Learning professionals have a tendency to overcomplicate things. There’s no better example of this than our industry’s fraught approach to ROI analysis.
Believe it or not, ROI is much easier to estimate and capture than most learning leaders believe. Far too often, we hear the pessimistic cries that it’s impossible to quantify ROI from L&D programs, based on a whole host of unsound excuses. Among the most common copouts:
- “There’s not enough data available.”
- “We can’t get a control group set up.”
- “Other initiatives are already taking credit.”
- “One can’t ‘prove’ the outcome.”
- “There are too many outside variables for the data to be reliable.”
Not to say that these concerns are never legitimate, but let’s be real—capturing ROI is not rocket science. Other functional areas of the business do it all the time. So why does this struggle seem to be so particularly acute among learning leaders?
How Business Views ROI
To understand why L&D has such a hard time with ROI, let’s take a look at what this crucial metric means to the rest of the business.
ROI is most tightly intertwined with the sales and operations departments, which track and analyze it as part of the normal course of normal business, and it’s not like they spend an inordinate amount of time figuring it out. These functional areas have the same challenges as L&D when it comes to data cleanliness and isolating the impact of a specific initiative; the difference is that while learning leaders are looking for the bank deposit slips containing the exact contribution they made, other business leaders are making educated assumptions, claiming the credit, and moving on to the next challenge.
For example, consider the case of the claims department of a large insurance company, which has been tasked with improving the performance of adjusters. The claims department conducts an analysis, and upon reviewing the results comes up with five drivers that will streamline the claims process, reduce adjuster error, and reduce costs. In total, the department has identified a first-year impact of $23 million. High-fives all around, and the team begins work to capture the savings. How did the team know what the target was, and how will they know when they’ve captured it?
The answer is that the claims department VP, like all other business leaders, will make some educated estimates and assumptions, and then apply them to explain the outcome. When showing the claims on ROI, they test the assumptions for reasonableness and then adjust them as necessary. Any extra time spent trying to get exact data is viewed as a waste and does not contribute additional value. Did we create business value? Yes. Do we know roughly how much? Yes. Done. Moving on…
L&D Must Change Its Approach to ROI
How can our industry get to the point where we start to approach ROI analysis the way most everyone else in the business world does? It really is as simple as recalibrating our calculations and being comfortable with imprecise figures and educated assumptions. This is how learning leaders should be linking the hypothesis of learning impact to their claims of victory. It’s critical to partner with your stakeholders on this, as they will help validate assumptions and provide support for their accuracy.
First, as a general rule, we must always attempt to tie our results back to a dollar figure. Claims of employee or customer satisfaction are nice—and they can be included—but they are secondary to the hard dollars.
When making training ROI estimates, start by answering these five questions:
- What is the intended business outcome? Remember to frame the answer around tangible business metrics—percent increase in sales, percent reduction in average handling time for a particular type of customer call, percent reduction in error rate, etc.
- What is the behavioral change required to achieve that outcome? This can be stated qualitatively, but much like a solid learning objective, it should be identifiable—improved ability to overcome objections, increased efficiency in working through common issue types, elimination of common mistakes, etc.
- What are the metrics that relate to that change in behavior? This is where we turn that qualitative aim into something measurable—close ratio, average handling time, error rate, etc.
- What data are needed to finish the calculation? That is, what are the measurements that can prove or disprove the end goal—size of average sale, employee loaded cost, cost of error, etc.
- How much did we invest in the learning event? Our total investment will include the costs of developing the materials and the time learners spent in the session.
Here’s a scenario demonstrating how a learning leader put these ROI principles into action.
The company seeks to reduce errors in a manufacturing process by 10% (business outcome). Key quality issues have been identified, and the business owner agrees that training on proper equipment maintenance (behavioral change) could contribute significantly toward achieving the goal. Along with the plant manager, L&D determined that proper, regularly scheduled maintenance would significantly reduce errors in manufacturing (metrics—was the maintenance completed properly and conducted at the appropriate time?). To calculate the potential savings, they need to know the current number of defects, along with the average cost of a defect. After the training is completed, they’ll measure the error rate… and then it’s just simple math:
- (Original number of defects) – (current number of defects) = (defect reduction per week)
- Multiply this by the cost of a defect
- Multiply that by 52 (or however many weeks per year the line runs)
- Now that you have your gains, calculate your ROI percentage: (Gains – Costs)/Costs
Voila—you have meaningful training ROI.
Admittedly, there is one obstacle that makes this process easier said than done—in almost all cases, L&D does not directly own the data and metrics that we are trying to impact. This is why cross-departmental relationships and organizational alignment are so important, and it’s yet another reason why it’s critical that the learning function earn respect as a valued business partner. Proving training ROI is not something we can do alone, but we can and must do it.
Put a little effort into it, and you’ll find that measuring and proving ROI is easier than you realize, learning leaders. Just try not to overthink it.
Topics: Metrics & Measurement