Can we calculate return on investment for soft skills training?
Evaluation of soft-skills training rarely goes beyond collecting a happy sheet at the end of the training session. Only a few HR personnel and learning and development professionals venture as far as attempting to calculate the return on investment of a soft skills training programme. Having discussed this with a number of HR professionals, the reasons for not doing this largely boil down to two reasons
- They believe that it’s difficult or impossible to isolate in financial terms whether an improvement has occurred as a direct result of the training or whether too many other factors are involved to make such calculations worthwhile.
- They think the maths is too hard!
In these economic times, however, we are often asked to justify why a training programme should take place and whether there will be a tangible outcome. In this post I would contend that most of the metrics required to do this are readily available in most organisations and that at least making some attempt to use them may give some valuable information if we really want to know whether a training programme has been worthwhile. The necessary maths to do this requires no more than simple arithmetic!
So here are a couple of examples to set people thinking about how they might apply return on investment ideas to planning and evaluating their own training programmes. No doubt you can think of many more.
How to calculate Return on Investment
The formulae
There are more complex formulae for calculating ROI but generally the following simple equations will suffice
Benefit cost ratio
Total Benefit /Total cost
Return on Investment (ROI)
ROI =100 * (total benefits – total cost) / total cost
Payback period
Payback time (e.g. days) = total cost/ saving per time interval (e.g. days)
Worked example: Absence management
Attendance falls by 3 days per employee per annum from 15 days per employee following absence management training and remains at that level for 2 years. There are 300 employees average salary £26,000 pa.
Ignoring overhead:
Total cost of training £60,000 (trainer costs per day, materials etc * number of session days)
Average number of working days per employee per year (after weekends, holidays and public holidays and absence before training) = 220
Average annual salary per employee = £26,000
Total employee cost per day = £26,000 * 300 / 220 = £35,454.54 (£118.18per employee)
Following training
Total employee cost per day = 26,000 * 300 / 223 = £34.977.57 (£116.59 per employee)
Total saved per day = £476.97
Total saved over 446 days = £212,728.62
Benefit cost ratio
Total Benefit /Total cost = 212,728.62 / 60,000 = 3.55
Return on Investment
ROI =100 * (total benefits – total cost) / total cost = 100 * (212,728.62 – 60,000)/ 60,000 = 255%
But savings continue after ROI period
So payback period is often used
Cost was £60,000 and saving per day is £477 so payback time is 60,000 / 477 = 126 days
However, other factors might be involved that reduce absence levels
- Economic climate
- Winter climate
- Employee demography changes
- Changes in work practices (e.g. Health & Safety)
We may need to assign a probability factor to each of these. These are assumptions that we must attempt to justify. Generally we can estimate these from fluctuations in figures following the training. If the training is responsible we might expect change to remain relatively constant whereas we can factor in seasonal differences by comparing with previous figures. Likewise, will health and safety changes have coincided with the training period?
Probability is a value between 0 and 1 and the sum of all probabilities is 1
So we might factor a probability of 0.8 to the training being responsible 0.1 to weather effects and 0.1 to insecurity bought about by the economic climate
Total probability = 0.8 training + 0.1 weather + 0.1 insecurity = 1
We can then adjust our figures accordingly
Adjusted saving per day is £477 * 0.8 = £381.60 and the other calculations follow from this.
Worked example 2: Customer service
Following training customer satisfaction levels rise from 90% to 95%, total complaints fall by 20% and escalated complaints fall by 50%.
We need to isolate real figures that could be accounted for by the percentages. How many customers have been retained against the period prior to the training. What is the cost of acquiring a new customer? This gives us the figure for the saving by retaining the extra customers.
What is the time spent in dealing with a complaint on average? This needs to be converted into the cost per employee. This gives us the cost saving in real terms.
What is the cost of handling an escalated complaint? How many complaints were resolved at local level?
Total cost of training = £100,000
Cost per new customer = total cost of sales and marketing / number of customers gained
= £500,000 / 5000 = £500
Value of a customer in terms of acquisition = £500
100 more customers were retained than over the year prior to training = £50,000 saved
Also
Total cost per complaint = £200
In year prior to training there were 1,000 complaints. This fell by 200 complaints in following year so saving £200,000
Plus
Total cost per escalated complaint = £3,500
In the year following training there were 10 less escalated complaints so saving £35,000
Total benefits = £285,000
Therefore benefit/ cost ratio = 2.85 and ROI = 185% and payback period assuming 240 working days per employee per annum is 84 days
