WHITE PAPER

METHODS FOR All ROI calculations involve converting change

into a dollar value (benefit) and comparing it to

A W H I T E P AP E R B Y
CALCULATING the investment required to produce the change
(cost). The methods described in this white
P AU L B E R N T H AL
MANAGER
ROI AND paper describe variations on how the benefits
and costs may be calculated. The classic ROI
DDI CENTER FOR
APPLIED BEHAVIORAL BOTTOM-LINE formula appears below:

RESEARCH
IMPACT Benefit – Cost
Cost
= ROI

There are many methods for measuring the
impact of a training program on bottom-line
company performance. Many studies have
repeatedly demonstrated the value of training,
and there is no doubt that training can have
many positive benefits.
Although return on investment (ROI)
calculations can be compelling, it’s important to
keep ROI estimates in perspective. Because so
many factors can affect an organization’s
business outcomes, we know that training is
only one of many factors that can effect
changes in bottom-line results. A program’s
success and impact will be mitigated by factors
such as the work environment, the economy,
company culture, one-time events (such as
downsizing), and a host of other variables.
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CLASSIC UTILITY ANALYSIS: TRACKING
AND VALUING CHANGES
Many programs can be evaluated by quantifying
the value of a particular bottom-line result. For
example, dollar values can be calculated for one
unit of turnover, one grievance, or one defect
on a production line. If a training program is
designed to affect one of the outcomes, we can
link improvements in the outcome to the
program. Although we cannot be sure that a
cause-effect relationship exists between the
training and the bottom-line outcome, if an
improvement appears after the training
program is introduced, it’s reasonable to assume
that the two events might be related. Usually,
the involvement of a control group can help
determine if the effects can be attributed to
some other outside influence. Normally,

This is why DDI recommends a complete

analyses such as these must be bolstered by the
evaluation plan that incorporates multi-
addition of other training impact measures.
perspective measures on training outcomes.
ROI studies are rarely calculated in a vacuum.
ROI AND BOTTOM-LINE IMPACT

Usually, organizations include a broad range of

measures to create an overall body of evidence
in support of training impact.

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© Development Dimensions International, Inc., MMIV. All rights reserved.
 Example A: return based on salary. For example, imagine
the following conditions:
Training Program—A training program was
designed to reduce turnover by increasing • Fifty employees each are paid an average of
leaders’ effectiveness, which had been found $50,000 annually.
(through exit interviews) to be a significant
• This group attends a training program that
factor in determining employees’ willingness to
addresses 25 percent of the total skill set
stay with the organization.
needed to perform effectively on the job.
Costs of Training—The cost per leader was
• The group has a 10 percent improvement in
$2,000, which included materials, facilities,
their skills that can be attributed to the
salaries, etc. Fifty leaders were trained. Total
training.
training costs were $100,000 (50 x $2,000).
From this information we can calculate a training
Dollar Value of Training—The training reduced
benefit of $62,500:
turnover from 20 percent to 15 percent in the
unit where leaders were trained. No Benefit = Number of trainees x
improvements were observed in an untrained Average Salary x Percentage of
control group. One percentage point of Skills Trained x Percent
turnover was estimated to cost the company Improvement, or
approximately $70,000 (lost productivity, hiring $62,500 = 50 x $50,000 x .25 x .10
costs, etc). Therefore, the training might have
By comparing the benefit to the costs of the
helped the company save approximately
program, an ROI can be determined using the
$350,000 (5 x $70,000)—a return on investment
standard formula and assuming a training cost of
of 250%.
$15,000.
Benefit – Cost
= ROI Benefit – Cost
Cost = ROI
Cost
$350,000 – $100,000
= 250% $62,500 – $15,000
$100,000 = 317%
$15,000
Example B:
($3.17 for every $1 invested)
This model uses average participant salary to
Please note that this does not necessarily mean
determine benefits. The idea is that employees
that the organization’s revenue will now jump by
are organizational assets that bring back to the
317 percent. We have shown an increase in asset
WHITE PAPER — METHODS FOR CALCULATING

