Sunday, January 08, 2006

Investing in people

Investing in people through training is a tough decision to make to some organizations whose culture is more results than people oriented. Such organizations would need more tangible ways to convince the management that a good training pays off and yields high return on investment (ROI). For example, if the financial benefit derived from a training program is $4,000, but it costs $2,500 to provide the program, the ROI would be 60 percent. Another way to look at this would be to determine the cost-benefit ratio, i.e. divide the benefits by the costs. In the above case, the ratio equals l.6:l. Simply put, it means the company that invested $2,500 to provide its employees with the proper training they needed to enhance their productivity, can expect to get 1.60 back for every dollar invested in the program. The ROI equation is usually stated as:
Benefits(minus)Costs(divided by) Costs x 100 = ROI.
In order to be able to determine the benefits you got from training, you should first establish the business objectives of the training program. Start with the question: Waht is my organization expecting to gain or save from this program in financial terms? Then determine the job-performance requirements needed to meet the financial goal(s). Last, you have the learning objectives where either improving an existing skill or developing a new skill is required for your employees.
The other part of the eqation is costs. The costs that should be included in your cost-benefit calculation include:
  • Training Needs Assessment (TNA)
  • Development & acquisition
  • Program materials
  • Instructor/facilitator fees
  • Training facilities
  • Travel/accomodation/meals cost
  • Participants' salaries and benefits
  • Program evaluation
  • Administrative/overhead cost

But, the question still remains: What are the cost/benefit indicators we can use to measure ROI in the different business activities in general. Here are some:

  1. Increased revenue
  2. Customer satisfaction
  3. reduction in cycle time
  4. Development (cost/schedule reduction)
  5. Reduced maintenance cost
  6. Lower staff turn-over
  7. Higher predictability

Having said so, we should not forget that in order to realize the ROI our business solution, including training, should be aligned with core business goals, as well as integrating processes, tools, and trained staff, i.e.:

People + Process = ROI

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