This is quite understandable and derives from the feeling by HR professionals that in order to demonstrate value creation, they have to align their evaluation methods with those of the main business and demonstrate effectiveness in the language of corporate finance.
A definition of return on investment in corporate finance terms is:
‘The amount, expressed as a percentage, that is earned on a company or projects total capital calculated by dividing the total capital into earnings before interest, taxes, or dividends are paid’
This trend is mainly an attempt to refocus corporate perceptions of training as a cost, to that of an ‘investment’. Indeed, this attempt to reposition training as a valuable contribution is admirable.
However, some care has to be taken in using semantics in this way as the perception that training is purely an investment could be very counterproductive.
In reality, training can be either a fixed cost or an investment, depending upon the circumstances. For instance, it is well recognised that in order to maintain customer service, continuous training activity has to take place in order to maintain it at the same level. – This is a direct fixed cost attributable to customer service mainainance. The only way to specifically measure the effects of fixed costs training are to stop it and measure what happens! This would take a very bold decision!
On the other hand, if, for strategic reasons, the organisation wishes to improve customer service, then this additional customer service training activity actually becomes an investment on which ROI measurement is entirely appropriate. So in the example of customer service, training is either a fixed cost, or an investment, depending upon the purpose for which the training is being carried out. However, measurement of ROI is only appropriate in the case of investment training.
In order to be clear about how we should actually evaluate investment training, there should be a weighted combination of four main factors considered before training take place.
1. Objective – Clear measurable outcomes (Direct demonstrable link with ROI)
2. Subjective – Behavioural change (Indirect demonstrable link with ROI)
3. Intuitive – beneficial to individual development (loose demonstrable link with ROI)
4. Placebo – Acceptance that the fact that training opportunities exist maintains and sometimes has an improvement effect on organisational performance anyway. (Little demonstrable link with ROI)
In organisations where HR and training functions are more enlightened, there is a realisation that a balance of the above is necessary in an effective training strategy at a corporate level.
A limitation of the assessment of training interventions to Objective criteria only is a failure of corporate business thought.
‘Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted’
Please visit our website for more information on how we can assist