M EASURING ROI OF T RAINING

Session 6 ² Converting Value and

Calculating ROI
 Ô RE -A MBLE

O Rraditionally, most impact evaluation studies

stop with a tabulation of business results,
detailing improvements such as quality
enhancements, reduced absenteeism, or
improved customer satisfaction;
O Rhe aim however should be to show the value
of the improvements in relation to cost;
O Ro do this distinguish first between hard and
soft data.
O Rhe first step in converting to
monetary value is to sort out hard
and soft data
 Ê ARAÊTERISTIÊS OF ARD D ATA

O Objective;
O Easy to measure and quantify;
O Easy to assign monetary values;
O Common measures of organizational
performance;
O Very credible with management.
 E XAMÔLE OF ARD D ATA

O O state government office approving applications for

new drivers licenses;
O It will have these four measures among its overall
performance measures:
Rhe number of applications processed (Output);
Cost per application processed (Cost);
Rhe number of errors made processing applications
(Quality);
Rhe time it takes to process and approve an
application (Rime).
O Ideally, performance improvement interventions in this
unit should be linked to one or more hard data
measures.
M AJOR Ê ATEGORIES OF ARD D ATA

Ôrimary Measurements
of Improvement
´Hard Dataµ
A ÊÊRA BRIÊ
OR
S EXERÊISE

èhat category does

your measure fall in?
a



2nits Ôroduced Equipment Downtime
Rons Manufactured Overtime
Items Ossembled On Rime Shipments
Money Collected Rime to Ôroject Completion
Items Sold Ôrocessing Rime
Forms Ôrocessed Supervisory Rime
Loans Opproved Break in Rime for New Employees
Inventory Rurnover Learning Rime
Ôatients Visited Meeting Schedules
Opplications Ôrocessed Repair Rime
Students Graduated Efficiency
Rasks Completed èork Stoppages
Output Ôer Hour Order Response
Ôroductivity Late Reporting
èork Backlog Lost Rime Days
Incentive Bonus 


Shipments Scrap
New Occounts Generated èaste
a
 Rejects
Budget Variances Error Rates
2nit Costs Rework
Cost By Occount Shortages
Variable Costs Ôroduct Defects
Fixed Costs Deviation From Standard
Overhead Cost Ôroduct Failures
Operating Costs Inventory Odjustments
Number of Cost Reductions Rime Card Corrections
Ôroject Cost Savings Ôercent of Rasks Completed Ôroperly
Occident Costs Number of Occidents
Ôrogram Costs
Sales Expense
M AJOR Ê ATEGORIES OF ARD D ATA

How to calculate
Ôer category
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Ê ARAÊTERISTIÊS OF S OFT D ATA

O Subjectively based in many cases;

O Difficult to measure and quantify,
directly;
O Difficult to assign monetary values;
O Less credible as a performance measure;
O 2sually behaviorally oriented.
 E XAMÔLE OF S OFT D ATA

O Employee turnover, absenteeism, and

grievances are considered soft data
items;
O Not because they are difficult to
measure, but because it is difficult to
accurately convert them to monetary
value
èa  
  
a

Obsenteeism Customer Complaints

Rardiness Customer Satisfaction
Visits to the Dispensary Customer Dissatisfaction
First Oid Rreatments Customer Impressions
Violations of Safety Rules Customer Loyalty
Number of Communication Break-downs Customer Retention
Excessive Breaks Customer Value
Follow-2p Lost Customers

èa 


 
a 
a
a
  

Number of Grievances Number of Ôromotions

Number of Discrimination Charges Number of Ôay Increases
Employee Complaints Number of Learning Ôrograms Ottended
Job Satisfaction Requests for Rransfer
Employee Rurnover Ôerformance Oppraisal Ratings
Litigation Increases in Job Effectiveness
Organization Commitment
Employee Loyalty 

a
a
Increased Confidence
Implementation of New Ideas
Successful Completion of Ôrojects
Number of Suggestions Implemented
Setting Goals and Objectives
New Ôroducts and Services Developed
New Ôatents and Copyrights
E XAMÔLE OF S OFT D ATA

      

O  
 

 O

  
 
 
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E XAMÔLE OF S OFT D ATA

 
 
 
   
 



  
    
   
 
 

E XAMÔLE OF S OFT D ATA

 
 
 
   
 



  
    
   
 
 

O Converting Data Exercise Sheet
O How then do you calculate the value
of the improvement?
Ê ALÊULATING T E VALUE OF AN
I MÔROVEMENT

O Identify the unit of improvement;

O Determine the value of each unit (V);
O Determine the performance level
change (¨ Ô);
O Calculate the improvement value (V
times ¨ Ô);
 Ê ONVERTING T E Ê OST OF
Q UALITY
O Rhe cost of quality is an important measure
in most organizations;
O Since many performance improvement
interventions are designed to improve
quality, the performance staff must place a
value on the improvement in certain quality
measures;
O If quality is measured with a defect rate, the
value of the improvement is the cost to
repair or replace the product;
O Rhe most obvious cost of poor quality is the
scrap or waste generated by mistakes;
 Ê ONVERTING E MÔLOYEES T IME
O Reduction in time for employees is a common
performance improvement objective;
O In a team environment, perhaps a program
enabled the team to perform tasks in a
shorter time frame or with fewer people;
O On an individual basis, time management
workshops are designed to help professional,
sales, supervisory, and managerial employees
save time in performing daily tasks;
O Rhe most obvious time savings are from labor
reduction in labor costs for performing work;
O Rhe monetary savings are the hours saved
times the labor cost per hour ² however also
a component of contribution to profit
 Cost per 2nit More

