There is no doubt that the return on investment (ROI) of training is a controversial issue. There is no shortage of books, articles, blog posts, and Twitter chats filled with reasons why determining training ROI is essential and why it is a complete waste of time. For those who do not believe in training ROI
, the argument goes something like this: “No one tried to determine the ROI of buying pencils or of email. We bought them because we know they are necessary. There is not ROI on that.” For those who believe in training ROI, the argument goes something like this: “While it is true we do not calculate the ROI of pencils, if an organization is going to spend $500,000 on leadership develop this year, we better have a positive expectation on that investment.”
On which ever side of the fence you sit, we can all agree that training should produce positive results for the organization. But not all positive results are equal. In fact, some times, positive results are not worth the effort. For example, everyone would like to get better gas mileage, right? However, would you spend $10,000 more for a car to save $10 per month on gas?
Let's examine this issue further.
Let’s say you invest $1,000 in a stock. It is your first stock investment and you are proud of yourself. You may have even read one of the books about how Warren Buffet analyzed an investment and applied that method as best you could. Based on your analysis you select a stock and believe it will increase 10% – 20% by the end of the first year. Not bad, at all. Professional money managers will take that any day (well, except in 1999).
Not only that, you performed an evaluation (Level 1) on yourself and discovered that you are extremely pleased with the way the investment made you feel. Moreover, you are extremely satisfied with the overall effectiveness of the process by which you chose this stock, and you believe strongly that you will be able to apply what you learned about the stock selection process on your next investment. Next, you gave yourself a quiz to test your knowledge of what you learned about the stock selection process. You passed with an 80% (Level 2). Warren Buffet would be proud.
At the end of the year, you started to analyze stocks to find another investment to make. You found that you were more efficient in applying the stock selection process you learned last year. You much more easily discarded stocks with high debt, low cash flow, and earnings growth projections of less than 10%. Your behavior has changed (Level 3).
Later that day, you look at your brokerage account statement and discover that the stock is now valued at $1,100, which is a 10% return on investment (Level 4).
So let’s recap:
Level 1 – 4.8 out of 5
Level 2 – 80% (passed)
Level 3 – Behavior changed
Level 4 – 10% ROI
Overall, we did very well. Any investment that returns 10% is worth doing again. In fact, we should definitely get funding for our next training project, right? Hmmm…let’s see…
What if we borrowed the $1,000 for our initial investment at 15% interest? We have a positive ROI of 10%, but we had to pay 15% to earn it. We paid $150 in interest to earn $100 in return. We are in the hole by $50. We just destroyed our personal worth by $50. A positive ROI of 10% destroyed the value of our account by $50. Is this any different for investments in training?
What are the implications for training and performance improvement professionals when justifying ROI and/or the value of training? Does it matter that learners were satisfied with the training or passed the assessment, if the organization lost money on the investment? What are your thoughts?