Staff Training and Return on Investment
There is little doubt that contemporary organizations, particularly those that define themselves as learning organizations intent upon enhancing workersÆ knowledge and skills, emphasize training as part of the staff development and empowerment process. However, as Ivancevich (1998) has pointed out, training programs must be frequently evaluated in order to determine whether or not they are truly effective in meeting their goals and objectives.
A major reason for evaluating staff training is related to the accounting concept of return on investment (ROI) which focuses not only on issues related to cost effectiveness, but issues related to productivity as well. This report will provide an overview of current thinking with regard to ROI and staff training.
Ivancevich (1998) stated that ROI or cost-benefit analysis is generally more feasible for training and development than for many other human resource management (HRM) functions. Costs are relatively easy to prepare. They equal direct costs of training (trainer, materials, and lost productivity if training is done on company time) plus indirect costs such as a fair share of the administrative overhead of the HRM department.
The standard ROI measurement, used by many training professionals, is a formula that divides net program benefits (total benefits less cost) by program costs multiplied by 100:
[Net program benefits/capital program costs] x 100 = ROI
(%) (Five creative waysà, 2003).
However, a number of extraneous variables, including false assumptions, faulty needs assessments, and a failure to account for variables outside of training can limit the overall effectiveness of this simple ROI measurement formula (Five creative waysà, 2003).
Using the standard ROI formula has become commonplace in most training and HRM departments (Ivancevich, 1998). An example of how the formula works is useful at...