purplesoup
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Formula for calculating ROI on training
Is there a formula for showing return on investment for training?
I'm thinking something like this.
(Salary per Year) / (Minutes Worked Per Year) = Employee Cost per Minute
(Cost of Training) / (Employee Cost per Minute) = (Number of minutes necessary for employee to be more productive to pay for course)
I guess you need to also factor in lost time due to course attendance and cost salary.
Has anyone seen anything similar to this?
I'm thinking something like this.
(Salary per Year) / (Minutes Worked Per Year) = Employee Cost per Minute
(Cost of Training) / (Employee Cost per Minute) = (Number of minutes necessary for employee to be more productive to pay for course)
I guess you need to also factor in lost time due to course attendance and cost salary.
Has anyone seen anything similar to this?
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Training ROI has to be evaluated on a case-by-case basis. Increased productivity could be a benefit of training, but it usually isn't the key driver of training ROI.
Instead, you have to think in terms of the economic value that the training will provide to the business. We conduct training for a lot of different reasons, and each one may produce different economic benefits to an organization.
Think beyond the individuals being trained in order to get a better idea of the overall ROI picture. Some examples of training purpose and benefits:
1) To develop new technical skills, or to improve existing skills.
Potential benefits:
Enable development of new products or business processes, or improve existing products or processes. This could provide ROI in the form of increased revenues, or lowered costs due to increased organizational productivity.
Increase employee job satisfaction, potentially reducing expensive turnover.
2) To improve speed and productivity.
Benefit: increased productivity by trainee.
3) To improve awareness of policies, procedures, and regulatory compliance requirements.
Benefit: Reducing costs associated with re-work and penalties of non-compliance. Improved product quality. Improved customer satisfaction.
4) To improve safety and security.
Benefit: Reduced risk, which produces cost savings and risks of revenue loss. May improve insurance costs, reduce workers compensation claims, fines and penalties related to security breaches, etc.
Instead, you have to think in terms of the economic value that the training will provide to the business. We conduct training for a lot of different reasons, and each one may produce different economic benefits to an organization.
Think beyond the individuals being trained in order to get a better idea of the overall ROI picture. Some examples of training purpose and benefits:
1) To develop new technical skills, or to improve existing skills.
Potential benefits:
Enable development of new products or business processes, or improve existing products or processes. This could provide ROI in the form of increased revenues, or lowered costs due to increased organizational productivity.
Increase employee job satisfaction, potentially reducing expensive turnover.
2) To improve speed and productivity.
Benefit: increased productivity by trainee.
3) To improve awareness of policies, procedures, and regulatory compliance requirements.
Benefit: Reducing costs associated with re-work and penalties of non-compliance. Improved product quality. Improved customer satisfaction.
4) To improve safety and security.
Benefit: Reduced risk, which produces cost savings and risks of revenue loss. May improve insurance costs, reduce workers compensation claims, fines and penalties related to security breaches, etc.
ASKER
Thanks Gary that's a really great list of benefits.
ASKER
I guess I wasn't necessarily thinking that the number calculated could really be measured or checked for, but more of a "gut feel" that based on how much this employee costs - say like £300 a hour, if I spend £300 on their training then they only have to in some sense be "more productive" for an hour to have paid for that training - whether that is saving time due to less re-work later on because of increased code quality, or faster identification of an issue, or just able to work faster because of less time looking up how to do something.
So it was really converting the money spent on training into hours worked, so see if it sounds realistic that that amount of time would be saved.
But of course for any business - as Paul points out - it isn't just about time it is really about actual revenue generated - as a result of training the employee might come up with a brilliant money making idea that generates huge amounts of revenue!
Thanks for your thoughts.