INCREOSE/DECREOSE
Ôroduction Rime; Quality; Output IN EXÔENDIR2RE
- IMÔOCR ON ÔROFIR

Cost Ôer 2nit Less

 Contribution
Less
to profit

INCREOSE/DECREOSE
Sales IN EXÔENDIR2RE
- IMÔOCR ON ÔROFIR

Contribution to
More
profit
 U SING ISTORIÊAL Ê OSTS

O Rhis strategy involves identifying the

appropriate records and tabulating the
actual cost components for the item in
question;
O For example, a training program was
implemented to improve safety
performance for a large construction
firm. Rhe program was designed to
reduce the number of accidents;
 Legal fee;
Octual cost
Settlement
from records
cost

Rotal of Cost
35 complaints R 285,000

Estimated Staff time;

additional Management
from staff time

R 285,000/35 = Cost per complaint

Cost of Sexual Harassment Complaint
O
  

O Direct Medical Costs Related to Occidents [[


O èorker Compensation Ôayments 


O Insurance Ôremiums [


O Legal Expenses 


O Rotal Operating Budget for Safety and Health Department (Minus the
Obove Values) Including Salaries and Benefits of Safety Staff




O Management and Supervisory Rime Devoted to Occident Ôrevention and

Investigation [


O Safety Rraining Costs Not Included in Obove Operating Budget

[


O Safety Owareness Materials [


O Lost Ôroductivity for Safety Rraining, Safety Meetings, Occident

Investigation, and Replacement Staff 


O Rotal [
 


O
!"#$%   

O %   
 

U SING I NTERNAL AND E XTERNAL
E XÔERTS
O èhen faced with converting soft data
items where historical records are not
available, it might be feasible to
consider input from experts very
knowledgeable with the processes;
O Because the credibility of the value is
directly related to his or her
reputation, the credibility and
reputation of the expert is critical.
U SING D ATA FROM E XTERNAL D ATA
B ASES

O Data are available on the cost of

turnover, absenteeism, grievances,
accidents, and even customer
satisfaction. Rhe difficulty lies in
finding a database with studies or
research efforts for a situation
similar to the program under
evaluation.
U SING ÔARTIÊIÔANT E STIMATES

O In some situations, program

participants can estimate the
value of a soft data improvement.
Rhis strategy is appropriate where
participants are capable of
providing estimates of the cost (or
value) of the unit of measure
improved by applying the skills
learned in the program.
L IN
ING  IT O T ER M EASURES

O èhen standard values, records,

experts, and external studies are not
available, a feasible approach might
be developing a relationship between
the measure in question and some
other measure that may be easily
converted to a monetary value. Rhis
involves identifying existing
relationships, if possible, that show a
strong correlation between one
measure and another with a standard
value.
 U SING S UÔERVISOR /M ANAGER
E STIMATES
O In some situations, participants may be
incapable of placing a value on the
improvement. Rheir work may be so
far removed from the output of the
process that they cannot reliably
provide estimates. In these cases, the
team leaders, supervisors, or managers
of participants may be asked to provide
a value for a unit of improvement
linked to the program.
 U SING L EARNING S TAFF
E STIMATES
O Rhe final strategy for converting data
to monetary values is to use
performance improvement staff
estimates. 2sing all the available
information and experience, the staff
members most familiar with the
situation provide estimates of the
value.
O Converting Data ² Exercise !!! ² See
èorksheet
O Still not finished«.the cost of the
intervention!
R EASONS FOR D EVELOÔING Ê OST
D ATA
O Ro determine the overall expenditure for human
resource development
O Ro determine the relative cost of each individual
HRD program
O Ro predict future program costs
O Ro calculate benefits versus costs for a specific
program
O Ro improve the efficiency of the HRD department
O Ro evaluate alternatives to a proposed HRD
intervention
O Ro plan and budget
O Ro integrate data into the Human Resource
Information System
 TABULATING Ô ROGRAM Ê OSTS

O Development Costs (Ôrorated);

O Ôrogram Materials;
O Instructor/Facilitator Costs;
O Facilities Costs;
O Rravel/Lodging/Meals;
O Ôarticipant Salaries and Benefits;
O Odministrative/Overhead Costs;
O Evaluation costs;
M EASURING F INANÊIAL ÔAYOFF

Cost Benefit Onalysis

Return on Investment

Ôayback Ôeriod

Discounted Cash Flow

Consequences of not providing

learning systems
 Measuring Financial Ôayoff

—e efit/ st Ôr gr m —e efits
ti = Ôr gr m sts

—e efits Net Ôr gr m —e efit

X 100
I = Ôr gr m sts 1
Guidelines for Successful Benefit-
Êost Analysis

O eep the process simple;

O 2se sampling for ROI calculations;
O Olways account for the influence of other
factors;
O Involve management in the process;
O Educate the management team;
O Communicate results carefully;
O Give credit to participants and managers;
O Ôlan for ROI calculations.
O Final Case Study !