Return-on-Investment (ROI)

Applying an ROI approach to training and HR consultancy leads to better results:

It forces managers, employers and participants to think about training outcomes;
It related a training programme to a wider framework of performance indicators;
It establishes the practical impact of the training programme;
It supports the prioritisation of training and other development support.

The core approach includes a cost-benefit-analysis which is integrated into initial programme planning. There are four basic steps in the process:

Some additional information on each step in this process is seen below:

Isolate effects of training: The direct impact of the programme is isolated (defined), and measured. For example, some of the impacts of a typical sales and marketing internationalisation project might include:

Exports (in new categories/countries or increased levels in existing areas)
Service agreements
Market entry
Licensing/sub-contracted manufacturing
Development of new supplier or distribution networks
Application of new (foreign) technologies
Alliances, franchising or other forms of cooperation
Business process outsourcing or shared services

These effects can also be expressed as a range of “hard” (measurable) or “soft” (intangible) factors:

BUSINESS PLANNING

DUE DILIGENCE

Convert training effects to monetary values is possible primarily for the “hard” data factors, or the factors in the internationalisation framework. For instance, increased export levels or new service lines can be quantified in terms of specific values. A differentiation should be made between present and future values, particularly if the project included a start-up or investment phase or time to break-even.

Calculating the cost of training takes into account direct and indirect costs. Indirect costs of a salesforce development programme, for instance, might include manager time, business trips, publication of marketing materials or web sites, participation in exhibitions, production of samples, etc.

Calculating cost-benefit analysis can be done using the net participation benefit or return on investment (ROI) method, as follows:

RISK ANALYSIS