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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 CLASSIC UTILITY ANALYSIS: TRACKING
impact of a training program on bottom-line AND VALUING CHANGES
company performance. Many studies have Many programs can be evaluated by quantifying
repeatedly demonstrated the value of training, the value of a particular bottom-line result. For
and there is no doubt that training can have example, dollar values can be calculated for one
many positive benefits. unit of turnover, one grievance, or one defect
on a production line. If a training program is
Although return on investment (ROI)
designed to affect one of the outcomes, we can
calculations can be compelling, it’s important to
link improvements in the outcome to the
keep ROI estimates in perspective. Because so
program. Although we cannot be sure that a
many factors can affect an organization’s
cause-effect relationship exists between the
business outcomes, we know that training is
training and the bottom-line outcome, if an
only one of many factors that can effect
improvement appears after the training
changes in bottom-line results. A program’s
program is introduced, it’s reasonable to assume
success and impact will be mitigated by factors
that the two events might be related. Usually,
such as the work environment, the economy,
the involvement of a control group can help
company culture, one-time events (such as
determine if the effects can be attributed to
downsizing), and a host of other variables.
some other outside influence. Normally,
WHITE PAPER — METHODS FOR CALCULATING
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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
_______% (Range: Not at all confident [0%] 6. Each leader then assigns a “confidence
to Completely confident [100%]) estimate” (in percent) that indicates how
much confidence he or she places in the
contribution estimate (column D).
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© Development Dimensions International, Inc., MMIV. All rights reserved.
7. The expected gain (column A) is multiplied 9. The two estimates are compared, and the
by the degree to which the objective was lower figure is selected as the one to be
met (column B), the contribution estimate included in the final tabulation of training
(column C), and the confidence estimate results (column “Final Gain”). (Revenue
(column D) to produce an “adjusted gain estimates also can be adjusted to account for
estimate” (column E). the percent that would be taken to the
bottom line.)
8. The adjusted gain estimate is reviewed with
the leader’s manager, who is asked to either 10. Individual estimates are tabulated and then
confirm or adjust the figure, based on his calculated with program cost data to
or her knowledge of the situation (column produce a figure that estimates the return on
“Manager Adjustment”). 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
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© Development Dimensions International, Inc., MMIV. All rights reserved.
TREND ANALYSIS 4. Introduce training.
Business outcomes (such as productivity, 5. Continue monitoring outcomes 6–12
customer satisfaction, turnover, absenteeism) months after training is introduced.
that can be linked to a trained group of
individuals are tracked over time. By comparing 6. Summarize data for the trained and control
trends in the outcomes before and after the group over time. Indicate the point at which
training, changes in the outcomes can be linked training was introduced.
to training. 7. If a significant deviation in the outcome
Steps: appears after training, determine the unit
cost of a 1 percent change in the outcome.
1. Identify the primary business outcomes For example, one day of absenteeism could
that were targeted by the training. Ideally, be calculated as one day of lost salary.
outcomes should be measures that are Depending on the percentage of employees
already tracked. However, new measures absent in a given time period, the lost value
can be introduced if necessary. can be calculated.
2. Monitor the trend over a period of 6–12 8. Look at the difference in outcomes for the
months before training. If the data exists trained and untrained groups. Calculate the
in an archived format, summaries of past savings based on the information from step
trends can be created by reviewing records. 7. For visual impact the results can be
3. Ideally, monitor past trends in outcomes for depicted in a line graph (see Figure 1).
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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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%
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