Thursday, November 20, 2008

Measuring Return On Investment

Measuring Return On Investment
For Soft Skills Training

J.T. Taylor, M.A.

Senior management is demanding cost justification for training more than ever

In our current business climate senior management is demanding cost justification more than ever. Human resource directors want to comply, but they are faced with two unpopular choices: invest time and energy into learning how to scientifically analyze training return on investment (a daunting task involving mathematical calculations, gathering significant amounts of data and statistical analysis) or hiring an outside firm to generate ROI reports. However, there is an alternative. If you are willing to live with a decrease in scientific reliability, there is a way to effectively measure "soft skill" training. This article will show you a simple way to link soft skill training to measurable business results.

Translating soft skill training into measurable results

My company does team building - definitely a soft skill. Our training includes many of the classic soft skill modules: communication, conflict resolution, decision making, leadership, etc. Here is how we translate soft skills training into measurable business results.

Setting SMART goals

Each training session ends with a goal setting workshop. I briefly explain how to set S.M.A.R.T. goals (specific, measurable, achievable, recorded and time-bound) and have participants write a goal based on one insight they gained from the training. Next I walk them through a process which translates those goals into bottom line measurements. I call it B.I.T.E. (benefits, impact, tasks, encouragement-support).

Moving goals into action

Participants list several personal benefits they will receive once they hit their goal. This provides the key ingredient in goal accomplishment - motivation.
Impact - Next we calculate the financial impact achieving their goal will have on the organization. Every goal can be translated into hard numbers. Use questions like: how much time will this save?, how much inventory will be reduced?, by streamlining this area what additional projects will there be time to accomplish? and how much more efficient will I be? There are many ways to turn these questions into hard line numbers, but the easiest is employee compensation. Your company has already determined a return on investment value for it's employees - it is their hourly wage. (For salaried employees divide your annual salary by 2 to get your hourly wage, i.e. $50,000/2 = $25.00 hr). For every hour saved because of hitting that goal (based on the employee's training session) the employee is that much more productive, thus more valued to the company. Project the savings over a 12 month period to get a grand total.

Next, I have participants break goals into specific tasks. This becomes their daily action plan for achieving the goal.
And finally, I encourage them to share the goal with their supervising manager. The manager can then review the projected cost savings or increased productivity estimates for validation as well as offer ways to support the direct report in his/her goal. Incidentally, if the supervising manager agrees the goal will have a concrete bottom line impact of X amount it strengthens the employee's negotiating stance when review/raise time comes up. This approach also gives supervising managers (i.e. HR Directors) concrete financial projections they can relate to senior management regarding training return on investment.

Note: The industry standard for measuring training effectiveness was formulated by Donald Kirkpatrick. He explains four levels of training effectiveness in his book, Evaluating Training Programs - The Four Levels (1959). The four levels are: reaction (learner satisfaction), learning (retention), behavior (skill translation to job), results (business impact). Jack Phillips has added a fifth level in, Return on Investment in Training and Performance Improvement Programs (1997). He offers a fully integrated, statistically accurate guideline to measuring return on investment. If you want to go deep into measuring ROI scientifically I recommend Phillips approach.
You can find more team building articles at Team Building USA guarantees clients a 150% return on investment. You may reprint this article by requesting permission from: or by calling (866) 351-TEAM (8326).

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