It is amazing how much training takes place and how much money is spent without any effort being made to put a real value on what such training is worth.
This is a pity because training can make a significant difference and generate very considerable pound signs.
Also, if managers do not really consider the true value of training they will never give as much commitment to making it work as they should.
Why not practice putting a value on training by considering for a moment what a 1% increase in sales would be worth in your own organisation.
If you have sales of £100 million that is an extra £1 million.
However, we have to look at how much of that would be profit. If we assume a 10% net profit margin then that is worth £100,000 on the bottom line.
For those of you who work in the public or not-for-profit sectors you probably do not have profit margins to focus on so how can you put a value on your training?
The most obvious way would be to look at a 1% reduction in costs through greater efficiencies generated by training.
So, what were the total costs for your organisation last year, (excluding fixed and overhead costs for now) and what would 1% of this be worth.
Interestingly, we do not have to consider profit separately here. Any pure cost savings should go straight to the bottom line.
Take the NHS, if the cost of running a hospital is £100 million per annum then a 1% cost saving will be worth £1 million.
Revenue (or income) and costs are basically the only two ways to add value through training.
However, if it costs a hospital £10,000 to treat the average patient then a £1 million cost reduction means that hospital can treat another 100 patients a year. So value can be interpreted as opportunity cost.
The great advantage of getting used to talking about training in terms of its real (or potential) value in pound's sterling is that it always attracts more attention.
It is speaking a language that managers understand.
Whenever possible, always think of any piece of training in terms of the value it might add before you express it in terms of skills, knowledge or behavioural terms.
If you think managers need to spend more time developing their staff you had better be prepared to tell them what this could be worth. Otherwise why should they bother?
Practice with these sorts of figures until you are confident that you can inject them into your next training meeting.
Shelley, there's more to the theory of evaluation and ROI than meets the eye. That's why every Bitesize is important in the complete picture. Part of the answer to your question is in Bitesize 3 - much of the training you are referring to is in Box 1 and therefore not amenable to ROI. Otherwise the rules of evaluation apply just as much in a University as they do in a commercial organisation
Shelley, there's more to the theory of evaluation and ROI than meets the eye. That's why every Bitesize is important in the complete picture. Part of the answer to your question is in Bitesize 3 - much of the training you are referring to is in Box 1 and therefore not amenable to ROI. Otherwise the rules of evaluation apply just as much in a University as they do in a commercial organisation
Shelley Upton , 08-Mar-04 Valuing training
My department is working towards IiP and knowing what is the return on our investment in training is exercising us considerably. We feel we are spending money wisely but how do we prove it? It's easy in a bean-counting environment but not so easy with things like, for example, awareness of data protection legislation. How do you measure whether training has saved or made money? No lawsuits in a given period of time maybe? How about hour-long training sessions in areas such as awareness of current trends in HE? It's not necessarily immediately job-related. It may be of interest. It won't necessarily (though it might) impact on our customers, the staff and students of the university. How on earth do we measure that? Participant feedback says staff enjoy and value it, but that's not a money measure. All constructive suggestions would be most gratefully welcomed.
Hi guys, thanks for taking the time and trouble to comment. Each Bitesize concentrates on just one tiny element in a whole series so they don't try to paint the full picture on their own. This article has just one simple point - is your training and development designed to add at least 1% in extra value? Is that too simplistic or patronising? I hope not. I suppose it depends on whether you can actually answer this simple question in theory at least. I regard myself as a business partner so my first question before any training gets designed is always a clear business question. We'll cover all the practicalities as the rest of the series unfolds.
Regards
Paul
Bill Sanderson , 28-Jan-04 but how?
This is the most patronising article I have read in years. The arithmetic is so simple it is explained no less than 3 times. I can do 1% and 10% sums thanks. We already know ROI is important and simply stating the obvious cuts no ice at all. How do you PROVE that it is the training of itself that has contributed to the bottom line? This article did not live up to its title. Bill Sanderson
John Curran , 26-Jan-04 Employ current thinking on intellectual capital...
I agree with Anthony – it’s an oversimplification to value training or learning by linking it directly to cost reduction or improved sales. The real situation is much more complex (as I think we all know but conveniently side-step). Better customer service, new product ideas, more effective managers all deliver substantial value but it’s hard to calculate the precise effect on the bottom line. I’m a supporter of some of the latest thinking on intellectual capital (or intangibles) accounting – there are a number of different approaches and they can help business leaders to really ‘see’ the value in training and development. I have used Karl-Erik Sveiby’s Intellectual Asset Monitor (IAM). IAM defines three types of intangible assets that account for the book value-to-market value discrepancy in the valuation of a company. The ‘residual’ that is not accounted for by the book value is attributed to individual competence of employees, internal structure, and external structure. With its primary emphasis on people, this model is based on the premise that people are the only true agents in business and all aspects of structure, internal and external, are embedded in human actions. Once you take that onboard developing people is a no-brainer – but you must do the right sort of development John Curran
Anthony Feely , 26-Jan-04 Value versus commercial evaluation
Are we forgetting that the value we place in something should depend on its innate ability to improve our lives. Putting a commercial evaluation to something only measures what can be financially measured.
I'll admit to being an accountant and a financial trainer. You might think, then, that I support putting £ signs on the "value" of training. Far from it - I saw the light some years ago after many years of believing I could measure everything.
I think Einstein put it best: "Not everything that counts can be counted, and not everything that can be counted counts."
