ROI in Personnel Development – Dream or Reality?

January 23, 2006 by admin

An enterprise has upgraded from SAP R/3 to mySAP ERP. Few or no training courses were provided for users. “As the employees are already familiar with the SAP applications, the necessary skills will develop of their own accord,” is the official justification. When new software is implemented, key figures can be used to determine precisely the improvements in performance and the return on investment (ROI). One question remains, however: What effect does this lack of training have on users’ effectiveness and thus on the enterprise figures? Without the training, are all the new functionalities used in full and the software’s potential completely exploited? Could a lack of training even lead to a negative ROI in certain areas? How would a coordinated training program positively affect the ROI?

“What is the bottom line?”

If decision-makers knew how training improved the key figures, they would probably have arrived at a different decision. For example, if training led to just a 3 percent improvement in the ROI value in the key figures, the costs for the training would be secondary – personnel development and the training measures in particular would be appreciated as a driver of value.
It is therefore essential to determine the contribution training makes to the overall improvement. The executive board is thus faced with a decision: Should it regard personnel development as a consumable such as electricity or water, to be procured as cheaply as possible, or should it see training as part of the value chain? Most managers know that training “plays its part.” But what is the bottom line?

Software with evaluation model

Education controlling – The system for success

Education controlling – The system for success

Executive managers need proof of training’s contribution, and to know what is needed for a positive effect. In 1959 professor Donald Kirkpatrick presented a four-level model for evaluating training at the University of Wisconsin, in order to support these efforts. Jack J. Phillips, a world-renowned expert on measurement and evaluation, added a fifth level to this evaluation model to determine the ROI and ensure efficient education controlling. The result was ROI process, a coordinated software and method for the ROI process with over 100 tools for analyzing learning success. By now, this contains more then 70 million data entries. Companies such as Microsoft, BT, and HP use this program. Around 70 percent of the Fortune 500 enterprises have had training in the ROI method, and over 2,500 people have been awarded the certificate. More than 5,000 ROI learning success analyses are implemented each year.
ROI Process is regarded as the standard in learning success analysis. It offers internal and external benchmarks. Applications, case studies, standards, and tried-and-tested methods help to define “what really matters.” Ongoing improvements have resulted in a practice-oriented process for the optimization of personnel development (PD) measures. There are successful applications for the following PD measures: organizational development, manager development, sales training, service training, team training, quality management, e-learning, blended learning, specialist training, safety training, competence systems, hiring processes, career planning, IT implementations, and TQM concepts.

Five levels to the ROI

Evaluation framework: The five levels

Evaluation framework: The five levels

The five-level evaluation framework forms the basis for efficient education controlling. The first two levels determine the participants’ reactions and their acquisition of knowledge and skills. Level three looks at the learning transfer, namely the extent to which participants apply what they have learned in the workplace. Level four records the business results in the form of performance and production data, which is then used in the final level to calculate the investment.
Many personnel development measures currently focus their efforts on learning transfer. This is undoubtedly important, because PD investments would be in vain if the application of the acquired knowledge and skills in the workplace could not be proven. However, concentrating on this alone completely disregards the question of whether the learning objectives (level two) and application objectives (learning transfer, level three) have any measurable effect on the impact objectives (key figures, level four). The return on investment can only be calculated and specific measures initiated if all five levels are determined.

Results under the microscope

The ROI process

The ROI process

The ROI process – the quality and improvement tool – is at the heart of the system for education controlling. It consists of four phases, made up of logical process steps. Among other things, the process contains nine methods for “isolating the training effects.” A comparison of the results enables clear statements to be made on the success of the training measures. As a result, unsatisfactory discussions on whether training itself, the marketing, or even the economic situation is responsible for the results of the measures can be avoided. The “financial evaluation” process step offers ten methods that convert isolated effects into monetary value. By systematically deriving and linking learning objectives from the business objectives, personnel development measures can be implemented in a result-oriented way from the very outset and can be controlled at any time.
The ROI process is used as a method for optimizing and tracking the implementation of the strategy. Training scorecards are possible. In comparison, familiar management tools such as the Balanced Scorecard (BSC) or Six Sigma usually only determine the performance or production data and do not show the effect of training (evaluation levels one and two) and their practical application (evaluation level three).
Personnel development has a bright future. The knowledge and best practices of many companies are available. In successful companies, the contribution made by personnel development to achieving business objectives can be identified and planned. A global study conducted in 2003 by Phillips and Guadet shows that enterprises with a sound evaluation system invest more in training than those without a comprehensive system of education controlling. Successful personnel development measures based on effective education controlling identify the benefit, overcome prejudices, and lead to the acquisition of the necessary skills. As a result, results-oriented personnel development is no longer just a dream, but reality.

Frank C. Schirmer

Frank C. Schirmer

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