Measuring ROI: A lifeline for learning and development managers (1)
A training manager in General Electric’s Hudson training centre once asked Jeffery Immlet, then a rising executive in GE, to send his team to a leadership workshop. Immlet replied, “If you can prove to me that eight hours in your workshop will contribute more to the bottom line than eight hours working their job, I’ll send them.”
Many learning professionals find themselves in a similar situation on a regular basis, yet they struggle to provide a response that satisfies the business. In the past, Executives accepted feedback and an anecdote from participants as sufficient to assess the value of L&D interventions, but with today’s challenging economy, it is no longer business as usual. L&D budgets are receiving more scrutiny than ever and many learning professionals are under pressure to look for more solid evidence to justify the business’ investment in their programmes.
Why organisations do not measure ROI on l & d initiatives
Most learning professionals, deep down in their gut, know that demonstrating ROI on learning and development initiatives is the most effective way to show top management in clear financial terms the value of learning programmes, because it helps answer the question; “For every Naira invested in learning, how much does the business get in return?”
In spite of this understanding, many do not pursue measuring ROI due to a number of reasons, not limited to those listed below:
1. Lack of measurement culture in the organisation
When it comes to measurement, many organisations talk the talk, but do not actually walk the walk. To establish a culture of measuring ROI, it is necessary that all in the Learning and Development department become well-grounded in ROI methodologies. Knowledge of the process and principles, and the actual practice, is a good foundation to create and sustain ROI measurement culture in any organisation.
2. Learning Managers often do not know where to start
The dilemma with many learning professionals is; at what point do they commence measuring ROI? For many organisations, the decision to measure ROI is taken long after the programme is concluded, at which time it is already too late. To have any chance of success at measuring ROI, the process must start when the business outcomes of a programme are defined.
3. There is a lack of resources to calculate ROI
For some organisations, it is a question of resources. But just what resources are needed to measure ROI?
Typically, a comprehensive ROI process can cost 3-5% of the overall training budget and for some organisations this could be seen as excessive. However, the investments in the ROI process can be offset by the additional results achieved from the process and the elimination of unproductive programmes.
4. The ROI process is too complicated and there is no discipline to follow through
A successful ROI implementation requires much planning and high level of discipline to keep the process on track. The learning team may not have enough discipline and a culture of follow through to stay on course. Also, other priorities may compete with the time necessary for ROI implementation.
5. Fear that a negative ROI on learning and development initiative could cost them their jobs
Some L&D departments do not implement ROI because of fear of failure. Some fear they may end up with negative ROI on their programmes and jeopardise their jobs as learning professionals.
Despite the reluctance of Learning Managers to measure ROI, recent trends and the economic climate suggest that it is unsustainable to avoid implementing ROI. As the business continues to exert pressure for greater accountability, it is imperative that L&D professionals rise up to the challenge and show the business the value of their investment in tangible business terms.
6 Steps to the money
In the simplest terms, ROI is a key financial metric of the value of programme investments and cost; it is the ratio of the net programme benefits to costs, expressed as a percentage.
For example, if the ROI of a programme is calculated as 45%, it means that for every Naira spent, there is a return of N0.45 to the business.
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