organization what they are paid. For instance,

value, meaning that the trained employees are
if an employee is paid $50,000 a year, the
now more capable and worth more to the
person should return at least that amount of
organization. The possibility remains that the
value to the organization; otherwise, he or she
ROI AND BOTTOM-LINE IMPACT

skills they have learned will be derailed by other

must be considered a losing investment. Ideally,
influences in the work environment, preventing
employees bring back more than what their
the ROI from being realized.
organization pays them, thus producing profit.
In cost-benefit analysis employees can be
valued based on what they are paid. By
showing that employees have improved their
skill levels to some degree, we can calculate a
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© Development Dimensions International, Inc., MMIV. All rights reserved.
 LEADER ESTIMATES
Leaders are asked to describe improvements in
critical outcomes that have occurred since the
training was introduced. Based on their
experience, leaders assign a dollar value (or
range) to the observed improvements. Then,
they estimate the degree to which the training
influenced the observed outcomes and the level
of confidence they have in their estimates. An
average dollar value benefit is then calculated
based on the group’s perceptions.
Steps:
1. Identify a sample of at least 20 leaders (or
other associates) who have had the
opportunity to observe the impact of
training.
2. Create a form that allows leaders to rate the
following:
• Observed improvements since training.
• Dollar value of improvements.
• Leaders’ confidence in their estimates.
• Degree to which training influenced
the improvements.
3. Summarize impact across leaders.
Example:
Please describe a positive outcome that has
occurred since the program was introduced.
A. For the fiscal year, what is the approximate
WHITE PAPER — METHODS FOR CALCULATING
dollar value of this change?
B. How confident are you of your dollar value
estimate?
ROI AND BOTTOM-LINE IMPACT
_______% (Range: Not at all confident [0%]
to Completely confident [100%])
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© Development Dimensions International, Inc., MMIV. All rights reserved.
C. What percentage of this positive
improvement do you feel was directly
influenced by the program?
_______% (Range: Not caused by the program
[0%] to Completely caused by the program [100%])
PERFORMANCE MANAGEMENT
ESTIMATES
In this method of analysis, performance review
data is used to estimate the impact of training.
Trainees work with their leaders to determine the
impact training had on their achieving one or
more of their performance goals. The value of
achieving the goal is then quantified. The degree
to which the performance goal is achieved can
be converted into an estimate of training impact.
Steps (see corresponding data summary):
1. A sample of leaders choose a performance
objective that can be affected by upcoming
training.
2. Leaders are asked to estimate in dollars the
expected gain—revenue or savings—likely to
be realized from meeting the performance
objective (column A).
3. Training is implemented.
4. At the next performance review, leaders
determine the degree to which they were
able to achieve the targeted performance
objective (column B).
5. Leaders estimate how much (in percent) the
training contributed to achieving the
objective (the “contribution estimate,”
column C).
6. Each leader then assigns a “confidence
estimate” (in percent) that indicates how
much confidence he or she places in the
contribution estimate (column D).
 7. The expected gain (column A) is multiplied
by the degree to which the objective was
met (column B), the contribution estimate
(column C), and the confidence estimate
(column D) to produce an “adjusted gain
estimate” (column E).
8. The adjusted gain estimate is reviewed with
the leader’s manager, who is asked to either
confirm or adjust the figure, based on his
or her knowledge of the situation (column
“Manager Adjustment”).
9. The two estimates are compared, and the
lower figure is selected as the one to be
included in the final tabulation of training
results (column “Final Gain”). (Revenue
estimates also can be adjusted to account for
the percent that would be taken to the
bottom line.)
10. Individual estimates are tabulated and then
calculated with program cost data to
produce a figure that estimates the return on
investment.

