ROI Of Training 05

8/8/2019 ROI Of Training 05

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Session 6 Converting Value and

Calculating ROI

MEASURING

ROIOF

TRAINING


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PRE-AMBLE

Traditionally, most impact evaluation studiesstop with a tabulation of business results,detailing improvements such as quality

enhancements, reduced absenteeism, orimproved customer satisfaction;

The aim however should be to show the valueof the improvements in relation to cost;

To do this distinguish first between hard andsoft data.


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The first step in converting tomonetary value is to sort out hardand soft data


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CHARACTERISTICS OF HARD DATA

Objective;

Easy to measure and quantify;

Easy to assign monetary values;

Common measures of organizational

performance;

Very credible with management.


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EXAMPLE OF HARD DATA

A state government office approving applications fornew drivers licenses;

It will have these four measures among its overallperformance measures:

The number of applications processed (Output);

Cost per application processed (Cost);

The number of errors made processing applications(Quality);

The time it takes to process and approve anapplication (Time).

Ideally, performance improvement interventions in thisunit should be linked to one or more hard datameasures.


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MAJOR CATEGORIES OF HARD DATA

Primary Measurements

of Improvement

Hard Data


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ACCRA BRICKWORKS EXERCISE

What category does

your measure fall in?


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OUTPUT

Units Produced

Tons Manufactured

Items Assembled

Money Collected

Items Sold

Forms ProcessedLoans Approved

Inventory Turnover

Patients Visited

Applications Processed

Students Graduated

Tasks Completed

Output Per Hour

ProductivityWork Backlog

Incentive Bonus

Shipments

New Accounts Generated

COSTS

Budget Variances

Unit Costs

Cost By AccountVariable Costs

Fixed Costs

Overhead Cost

Operating Costs

Number of Cost Reductions

Project Cost Savings

Accident Costs

Program Costs

Sales Expense

TIME

Equipment Downtime

Overtime

On Time Shipments

Time to Project Completion

Processing Time

Supervisory TimeBreak in Time for New Employees

Learning Time

Meeting Schedules

Repair Time

Efficiency

Work Stoppages

Order Response

Late ReportingLost Time Days

QUALITY

Scrap

Waste

Rejects

Error Rates

Rework

ShortagesProduct Defects

Deviation From Standard

Product Failures

Inventory Adjustments

Time Card Corrections

Percent ofTasks Completed Properly

Number ofAccidents


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MAJOR CATEGORIES OF HARD DATA

How to calculate

Per category


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Units Cost Per

Unit

Before Value After Value

Widget

Produced

R 1 100 R 100 200 R 200

Units Cost Per

Unit

Before Total cost After Total Cost

Widget

Cost

R 1 100 R 100 R.5 R 150


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Units Cost Per

Unit


Widgets R 1 100 R 100 200 R 200

Units Cost Per

Unit


Hours

Worked

for n

R 50 100 R 5000 50 R 2500


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CHARACTERISTICS OF SOFT DATA

Subjectively based in many cases;

Difficult to measure and quantify,

directly;

Difficult to assign monetary values;

Less credible as a performance measure;

Usually behaviorally oriented.


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EXAMPLE OF SOFT DATA

Employee turnover, absenteeism, andgrievances are considered soft data

items; Not because they are difficult to

measure, but because it is difficult toaccurately convert them to monetary

value


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WORK HABITS

Absenteeism

Tardiness

Visits to the Dispensary

First Aid TreatmentsViolations of Safety Rules

Number of Communication Break-downs

Excessive Breaks

Follow-Up

WORK CLIMATE/SATISFACTION

Number of Grievances

Number of Discrimination Charges

Employee Complaints

Job Satisfaction

Employee Turnover

Litigation

Organization CommitmentEmployee Loyalty

Increased Confidence

CUSTOMER SERVICE

Customer Complaints

Customer Satisfaction

Customer Dissatisfaction

Customer ImpressionsCustomer Loyalty

Customer Retention

Customer Value

Lost Customers

EMPLOYEE DEVELOPMENT/ADVANCEMENT

Number ofPromotions

Number ofPay Increases

Number of Learning Programs Attended

Requests for Transfer

Performance Appraisal Ratings

Increases in Job Effectiveness

INITIATIVE/INOVATION

Implementation of New Ideas

Successful Completion ofProjects

Number of Suggestions Implemented

Setting Goals and Objectives

New Products and Services DevelopedNew Patents and Copyrights


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Soft Data Related Value Measure

Absenteeism

Labour unrest

Industrial Accident

Poor work climate

Staff loyalty

Customer loyalty

Customer complaints



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AbsentAbsent ProductionProductionLostLost

Value ofValue of

ProductionProduction

LossLoss

PresentPresent

LessLess


LostLost

Value ofValue of


GainGain



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AbsentAbsent ProductionProductionLostLost

Value ofValue of


LossLoss

PresentPresent

LessLess


LostLost

Value ofValue of


GainGain



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Converting Data Exercise Sheet


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How then do you calculate the value

of the improvement?


