Training should show a return on investment pt2
Stephen Walker concludes his feature on ROI and its place in justifying spending on training.
The hard reality
Good financial directors will take a jaundiced view of claimed returns on investment. There is no doubt that a critical eye is needed on some claims. If you spend £1000 on training, how do you get that cash back? You need to show the source of the additional income or the reduced cost.
If that £1000 is spent on improving a department of ten people, so that they are 5% more effective, how do you get your money back? Can they produce 5% more work in which case you need the sales to generate the ROI. Can you win those sales? If ten people are 5% more efficient then they do the work of ten and a half people. Will you make half a person redundant? Change the hours to suit? If not, you haven’t saved anything. If the investment does produce labour savings what rate do you charge?
Businesses calculate their labour rate as direct cost plus overhead. Typically an hour at £10 direct and £20 overhead cost will be sold for £60 to you and me. If you are saving labour time through an investment the overhead is not affected. If anything the overhead rate per hour will increase as it is spread over fewer hours. All you can use to justify your investment is the direct labour cost (plus the additional costs of employment). Then there is the 'quality' argument: the investment produces a better quality product or service. If this results in fewer unsalable products or services then the same caution about saving calculations applies.
The trainer’s problem
How do you prove ROI? Improving people’s performance is difficult to justify as jobs are not always lost. Improving the quality of outcome is equally difficult to justify as then you are in competition with several other solutions to increasing the saleability of the product or service. As an external training company you are unlikely to have access to the client’s management accounts to be able to understand their cost drivers. You are faced with using your own generic numbers to price your training. Training in a new skill is, at least, a straightforward benefit. Your trainees will be able to do something they couldn’t do before. Then it is up to the client to use that new skill to produce the revenue that gives the ROI.
The training market
We all know what happened to training budgets in 2007. If training produced a solid ROI then the budgets would not have been cut. So much training is bought for a 'nice to have' reason. We all know that training is 'a good thing' don’t we? Unfortunately a lot of training has been delivered that produced little or no ROI. The entire sector has had its image tarnished by the slick sales processes of trainers with worthless products. Our image is not helped by the government’s grants for training. In effect the government is agreeing the training is only worth a tenth of the price. That may well be the government’s own experience talking. As the UK emerges from recession the training market is picking up and we need to prove our ROI.
Proving our ROI is simple, fortunately. Our prospective clients are afraid they will be sold something worthless. So we have to convince them otherwise and show them the value of our training. We have to deliver training of astounding value in a very effective way .We have to change the 'buyer beware' model into a 'seller beware' one. Instead of the client being afraid he or she will pay for something worthless, we the trainers should be afraid a client will not pay for something worthwhile. I’m talking about a no quibble guarantee. The client doesn’t pay if he doesn’t want to. Are you ready for that?
Stephen is a co-founder of Motivation Matters, set up in 2004 to develop organisation behaviour to drive greater performance. He has worked for notable organisations such as Corning, De La Rue and Buhler and has been hired to help Philips, Lloyds TSB and a raft of others. A published author of articles and Conference speaker, Stephen delivers workshops across the country. It is all about 'making people more effective by appropriate managerial behaviour' he says. You can follow Stephen on LinkedIn, Twitter, YouTube and Blog