Calculating return on investment

Assessing the ROI of training

Measuring the success of training

Forecasting and measuring costs

Forecasting and measuring benefits

Calculating return on investment

Making ROI work for you

Calculating return on investment

RETURN ON INVESTMENT tells you the percentage return you have made over a specified period as a result of investing in a training programme. On the assumption that benefits will continue to accrue some time after the training, then the period that you specify is critical to the ROI figure you will obtain. You may like to specify a period that fits in well with your organisations planning cycle perhaps a year or two years. On the other hand, you may wish to calculate the period to correspond to the lifetime of the benefit, in which case you will need to know how long the average student stays in a position in which they can continue to apply the knowledge and skills being taught.

It is relatively simple to calculate return on investment:

% ROI = (benefits / costs) x 100

Payback period
Another way at looking at ROI, is to calculate how many months it will take before the benefits of the training match the costs and the training pays for itself. This is called the payback period:

payback period = costs / monthly benefits

Payback period is a powerful measure. If the figure is relatively low perhaps only a few months then management will be that much more encouraged to make the training investment. As a measure, it also has the advantage of not requiring an arbitrary benefit period to be specified.

Here's an example of the final results for a ROI analysis:

Duration of training	33 hrs
Estimated student numbers	750
Period over which benefits are calculated	12 months
Costs
Design and development	£40,930
Promotion	£4,744
Administration	£12,713
Faculty	£86,250
Materials	£15,000
Facilities	£40,500
Students	£553,156
Evaluation	£872
Total cost	£754,165
Benefits
Labour savings	£241,071
Productivity increases	£675,000
Other cost savings	£161,250
Other income generation	£0
Total benefits	£1,077,321
Return on investment	143%
Payback period	8 months

Simplifying the process
If you've been following through all of these steps, then you'll have realised just how many calculations are involved in conducting a thorough analysis. What's more, when you start to look at areas such as opportunity costs and productivity benefits, then there are some quite tricky concepts involved.

To make this a little easier, I have developed, in conjunction with the Institute of IT Training, a 'Training ROI Calculator'. This provides, in spreadsheet form, a template that applies well to any training process, regardless of content or method. The primary purpose of this calculator is to support the Institute's one-day course on 'assessing the ROI of training' and the corresponding e-learning course 'the ROI of training', although educational establishments can obtain a free copy separately. If you are interested in the calculator or the courses, contact the Institute on or .

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