People development has become a key concern for
organisations - employees expect high quality development
as part of their contract and are often what will attract
an individual to one particular organisation over another.
The positive impact of people development through better
communication, greater motivation and lower turnover, has
been documented. But how do you measure the financial gain
from developing people? Return on Investment (ROI) is
something that organisations expect from their people
development programmes yet few know what it looks like, how
to measure it or how to achieve it.
There are many benefits to measuring ROI: * To uncover what
works and what doesn't * To track the impact of people
development on desired goals * To justify the investment in
people development
Perhaps one of the most important reasons though, is to
raise HR's profile and standing in the business community
as a function which is more than just an overhead cost but
one that delivers real financial benefits to the business.
How do you define it?
ROI is the added value created from an investment in terms
of cost saving, cost avoidance or income generation created
from an investment. Of course there are other benefits to
training and development beyond these financial measures
but when we talk about financial ROI we are really talking
about the financial benefits delivered to an organisation
as a result of the training or development intervention.
The ROI percentage is obtained by calculating the benefits
minus cost, divided by cost, multiplied by 100.
Kirkpatrick's Model (1959) highlights 4 levels of 'payback'
on development: Level 1 - Reaction - participants'
reactions to a development event Level 2 - Learning - the
degree to which learning occurs as a result of the project
Level 3 - Behavioural Change - the transfer of learning to
impact on job behaviour Level 4 - Organisational
Performance - the impact learning has on the organisation
Whilst feedback on training and development is often
gathered at level 1 and sometimes even at levels 2 and 3,
financial ROI, which really impacts at level 4 -
organisational performance - is rarely measured. The
reason given is that it is just too difficult to calculate
'true' financial ROI for many HR professionals.
In a recent survey by consultancy, Lane 4, other criteria
for measuring return were considered to be more relevant
than financial ROI measures. Whether this is because these
are easier to link directly to training or whether, as HR
professionals, we are more comfortable talking 'behaviours
and people' rather than 'numbers and figures', is anyone's
guess.
Certainly, there is a considerable volume of research
linking different aspects of people development to
behaviour change and performance. For example, the
development of transformational leadership is associated
with a number of positive outcomes at both the
organisational and individual level, such as lower levels
of work stress, increased employee motivation and customer
satisfaction. The development of improved communication
skills has been shown to result in greater team innovation.
The challenge for the HR professional is to take this one
step further and link these performance indicators (such as
motivation, customer satisfaction) to cost savings, cost
avoidance or income generation in order to measure
financial ROI.
The best return on training and development results when an
intervention is designed specifically to develop those
performance indicators which are linked to achieving an
organisation's strategic objectives. For instance, if a
company identifies that retaining customers delivers better
profit (because it reduces the need for direct selling and
marketing) training and development interventions aimed at
customer handling skills and relationship management will
deliver the greatest return on investment.
In summary, to be respected by our colleagues for
delivering a real, tangible contribution to the business,
we must be seen to be linking each and every training
intervention to a hard measure: cost saving, cost
avoidance or income generation. It's not easy and takes
practice but the simplest way is to design each training
intervention with a key performance indicator in mind and
link that performance indicator to a hard measure.
----------------------------------------------------
Pam Kennett is Founder and Director of Chiswick Consulting
Limited a management consultancy which provides advice and
direction to clients in marketing and human resources. Pam
has more than 20 years experience working with CEOs to
deliver more through better people management practices.
Contact her at pam@chiswickconsulting.com or visit
http://www.chiswickconsulting.com .
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