Training Return on Investment (ROI) Pitfalls & Problems
Cost vs. Investment <ul><li>Cost :  An amount paid, price; a loss, sacrifice or penalty </li></ul>
Cost vs. Investment <ul><li>Invest:   To spend or utilize for future advantage or benefit </li></ul>
Accounting Questions <ul><li>How are “fixed” costs allocated & distributed? </li></ul><ul><li>Which “variable” costs are i...
Accounting Questions <ul><li>Discounted Cash flow Rate of Return (DCFROR) depends on discount rate, time frame, cash flow,...
Accounting Questions <ul><li>“ Break-Even Point”  is a simple technique </li></ul><ul><li>KEY QUESTION:  When is the cost ...
Management Focus <ul><li>Cost vs. Investment “philosophy” </li></ul><ul><li>Training “costs” get cut or eliminated during ...
Management Focus <ul><li>Some skills are “perishable”; training  effectiveness  may decline over time. </li></ul><ul><li>D...
Management Focus <ul><li>Identify the expected outcomes  from the beginning </li></ul><ul><li>Know the “rules of the game”...
The “ex-post facto” calculation <ul><li>Done “after the fact” </li></ul><ul><li>Lack of proactive stance </li></ul><ul><li...
The “ex-post facto” calculation <ul><li>Justification of an outcome with no influence or control of the variables </li></u...
Reliable & Valid Measures <ul><li>Valid:  measures what it is supposed to measure </li></ul><ul><li>Reliable:  consistent ...
Reliable & Valid Measures <ul><li>Simple for physical output </li></ul><ul><li>Somewhat easy for Psychomotor </li></ul><ul...
If you are going to use ROI: <ul><li>Know your accounting system. </li></ul><ul><li>This analysis approach is complex, tim...
Final Advice <ul><li>Using ROI as the “bottom line” may not be the best criteria for determining the value of training.  I...
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Training Return on Investment (ROI) PowerPoint Presentation

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