How to Measure Your Corporate Learning & Development Program ROI
by Susan Katz, on Dec 7, 2021 2:03:31 PM
While this is not applicable to all businesses, it’s safe to say it is relevant to most, particularly those that are for-profit. Companies continuously try to evolve to maintain differentiation and focus on transforming their people and processes to create efficiencies, with profitability factored into each strategic move.
A common challenge is that with some initiatives, quantifying a monetary return on an investment isn’t always straightforward. Even if there is significant evidence that heavily suggests there is, senior management tends to be more skeptical. Human Resource leaders across the board are often the ones that bear the brunt of this skepticism, especially when it comes to investments in learning and development.
There is an abundance of qualitative evidence that supports the impacts of strategic L&D programs but measuring the monetary value can be somewhat ambiguous. Digitalizing the training and learning environment has shown to be highly profitable. E-Learning software and Learning Management Systems also provide the analytical capabilities that can be utilized to ensure continued effectiveness and value.
Fortunately, techniques to quantify value and learning and development ROI do exist and have shown to be effective in achieving executive buy-in. The most common methods on how to measure learning and development include evaluating impacts on cost savings and the Kirkpatrick-Phillips model.
Resource: Check out our ebook “How to Do Strategic Learning and Development” to learn how to measure ROI in learning and development and comprehensively justify the investment to leadership.
1. The Cost Saving Implications of High Employee Engagement
Did you know that the cost of turnover for just one lost employee can equal 33% of their annual salary? Or that the national cost of voluntary employee turnover totaled to $617 billion in 2018 and $630 billion in 2019?
The cost figure for voluntary turnover may seem shocking, but in fact, according to the 2020 Retention Report published by the Work Institute, 94% of all employee turnover is voluntary. The unfortunate, and not-so shocking, truth revealed by this study was that 78% of all voluntary resignations were due to preventable reasons. This means employees left their positions by their own will to pursue other opportunities for reasons employers could have prevented.
Keeping those costs in mind, why is learning and development important for employee engagement and why does it translate to higher retention and increased business revenue?
For starters, costs are lower for businesses that have lower turnover. When employees feel valued, they are more likely to have loyalty to the employer, resulting in less turnover. Employees want to feel like they make a difference, their skills are being appreciated, they are being listened to, their needs are being met, and that there is potential for self-development and growth. The workforce is what allows the business to remain in function, so it should be a no-brainer to nourish employee’s growth.
L&D programs have repeatedly proven to be key drivers of improving employee engagement and the rate of retention. Lorman, was one of many to research the value in L&D. Their 2021 case study resulted in promising data, with the following insight statistics found:
- 34% of employees who left their previous job were motivated to do so by more career development opportunities.
- 86% of millennials would be kept from leaving their current position if training and development were offered by their employer.
- Retention rates rise 30-50% for companies with strong learning cultures.
- Highly engaged business units experience 59% less employee turnover.
Further evidence was revealed in the Gallup ‘State of the American Workplace Report’ on over 82,000 businesses. It was found that increased employee development and engagement resulted a 24% decrease in churn rate for businesses prone to high turnover, and a 59% decrease in churn rate for those businesses with already low turnover.
When measuring the performance of L&D at your company, using KPIs that track employee engagement, employee satisfaction, cost per lost employee, and churn rate are highly effective to accurately assess and report your learning and development ROI.
2. The Profits of Improved Proficiency, Performance, and Productivity
Another way of how to measure ROI in learning and development is through evaluating the effectiveness of your L&D program on employee proficiency, performance, productivity, and resulting profitability.
A common method used, dating back to 1959, is the Kirkpatrick Model of Training Evaluation. This model consists of a four-level approach:
- Reaction: Evaluate how the learners felt about the material. Did they find it helpful? What content was missing and should be included in the future? Also, collecting this feedback doesn’t have to be exclusive to the employees. In fact, collaborating with senior management to identify skill-gaps or needed capabilities can offer huge benefits. Making sure the needs of employees and senior management are being addressed in the L&D program is a good way to achieve buy-in and support in future initiative.
- Learning: Assess how well the learning or training modules were in achieving lasting knowledge retention. Results should direct the format of future content. Micro-learning, an approach inclusive to e-Learning, offers a good solution to maintain long-term retention. For more information, you can read our blog Top Trends in Learning & Development: Micro- and E-learning.
- Behavior: Management assesses the performance of employees. They should be looking out for whether the trainings resulted in increased proficiency, or if employees gained their intended capabilities. Any skill-gaps or lack of knowledge should be noted and communicated to L&D content creators. Repeat until your desired results are achieved!
- Impact: This is where the ROI analysis occurs. All the benefits gained from the L&D program are documented. Performance is measured in profit per employee, change in revenue, profitability of increased efficiency, client/customer satisfaction, and change in market share/customer base. For example, management that oversees a sales team could observe how an L&D investment impacts the time it takes to close a sale which would then increase the number of opportunities each rep can handle.
Resource: For a more comprehensive explanation into measuring impact, please check out our eBook “How to Do Strategic Learning and Development”.
In 2005, Dr. Jack Philips added another step to Kirkpatrick’s model, which provides a method of calculating the ROI in training and development. This is known as the Phillips ROI Methodology, and it consists of plugging in the observed data into a formula to determine the ROI and analyze the cost-benefits.
- ROI: The cost of the L&D investment could then be compared to the increase in productivity as a method of how to calculate ROI in training and development. The Phillip’s formula calculates ROI as such, (Total Program Benefits – Total Program Costs)/(Total Program Costs) x 100%
The metrics of success can be translated into KPIs and monitored throughout the journey. As mentioned earlier, e-Learning platforms offer a good solution to streamline this process and have the capabilities of learning analytics and reporting.
Following the Kirkpatrick methodology has proven successful across businesses, especially those with highly developed and sufficiently funded L&D. This is especially relevant to those that are technology-forward.
Rehearsal, a digital learning platform, conducted a case study on one of their clients, Paychex, to assess the impacts of a strong online learning and development capability on business performance. The case resulted in an 8% increase in employee retention and a 10% increase in revenue. It was also reported that new hires were able to achieve competency 41% faster and displayed higher performance.
3. The Growth from Improved Alignment with Business Vision
While quantitative evidence is the priority to executives and senior management, a qualitative analysis on learning and development ROI is also important.
A more robust employee development program is seen to increase collaboration between HR and senior/executive management. When creating content, L&D developers consult with management to identify the skills and capabilities needed by their team. More communication also leads to an improved alignment between the workforce and the overall business’ strategic goals. Companies undergoing major transformation should be exceptionally invested in their L&D capability and program to prepare the workforce with the new capabilities needed.
L&D is also responsible for creating content that supports governance and compliance. When employee compliance is not ensured, businesses experience major associated costs, which sometimes get overlooked. These costs can no longer go unnoticed, as in a 2021 study conducted by Lorman revealed the ugly truth. The study found it cost companies, on average, $14.82 million on invents due to non-compliance.
So, What’s the Bottom Line? (…and the Impact on It)
A business’ greatest asset is its people, so investing efficiently into your workforce and their growth is critical. Learning and development ROI has proven to have a positive impact on a company’s revenue when done strategically and smartly. Companies should actively encourage their employees to take advantage of the benefits of their L&D program for professional growth.
Businesses already on board and that have highly developed learning and development programs with measurable ROI even consider it to be a competitive advantage.
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