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CALCULATING THE VALUE OF AN

IMP

ROVEMENT

Identify the unit of improvement;

Determine the value of each unit (V); Determine the performance level

change ( P);

Calculate the improvement value (Vtimes P);


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CONVERTING THE COST OF

QUALITY

The cost of quality is an important measurein most organizations;

Since many performance improvementinterventions are designed to improvequality, the performance staff must place avalue on the improvement in certain qualitymeasures;

If quality is measured with a defect rate, thevalue of the improvement is the cost torepair or replace the product;

The most obvious cost of poor quality is thescrap or waste generated by mistakes;


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CONVERTING EMPLOYEES TIME

Reduction in time for employees is a commonperformance improvement objective;

In a team environment, perhaps a programenabled the team to perform tasks in ashorter time frame or with fewer people;

On an individual basis, time managementworkshops are designed to help professional,sales, supervisory, and managerial employeessave time in performing daily tasks;

The most obvious time savings are from laborreduction in labor costs for performing work;

The monetary savings are the hours savedtimes the labor cost per hour however alsoa component of contribution to profit


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Cost per Unit

Cost Per Unit Less

INCREASE/DECREASE

IN EXPENDITURE

- IMPACTON PROFITProduction

More

Time; Quality; Output


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Contribution

to profit

Contribution to

profitMore

INCREASE/DECREASE

IN EXPENDITURE

- IMPACTON PROFITSales

Less


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USING HISTORICAL COSTS

This strategy involves identifying theappropriate records and tabulating the

actual cost components for the item inquestion;

For example, a training program wasimplemented to improve safety

performance for a large constructionfirm. The program was designed toreduce the number of accidents;


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Actual cost

from records

Estimated

additional

from staff

Staff time;

Management

time

Cost

R 285,000

Total of

35 complaints

Legal fee;

Settlement

cost

R 285,000/35 = Cost per complaint

Cost of Sexual Harassment Complaint


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The Cost of an Accident

Direct Medical Costs Related to Accidents 114,390.00

Worker Compensation Payments 327,430.00

Insurance Premiums 120,750.00

Legal Expenses 75,600.00

Total Operating Budget for Safety and Health Department (Minus theAbove Values) Including Salaries and Benefits of Safety Staff

455,280.00

Management and Supervisory Time Devoted to Accident Prevention andInvestigation 105,000.00

Safety Training Costs Not Included in Above Operating Budget31,000.00

Safety Awareness Materials 31,000.00

Lost Productivity for Safety Training, Safety Meetings, AccidentInvestigation, and Replacement Staff 95,000.00

Total R 1,347,450.00

Total Number of Accidents 53

Cost Per Accident 25,423.60


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USING INTERNAL AND EXTERNAL

EXPERTS

When faced with converting soft data

items where historical records are not

available, it might be feasible toconsider input from experts very

knowledgeable with the processes;

Because the credibility of the value is

directly related to his or herreputation, the credibility and

reputation of the expert is critical.


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USING DATA FROM EXTERNAL DATA

BASES

Data are available on the cost of

turnover, absenteeism, grievances,

accidents, and even customersatisfaction. The difficulty lies in

finding a database with studies or

research efforts for a situation

similar to the program under

evaluation.


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USING PARTICIPANT ESTIMATES

In some situations, programparticipants can estimate the

value of a soft data improvement.This strategy is appropriate whereparticipants are capable ofproviding estimates of the cost (or

value) of the unit of measureimproved by applying the skillslearned in the program.


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LINKING WITH OTHER MEASURES

When standard values, records,experts, and external studies are notavailable, a feasible approach might

be developing a relationship betweenthe measure in question and someother measure that may be easilyconverted to a monetary value. This

involves identifying existingrelationships, if possible, that show astrong correlation between onemeasure and another with a standardvalue.


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USING SUPERVISOR/MANAGER

ESTIMATES In some situations, participants may be

incapable of placing a value on theimprovement. Their work may be so

far removed from the output of theprocess that they cannot reliablyprovide estimates. In these cases, theteam leaders, supervisors, or managers

of participants may be asked to providea value for a unit of improvementlinked to the program.


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USING LEARNING STAFF

ESTIMATES

The final strategy for converting data

to monetary values is to use

performance improvement staffestimates. Using all the available

information and experience, the staff

members most familiar with the

situation provide estimates of thevalue.


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Converting Data Exercise !!! See

Worksheet


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Still not finished.the cost of the

intervention!


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REASONS FOR DEVELOPING COST

DATA

To determine the overall expenditure for humanresource development

To determine the relative cost of each individualHRD program

To predict future program costs

To calculate benefits versus costs for a specificprogram

To improve the efficiency of the HRD department

To evaluate alternatives to a proposed HRDintervention

To plan and budget

To integrate data into the Human ResourceInformation System.


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TABULATING PROGRAM COSTS

Development Costs (Prorated);

Program Materials;

Instructor/Facilitator Costs; Facilities Costs;

Travel/Lodging/Meals;

Participant Salaries and Benefits;

Administrative/Overhead Costs;

Evaluation costs;


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MEASURING FINANCIAL PAYOFF

Cost Benefit Analysis

Return on Investment

Payback Period

Discounted Cash Flow

Consequences of not providinglearning systems


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Be efit/ st

ti =

Be efitsI =

Pr gr m Be efits

Pr gr m sts

Net Pr gr m Be efit

Pr gr m sts

Measuring Financial Payoff

X 100

1


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Guidelines for Successful Benefit-

Cost Analysis

Keep the process simple;

Use sampling for ROI calculations;

Always account for the influence of otherfactors;

Involve management in the process;

Educate the management team;

Communicate results carefully;

Give credit to participants and managers;

Plan for ROI calculations.


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Final Case Study !

ROI Of Training 05

Documents

Transcript of ROI Of Training 05