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Business Intelligence How do we measure correctly the return on investment in employee training?

How do we measure correctly the return on investment in employee training?

by Valoria Business Solutions September 21, 2023


Author: Constantin Măgdălina, Expert Trends and Emerging Technologies

As the annual budget season approaches, companies are looking for more efficient ways to allocate resources, and ensure higher returns on investment in employee learning and development. The management of training programs involves the use of practical techniques for evaluating the impact on knowledge, skills, performance and the company's return on investment.

The imperative of efficiency and returns (ROI)

According to LinkedIn, 94% of employees would stay longer with a company if it systematically invested in their career development, but training (Learning & Development - L&D) budgets are under constant scrutiny. CEOs need concrete evidence that investments in employee training generate real value in the company. This is where measuring the return of these investments (Return On Investment - ROI) comes into play.

By quantifying the impact of training and education initiatives, top management teams can make data-driven decisions to optimize their strategies in this area. Especially when the resources for training budgets are carefully "weighed", managers want to know that these investments are paying off.

Business trends and challenges in 2024

The year 2024 promises new challenges and business opportunities. So before we explore the complexities of measuring ROI in training, let's take a quick look at some anticipated business trends:

1. Talent shortage: Companies have always needed a skilled workforce to thrive, and the World Economic Forum predicts that by 2030 over a billion people will need to reskill due to automation and AI-based technologies.

2. Continuous learning: In 2024, changes in the business environment will continue at a rapid pace. Companies that want to succeed will prioritize fostering a culture of continuous learning to adapt to emerging technologies and market changes. This means increased investment in Learning & Development programs.

3. Sustainability and ESG: Companies are increasingly aligning their operations with the principles of governance, social and environmental responsibility (ESG). Employee training will increasingly involve the area of sustainability and ethical business practices.

4. Digital transformation: Many companies will continue to invest in digital transformation projects, which will drive the need for employees to improve their use of digital tools and processes.

5. Interpersonal skills: Demand for interpersonal skills such as emotional intelligence, adaptability and communication will remain high, as they are essential for remote collaboration and coordination. Thus, the demand for training for such trainings or specializations will also increase.

Measuring return on investment in training

1. Set clear goals: Start by defining specific, measurable, and realistic training goals. These goals must align with business goals, such as increasing sales, improving customer satisfaction, or reducing operational errors.

2. Select Key Performance Indicators (KPIs): Choose KPIs that are directly related to your training objectives. For example, if you want to improve customer service, KPIs might include improving customer satisfaction scores or reducing complaint resolution times.

3. Gather relevant baseline data: Before implementing the training program, collect baseline data related to your chosen KPIs. This provides a starting point for measuring improvement.

4. Calculate costs: Determine all costs associated with the training program, including organization, delivery and employee time. This step ensures a complete understanding of the investment.

5. Measure the impact of the training: After the training session/program, collect data again on the selected KPIs. Compare this data to the baseline to quantify the impact of the program.

Example: Let's say the company you work for has invested in a sales training program. Before the training, sales agents were successfully closing an average of 20 deals per month, €100/deal. After training, the average increased to 29 offers per month, 150 EUR/offer. The training cost per employee was 800 EUR.

Using these figures the return on investment is calculated as follows:

ROI = (Incremental Earnings - Training Costs) / Training Costs

ROI = ((1350 EUR per employee - 800 EUR) / 800 EUR) * 100 = 68.75%

This ROI indicates that the training program had a positive return.

In conclusion

As they prepare their employee training budget for 2024, business leaders must understand that measuring the return on investment in employee training is a strategic imperative. By setting clear objectives, selecting relevant performance indicators and following a systematic process, companies can ensure that their training investments bring tangible business results. Today learning and development are critical processes for business success, and the ability to measure ROI distinguishes forward-thinking organizations that thrive from those that simply survive.

About Constantin Magdălina

Constantin Măgdălina has 15 years of professional experience, during which he worked for multinational companies, both in the country and abroad. Constantin has a Master's degree in Marketing and Communication at the Bucharest Academy of Economic Studies. He is LeanSix Sigma and ITIL (IT Information Library®) certified, which facilitates a good understanding of processes and transformations within organizations. On the other hand, the certification obtained from the Chartered Institute of Marketing completes his business expertise. In the more than 4 years of activity within a Big 4 company, he initiated and coordinated studies that analyzed aspects related to the business environment in Romania. Among them are the economic growth forecasts of companies, knowledge management, the buying experience in the era of digital consumers, the use of mobile devices or the customer-centricity of companies in Romania. He is the author of numerous articles on topics related to innovation, streamlining business processes, digital transformation, emerging trends and technologies. He is invited as a speaker at numerous events and business conferences.

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