training return on investment (roi) pitfalls & problems ,

Training Return on Investment (ROI)

Pitfalls & Problems

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Cost vs. Investment

• Cost: An amount paid, price; a loss, sacrifice or penalty


Cost vs. Investment

• Invest: To spend or utilize for future advantage or benefit


Accounting Questions

• How are “fixed” costs allocated & distributed?

• Which “variable” costs are included?• Over what time frame is the

measurement made: Quarterly, Annually, Longer?

• How is lowered productivity measured when people are being trained?



• Discounted Cash flow Rate of Return (DCFROR) depends on discount rate, time frame, cash flow, etc.

• Internal Rate of Return-depends on a management established ‘threshold’

• KEY QUESTION: Should training decisions meet the same investment criteria as other capital investments?



• “Break-Even Point” is a simple technique• KEY QUESTION: When is the cost of training not worth the benefit?


Management Focus

• Cost vs. Investment “philosophy”

• Training “costs” get cut or eliminated during economic downturns


Management Focus

• Some skills are “perishable”; training effectiveness may decline over time.

• Dangerous Oversimplification: training is the only influencing variable.


Management Focus

• Identify the expected outcomes from the beginning

• Know the “rules of the game” before you start


The “ex-post facto” calculation

• Done “after the fact”

• Lack of proactive stance

• “Reproduce” original baselines


The “ex-post facto” calculation

• Justification of an outcome with no influence or control of the variables

• Variables outside organization’s control

• Questionable conclusions about measured effects


Reliable & Valid Measures

• Valid: measures what it is supposed to measure

• Reliable: consistent and reproducible


Reliable & Valid Measures

• Simple for physical output

• Somewhat easy for Psychomotor

• More difficult for cognitive domain

• Most difficult for affective domain


If you are going to use ROI:

• Know your accounting system.• This analysis approach is

complex, time consuming & costly: Is it worth it?

• Determine the organizational “philosophy” about “cost” versus “investment”.


Final Advice

• Using ROI as the “bottom line” may not be the best criteria for determining the value of training. It can be a good indicator, but it may not be the indicator.


training return on investment (roi) pitfalls & problems ,

Documents

cost of training

investment cost

training return

management focus cost

investment criteria

value of training

accounting questions

reliable valid measures