Return on investment, or ROI, is a pretty common term in the business world. We all know what it is and we definitely all want to achieve it.
But knowing what ROI stands for and actually measuring it are two different beasts. And it’s not something you want to get wrong—especially when it comes to determining the effectiveness of corporate learning programs.
In our guide Redefining the ROI of Corporate Learning, we confirmed the confusion around tracking the effectiveness of corporate learning. In this blog post, we’ll go over why it’s hard to measure the ROI of learning and development (L&D) and provide some solutions on how you can start showing the effectiveness of corporate training.
The Difficulty in Defining ROI for Corporate Learning
Struggling with pinning down a definition of ROI for corporate learning is common—and the research shows it. These were only some of the responses we received when we asked participants what ROI meant to them.
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Working Definitions of ROI Provided by Learning Leaders
“Cost of training compared to increased production output.”
“Cost spent on training employees versus number of employees that remain with company.”
“The amount spent on training the employee compared to the amount of revenue that employee generates.”
“Assessing the employee effectiveness on the job with new responsibilities versus cost of implementation.”
“Change in profits related to training and cost of training.”
“Are workers more productive and better customer satisfaction.”
Tom Whelan, director of corporate research at Training Industry and author of the guide, provides insights into why defining the ROI of L&D can be a challenge.
“There are people who are wrangling with how they show return on investment at the same time that they’re trying to stand up effective training programs,” said Whelan. “With the wide variation in definitions, you end up with a lot of learning leaders who are looking at success in terms of not what should they demonstrate, but what do they have the ability to demonstrate? They’re looking to show worth and trying to glue it together with bubblegum and wishes based on what’s accessible to them.”
At D2L, the definition of the ROI of corporate learning is measured by an equation:
((annual program benefit – annual ongoing program costs) / one-time setup costs) x 100 = ROI
This equation takes into consideration the effectiveness of corporate learning programs across an organization. Any ROI calculation should include in-house programming, preexisting purchases, custom courses or a combination of each. While ROI tends to lean toward financial benefits, money isn’t the only metric being measured. Markers such as productivity or efficiency can also impact ROI.
Whelan mentions that it’s possible for learning leaders to have effective corporate learning programs even if ROI isn’t being properly measured. But when it comes to pulling metrics and analyzing data, ROI should be a top priority. You still have to be able to prove it. Let’s get into the details of just how that can be done.
Consistently Measure Program Benefits
The data shows that L&D leaders are tracking outcomes, albeit not at a consistent level. At least half of organizations are reporting on metrics related to skill acquisition, but only around a third are collecting data on ROI or the effects of corporate learning programs in a monetary sense.
Sometimes all it takes to effectively track the ROI of corporate learning is reassessing the metrics you’re using. The best place to start when trying to effectively track the ROI of corporate learning is by committing to regularly gathering and tracking data. Nail down which metrics can and should be tracked, and plan to measure them on a regular basis. This way, trends can be seen over time versus a quick snapshot of effectiveness data that might not be able to provide actionable insights.
Stuck on which metrics to track? Consider:
- post-training assessments
- transfer of learned knowledge to the job
- impact on business goals and outcomes
- impact on ROI
- effect on company’s brand or image
Understand Variable Costs
While fixed rates are easy to predict and factor into ROI calculations, variable rates—those that are inconsistent over time—need to have a close eye kept on them when tracking program effectiveness. Some examples of variable costs are:
- materials
- in-house labor
- contracted labor
- transaction fees
Since they can increase (most likely) or decrease depending on what’s happening in the world of L&D, their impact on ROI will vary as well.
Calculate Productivity and Efficiency Gains
Crunching the numbers will need to take place before there is anything to measure, compare or iterate. Confidence levels in the data aside, measurement needs to start somewhere. As Whelan suggests, providing a baseline—even if it’s not perfect—will give stakeholders something tangible to work with and react to.
“If you have all the data together … then I think the opportunities for where things can be improved, they’re not necessarily going to reveal themselves, but it’s going to be a much less painful migraine,” said Whelan. He adds that pulling in data from training as well as other places within an organization provides a way to answer questions in a more substantial way and record data trends over time.
Once the work has been done to collect the data, changes can be made to the calculation or L&D processes to get closer to where the numbers should be.
Recognize Disruption Costs
Even the best-laid plans can run into unpredictable obstacles. The same goes for L&D programs. Disruption costs can come from many places, including:
- losing experienced L&D staff
- competitive market changes
- changes in providers or partners
While nobody has a crystal ball to precisely predict the future, having disruption costs on the radar makes them less … disruptive. They provide an idea of how these costs can affect L&D departments and present opportunities to understand changes that can be actioned to support ROI when and if things go awry.
Identify Behaviors That Can Be Monetized
While program uptake and learner satisfaction are valid metrics, a more important proof point when measuring ROI are behaviors that can be monetized. If learning leaders want to continue to get investments, they need to be able to show stakeholders the impact corporate learning is having on the company’s bottom line. Some sample outcomes to track are:
- improved sales figures
- increased customer satisfaction ratings
- reduced error rates
It’s also important to take note of when changes are made to programming. This will allow L&D leaders to better correlate these changes with positive organizational outcomes.
The Key to Measuring Effective Corporate Learning
Sometimes the best place to start when trying to measure the ROI of learning and development is at the beginning. Start collecting a baseline of data and KPIs to get the momentum swinging in the right direction. Continue to pull that data on a regular cadence to build confidence in the data, allow trends to emerge over time, and provide the chance to relate changes and updates made to the L&D program to the company’s success.
Redefining the ROI of Corp Learning
Discover how learning leaders like you measure the impact of the programs they deliver to employees.
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