training return on investment (roi) pitfalls & problems ,
TRANSCRIPT
Training Return on Investment (ROI)
Pitfalls & Problems
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Cost vs. Investment
• Cost: An amount paid, price; a loss, sacrifice or penalty
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Cost vs. Investment
• Invest: To spend or utilize for future advantage or benefit
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Accounting Questions
• How are “fixed” costs allocated & distributed?
• Which “variable” costs are included?• Over what time frame is the
measurement made: Quarterly, Annually, Longer?
• How is lowered productivity measured when people are being trained?
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Accounting Questions
• Discounted Cash flow Rate of Return (DCFROR) depends on discount rate, time frame, cash flow, etc.
• Internal Rate of Return-depends on a management established ‘threshold’
• KEY QUESTION: Should training decisions meet the same investment criteria as other capital investments?
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Accounting Questions
• “Break-Even Point” is a simple technique• KEY QUESTION: When is the cost of training not worth the benefit?
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Management Focus
• Cost vs. Investment “philosophy”
• Training “costs” get cut or eliminated during economic downturns
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Management Focus
• Some skills are “perishable”; training effectiveness may decline over time.
• Dangerous Oversimplification: training is the only influencing variable.
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Management Focus
• Identify the expected outcomes from the beginning
• Know the “rules of the game” before you start
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The “ex-post facto” calculation
• Done “after the fact”
• Lack of proactive stance
• “Reproduce” original baselines
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The “ex-post facto” calculation
• Justification of an outcome with no influence or control of the variables
• Variables outside organization’s control
• Questionable conclusions about measured effects
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Reliable & Valid Measures
• Valid: measures what it is supposed to measure
• Reliable: consistent and reproducible
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Reliable & Valid Measures
• Simple for physical output
• Somewhat easy for Psychomotor
• More difficult for cognitive domain
• Most difficult for affective domain
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If you are going to use ROI:
• Know your accounting system.• This analysis approach is
complex, time consuming & costly: Is it worth it?
• Determine the organizational “philosophy” about “cost” versus “investment”.
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