Executive Summary
In my 30+ years in the corporate L&D industry – I can not remember ONE instance where the corporation had a robust ROI measurement mechanism in place that guided the budget and investment for their L&D initiatives.
Today, in an extremely competitive global marketplace, many CEOs are insisting on linking L&D investments to business impact data. Yet, many CLOs feel that calculating ROI on L&D is too time consuming, too costly and too inaccurate.
To bridge this disconnect, learning and development professionals must become more familiar with ROI methodologies and best practices.
Approaches for Calculating Learning ROI
Before a CLO can calculate the ROI of corporate learning, he or she must ensure that the organization’s learning initiatives are linked to business goals. A good first step is to identify what matters most to the CEO and board of directors with regards to learning metrics.
The ROI Process Model
Typically corporations hand out ‘smile sheets’ after a training session, however, most people dole out the sheets without knowing much about the reasons behind capturing this type of data.
The concept of measurement of LearningROI was first developed by Don Kirkpatrick in the 1950s when he published a series of articles in the Journal of the ASTD that helped companies assess the effectiveness of their training. His work proved so successful that he expanded it into a book, Four Levels of Training Evaluation, commonly known as the Kirkpatrick / Phillips Model.
The Kirkpatrick / Phillips Model breaks ROI calculation into four stages: (1) evaluation planning, (2) data collection, (3) data analysis, and (4) reporting. Before any ROI calculations are undertaken, CLOs need to ensure that the organization’s learning activities are linked to broader business goals, as outlined in the table below. This is the Kirkpatrick/Phillips Model, which is familiar to many corporate learning professionals today.
Level 1
Evaluation Planning
The corporate learning team develops and reviews the objectives of the program and connects the program to broader business objectives. The team develops evaluation plans and baseline data for the learning program.
Level 2
Data Collection
Data collection during the program satisfies Levels 1 and 2 in the Kirkpatrick/Phillips Model. Data collection after the program satisfies Levels 3 and 4 in the Kirkpatrick/Phillips Model.
Level 3
Data Analysis
The corporate learning team:
- Isolates the effects of the program
- Converts data to monetary values and identifies intangibles
- Identifies program costs
- Calculates the return on investment.
Level 4
Reporting
The corporate learning team creates an impact study.
Source: “Moving from Evidence to Proof.” T+D, August 2011.
It is widely recognized that: isolating the effects of training on business results is the most challenging part of the model, but is not impossible. Corporate learning professionals can calculate the value of their efforts to business leaders by integrating ROI principles into the analysis, design, and evaluation stages of their work.
The Need for ROI in L&D
Learning and development represents a significant expenditure in organizations. Given the size of these investments, it is not surprising that business leaders are demanding accountability and visibility into the value delivered.
Unfortunately, many chief learning officers (CLOs) are influenced by incorrect perceptions about ROI:
- “ROI data for corporate learning isn’t necessary, because no one has ever asked for it”. A reactionary attitude toward return on investment information can have troubling consequences. Executives may never ask for ROI data and the corporate learning budget may simply be cut without any discussion. Alternatively, if the request is made, there may not be adequate time to do the analysis properly.
- “It’s too time consuming” – We at Teledec believe that Time and effort should be spent calculating ROI at the early stages of designing the course(s), especially for programs that are expensive or strategic.
- “It’s too costly to accurately measure the effect of training on business” – We at Teledec believe that a comprehensive evaluation system must be considered during the design phase of the project that will help analyze and evaluate the ROI of the project.
When isolating the impact of training, multiple approaches may be equally credible. It is good practice to use the method that generates the lowest ROI and this reasoning usually resonates with the CEO and CFO as they see room for improvement.
Generally speaking, the return on corporate learning can be determined most rapidly in project-specific environments. For example, a business team brings a project specific challenge to the learning and development group. The trainers create courses that are customized to address the issues. If the project is a success, the organization can measure direct cost savings as a result of the learning activities (McCrea, 2009).
Integrating ROI into Existing Learning & Development Models
It is very common for L&D professionals to use the ADDIE Model when creating training programs (a de facto standard in the Instructional Design methodology).
This model has five stages: (1) Analyze the need, (2) Design the solution, (3) Develop the solution, (4) Implement the solution, and (5) Evaluate the solution. One of the major weaknesses of the ADDIE Model, however, is that evaluation is considered after implementation – this is too late.
To address this problem, we at Teledec add two additional stages in the ADDIE Model to calculate ROI.
- Forecast. During the Analyze phase, we apply ROI principles and estimate whether a training initiative will have a positive outcome for the company. Not only that, we flag these milestones in the process flow to make sure the forecast is included. For instance, a good measurement matrix may be the expectation of how many additional sales will be closed, due to the course. This can be translated into estimates of additional revenue for the organization. Comparing the expected benefits to the program costs will result in an estimated ROI of the training
- Plan. During the Design phase, we identify several different training options that could meet the business’ needs. ROI techniques can be helpful to estimate the benefits of each based on their anticipated effectiveness, as well as the anticipated expense. The option with the most favorable ROI is always selected after a deep discussion with the client.
ROI methodologies can also be used during the Evaluate stage of the ADDIE Model. The ROI Process Model described above is a good way to quantify the value of a specific learning program. In addition, we often gather ROI data for multiple training initiatives and compare outcomes for different courses. These findings better demonstrate the value of Corporate Learning to business leaders throughout the organization.
Conclusion
There are different ways to measure ROI, just as there are different ways to conduct training. For L&D professional pursuing development goals as a manager and seeking to develop others, there are three critical elements that must be considered:
- Training is a continuous process wherein employees learn and master the skills they need to grow in the job.
- Business value is the driver in the selection of training
- Training outcomes are measured in terms of business results
Use proven ROI methodology and tools as part of your ongoing training efforts. Your own professional brand can be enhanced when you use industry tools to demonstrate the return of investment for training.
