is similar to ROI calculations for other kinds of investments, typically seen in the net earnings that is divided by the usual investment. 

The formula below is what is used to determine the precise value:

 Net Programme Benefits - Total Cost of Training Programme
---------------------------------------------------------------------------------------  x  100%  =  ROI
                                    Costs

It can be difficult to find out what a training program’s ROI is. Therefore, the precise value is never known. Still, the above formula is widely used for gauging training programs. 

5. Recognize The Incorporeal Remunerations 

Incorporeal remunerations, which are benefits that have no monetary value attached to them or where there is a questionable assigned value, are extremely important; however, they’re not turned into monetary values for the company’s profits.

The ROI calculation does not use them; but, when it comes to the organization’s goal, they are extremely important and much more relevant than performance.  Ravinder said some incorporeal remunerations include:

1. Less stress
2. Reduction in customer complaints due to better customer service
3. Improvement in teamwork
4. Rise in the commitment to the organization
5. Rise in the fulfillment of the profession
6. Fewer to no conflicts

4 Useful Concepts To Attain A Better Return On Investment

According to Ravinder, there are four useful concepts business can apply to get a better ROI for their company. These concepts include:

1. Improve the end of course sheets so that it includes questions like what can the company do different because of the training.
2. Carry out additional training with the company to learn what was implemented and how the performance was bettered because of the information.
3. Send out samples to people questioning them about previous incidents and the skills used to handle them and how they got them.
4. Talk with the company before and after the training, taking a look at the people’s behaviors that were before the training and what they were after the training. 

Source: http://training-edge.ca/training-resources.html