Example:
E
A B C D (A x B x C x D)
Degree to
Which
Expected Objective Contribution Confidence Adjusted Gain Manager Final
Leader Gain Was Met Estimate Estimate Estimate Adjustment Gain
A $2,500 80% 65% 90% $1,170 $1,170
B $20,000 100% 75% 80% $12,000 $10,000 $10,000
C $600 100% 56% 75% $252 $500 $252
D $8,000 95% 95% 60% $4,332 $4,332
E $15,000 50% 25% 85% $1,594 $1,594
F $200,000 90% 30% 75% $40,500 $35,000 $35,000
G $20,000 100% 50% 90% $9,000 $9,000
H $9,000 100% 60% 100% $5,400 $5,400
I $52,000 100% 30% 85% $13,260 $13,260
J $12,000 100% 40% 80% $3,840 $3,840
K $800 75% 95% 65% $371 $371
L $42,000 75% 15% 75% $3,544 $4,000 $3,544
M $10,000 100% 80% 40% $3,200 $3,200
N $30,000 100% 25% 80% $6,000 $6,000
WHITE PAPER — METHODS FOR CALCULATING

O $100,000 100% 40% 95% $38,000 $38,000

P $85,000 90% 60% 100% $45,900 $30,000 $30,000
SUM $164,963
ROI AND BOTTOM-LINE IMPACT

Cost of Training per Leader $2,000

Number of Leaders Trained 16
Cost of Training $32,000
Benefit of Training $164,963

ROI (benefit – cost)/cost 415.5%

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© Development Dimensions International, Inc., MMIV. All rights reserved.
 TREND ANALYSIS
Business outcomes (such as productivity,
customer satisfaction, turnover, absenteeism)
that can be linked to a trained group of
individuals are tracked over time. By comparing
trends in the outcomes before and after the
training, changes in the outcomes can be linked
to training.
Steps:
1. Identify the primary business outcomes
that were targeted by the training. Ideally,
outcomes should be measures that are
already tracked. However, new measures
can be introduced if necessary.
2. Monitor the trend over a period of 6–12
months before training. If the data exists
in an archived format, summaries of past
trends can be created by reviewing records.
3. Ideally, monitor past trends in outcomes for
both the trained group(s) and a similar
control (untrained) group.
WHITE PAPER — METHODS FOR CALCULATING
ROI AND BOTTOM-LINE IMPACT
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© Development Dimensions International, Inc., MMIV. All rights reserved.
4. Introduce training.
5. Continue monitoring outcomes 6–12
months after training is introduced.
6. Summarize data for the trained and control
group over time. Indicate the point at which
training was introduced.
7. If a significant deviation in the outcome
appears after training, determine the unit
cost of a 1 percent change in the outcome.
For example, one day of absenteeism could
be calculated as one day of lost salary.
Depending on the percentage of employees
absent in a given time period, the lost value
can be calculated.
8. Look at the difference in outcomes for the
trained and untrained groups. Calculate the
savings based on the information from step
7. For visual impact the results can be
depicted in a line graph (see Figure 1).
 Figure 1: A Comparison of Absenteeism Rates Before and After Training

Absenteeism Rates

5.0%
Before Training After Training
4.5%

4.0%

3.5%

3.0%

Team 1 (trained)
2.5%
Team 2 (control)

2.0%

1.5%

1.0%

0.5%

0.0%
Jan-99 Feb-99 Mar-99 Apr-99 May-99 Jun-99 Jul-99 Aug-99 Sep-99 Oct-99 Nov-99 Dec-99

Jan-99 Feb-99 Mar-99 Apr-99 May-99 Jun-99 Jul-99 Aug-99 Sep-99 Oct-99 Nov-99 Dec-99
Team 1 (trained) 3.5% 3.0% 2.8% 3.1% 2.5% 3.0% 1.5% 1.0% 0.8% 1.0% 0.5% 1.2%
Team 2 (control) 3.0% 3.2% 4.0% 2.9% 3.0% 2.9% 3.2% 2.0% 3.0% 3.2% 2.0% 2.5%

CONTACT INFORMATION CONCLUSIONS For more information on ROI and related

WORLD HEADQUARTERS
412.257.0600
E-MAIL: INFO@DDIWORLD.COM
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DDI recognizes that any investment in human offerings, contact your DDI representative or
capital is a potential target for evaluation. It is visit our web site (www.ddiworld.com).
important for an organization to see that these
investments have an impact on bottom-line
results, such as financial performance, employee
satisfaction, customer satisfaction, and
productivity. DDI has conducted many studies

of organizational impact and can help our

clients to establish ROI. In particular, DDI’s
Center for Applied Behavioral Research
(CABER) offers proven models and methods
ROI AND BOTTOM-LINE IMPACT

for conducting valid studies.

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