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Employee Training: Investing in Business Skills

Posted by Marbenz Antonio on August 18, 2023

Most business executives understand the significance of employee training and development initiatives. According to a recent survey by McKinsey involving over 1,200 global business leaders, 87% of companies acknowledged the presence of a skills gap, and 53% of executives highlighted that enhancing skills in existing employees was the most effective method to address this gap. However, how can you determine if your employee training programs are yielding positive outcomes?

Regularly assessing the return on investment (ROI) of your corporate training and educational strategy is essential to ensure its effectiveness in achieving the desired results. If you’re striving to stay ahead of future skills requirements by offering or enhancing virtual employee learning opportunities, it’s crucial to understand the types of results and returns you should anticipate.

This guide is designed to assist you in addressing this question through:

• categories to be taken into account while dissecting ROI
• factors to be included in your computations
• a sample formula and metrics

There isn’t a universal ROI formula since the calculation should be tailored to your strategic goals. This guide will equip you with the necessary understanding to steer discussions and assessments according to your specific objectives. Here’s how we’ll proceed:

• The strategy: Establish a clear definition of success and identify the metrics and data necessary to quantify and evaluate it.
• The returns: Analyze each of the returns in more detail so you can search them out and evaluate them while keeping in mind important factors.
• The investment: Comprehend the expenses that you should include in the calculation.
• The final calculation: Mix all the data to determine specific characteristics of the returns.
• The additional benefits: Ensure not to exclude the factors that may not easily fit into a straightforward equation, as they hold a significant influence on your overall success.
• The wrap-up: Bring it all together.

The Strategy of ROI for Employee Training

Prior to discussing outcomes, it’s essential to establish benchmarks for what you intend to achieve. Are you aiming to enhance and expand your current learning and development initiatives by transitioning to blended or online programs, or are you in the process of switching from one learning management system (LMS) to another? Is your focus on enhancing your learning programs, or do you aim to alleviate the administrative workload they impose on your team?

Whatever your objectives may be, defining the criteria for success constitutes the initial phase in determining the ROI of your program.

Questions to Answer

• Who are the key stakeholders that should be engaged? Consider involving representatives from senior leadership, IT, finance, learning and development, HR, health and safety, and, significantly, your learners.
• What are the existing employee training platforms, tools, and methods in place?
• Do you possess the internal expertise and resources to develop effective training content, or will you require external assistance?
• What is the expected timeline for implementation?
• How will your processes and operations be influenced, and what measures will be necessary to facilitate the transition?
• What types of data and insights are already accessible to you? Is there a formal mechanism for gathering feedback from your learners and their supervisors?

Metrics to Consider of ROI for Employee Training

Learning Engagement: Direct your attention to how employees engage with your existing learning programs. This involves aspects such as the duration they spend on training, the top-performing and underperforming content, the number of employees participating in optional learning initiatives, whether they follow a structured sequence or navigate randomly, and similar factors.

Administration: Determine how much time each employee needs to manage the learning environment. This includes activities like creating courses and content, interacting with students, providing feedback and grades, resolving issues, and creating reports.

Time to productivity: How long does it take for new hires to become comfortable in their roles and improve their performance metrics in terms of employee onboarding initiatives?

Impact: In terms of training that targets particular behaviors associated with aspects like safety, quality, or productivity, are you observing the intended changes when compared to the benchmarks established before the training?

Growth: Do you notice a link between employees who are engaged in your training programs and their growth or change in responsibilities within the company?

Retention: Do you notice a clear difference between employees who actively participate in your learning programs and those who don’t in terms of employee retention rates?

Quantifying Returns

Returns can typically be categorized into three groups:

• Those that reduce costs.
• Those that directly generate revenue growth.
• Those that generate growth or reduce costs indirectly.

Reducing Costs of ROI for Employee Training

Implementing employee training and development via online and blended learning programs has a quantifiable effect on expenditures. Take into account the following:

• Conducting training without the need for expenses like travel, meals, and venue rentals directly results in cost savings.
• Online programs can easily expand to enhance their reach, requiring far less administrative effort than in-person learning. This means you can engage more learners and offer a wider array of learning options with your current team.
• Effective LMS software offers a learner-focused experience through features like self-registration, immediate feedback, automated communication touchpoints, collaborative learning tools, and personalized learning pathways based on content release conditions, all of which demand minimal staff involvement.
• Enabling competency-based learning establishes a direct connection between skill enhancement and job effectiveness.
• Incorporated learner analytics streamline data gathering and reporting, delivering precise insights to all parties, even when urgent data requests arise.
• Offering programs accessible anytime and anywhere empowers employees to seamlessly integrate learning into their work routines, minimizing obstacles to participation.

Factors to consider:

• average cost per onsite training session
• number of training sessions required
• staff hours spent on learning administration, data gathering, and reporting
• reduced days of administrative work
• increased productivity
• improved quality of work
• reduction or elimination of safety incidents

Growing Revenue

Employee training initiatives linked to business outcomes can also directly stimulate revenue growth. Reflect on the following points:

• New employee onboarding: Implementing tailored onboarding training and activities enables new hires to adapt swiftly, resulting in quicker value delivery.
• Job skills enhancement: Virtual and hybrid learning approaches can cultivate job-specific skills and knowledge that contribute to revenue growth. For instance:
  • Offering on-demand training and resources empowers salespeople to review pertinent use cases aligned with their prospects’ needs for the week.
  • Educating production staff about new processes and tools can enhance their efficiency, aiding them in meeting their targets.
  • Providing product and service training updates to customer support representatives can optimize customer value, leading to subscription renewals and additional sales opportunities.

The Investment of ROI for Employee Training

The second aspect of any ROI calculation involves investment. Investment in employee learning and development consists of two components: initial setup costs and variable or ongoing expenses.

One-time Setup Costs:

• LMS implementation
• change management
• customization
• content development

Variable or Ongoing Costs:

• licensing
• consulting
• marketing

The Final Calculation

To arrive at the final ROI, you need to consolidate your previous calculations using the following formula:

((Annual Program Benefit – Annual Ongoing Program Costs) / One-Time Setup Costs) x 100 = ROI

A positive result indicates that your online learning programs generated a net benefit after factoring in the costs of implementation and operation. The higher the percentage, the more favorable the outcomes.

When conveying the benefit, individuals often opt to present dollar amounts rather than percentages. For instance, an ROI of 50% signifies that each dollar invested yields $1.50. If you put in $10,000, your return would amount to $15,000.

The Additional Benefits

ROI calculations focus on cost savings and revenue growth that can be directly attributed to the investment in a straightforward manner, but this only provides a partial perspective. There are additional advantages that either contribute to indirect revenue growth or offer intangible benefits that are challenging to quantify, yet remain essential for your overall success.

Growing Employee Engagement

Employee engagement is characterized as the “emotional dedication an employee exhibits toward the organization and its objectives.” This emotional attachment leads to an escalation in discretionary effort, where employees are willing to surpass basic expectations due to their genuine interest in their work. This phenomenon, supported by Gallup, positively influences various performance outcomes, including customer ratings, profitability, productivity, turnover, safety incidents, theft, absenteeism, patient safety incidents, and quality.

Employee engagement is a key factor in encouraging employee growth and development, according to a plethora of studies done by companies like Gallup and Deloitte. Employee training results in a remarkable 27% increase in employee engagement, according to the Global Employee Engagement Index (GEEI).

Attracting and Retaining Talent

In an environment where numerous organizations are vying for top-tier talent, prioritizing employee learning and development becomes indispensable for both attracting and retaining employees. For example:

• A survey by the recruiting firm Execu|Search Group revealed that 86% of professionals would consider changing jobs if they were provided with more opportunities for professional development.
• According to LinkedIn Learning’s 2018 Workplace Learning Report, a substantial 94% of employees expressed willingness to remain longer with companies that invest in their career development.
• In Gallup’s American Upskilling Study, it was found that 66% of younger workers (ages 18 to 24) consider upskilling as the third most crucial employment benefit (following health insurance and disability benefits), and 53% of older workers (ages 55+) consider upskilling to be very or extremely important.

Employee training has transitioned from being merely a pleasant bonus to becoming a fundamental requirement in the realm of employee benefits. However, learning and development programs offer more than just this essential element in decreasing turnover. Delve into the following aspects:

• The research underscores that nurturing internal career advancement among employees enhances their engagement and dedication to the organization.
• With 52% of departing employees indicating that their manager or organization could have taken measures to prevent their departure, Gallup highlights how managerial training equips managers to engage in meaningful dialogues, thereby enhancing the employee experience.
• Harvard Business Review (HBR) accentuates the significance of onboarding in making employees feel appreciated and fostering a sense of belonging, resulting in a remarkable 50% improvement in new hire retention.

Gallup reveals that the expense of replacing an employee varies from half to double the employee’s yearly salary, without considering intangible costs like the loss of institutional knowledge, customer connections, and potential effects on team morale. While converting this into a straightforward ROI calculation might be challenging, the influence is unquestionable.

Building a Skilled Workforce

Another significant benefit of investing in employee training is the capacity to ensure that your organization possesses the necessary skills to remain innovative and competitive both presently and in the future. According to LinkedIn Learning’s 2022 Workplace Learning Report, respondents noted that the skills necessary for the same occupation had evolved by 25% between 2015 and 2021. The report predicts that at this rate, the required skills will change by 40% by 2025—just to maintain the same job.

Consider this for a moment: Skills are evolving so rapidly that neglecting to offer continuous learning prospects for employees results in skill gaps emerging within organizations.

Certainly, the goals of an organizational learning initiative extend beyond the mere aim of preventing skill stagnation. Given that Gartner indicates that merely 36% of managers believe their employees can adequately meet future skills demands, the ongoing evaluation and enhancement of skills and proficiencies within your workforce offer a competitive edge. Once more, quantifying this in terms of monetary value may be challenging, but the potential to innovate and remain ahead of the curve yields undeniable advantages over consistently struggling to catch up.

Here at CourseMonster, we know how hard it may be to find the right time and funds for training. We provide effective training programs that enable you to select the training option that best meets the demands of your company.

For more information, please get in touch with one of our course advisers today or contact us at training@coursemonster.com