Get­ting Re­turn on In­vest­ment Out of Your Learn­ing & De­vel­op­ment

Trillions - - Content - By Dr. Chance T. Ea­ton

I re­cently asked a man­ager what a mean­ing­ful re­turn might look like when con­duct­ing their two-hour train­ing for 90 em­ploy­ees av­er­ag­ing a salary of $35 per hour – which trans­lates to a $6,300 in­vest­ment due to lost pro­duc­tion time. Their re­sponse was “It will cost noth­ing. We are us­ing our own em­ploy­ees to de­liver the train­ing, so we aren’t ac­tu­ally pay­ing any­one any­thing.” I sug­gested that, eco­nom­i­cally, lost pro­duc­tion ac­tu­ally has a value, specif­i­cally $35 per hour per per­son. Fur­ther, I added, you con­duct the same two-hour train­ing four times a year, bring­ing your train­ing cost to $25,200. Add a re­turn of in­vest­ment of, say, 10% to the an­nual in­vest­ment and you are now at $27,720.

The ques­tion I re­ally wanted them to ad­dress was how will you get your $27,720 back? Will it come in the form of greater ef­fi­ciency, com­mu­ni­ca­tion, pro­duc­tiv­ity, sales, en­gage­ment, in­no­va­tion, safety, cus­tomer ser­vice … what? Time away for train­ing is another part of the eco­nomic train­ing in­vest­ment, which re­quires a re­turn on in­vest­ment just like any other work ac­tiv­ity.

The prob­lem with the learn­ing and de­vel­op­ment (L&D) field is that we aren’t al­ways com­fort­able putting de­vel­op­ment in terms of real dol­lars and re­turns. Fur­ther, most peo­ple aren’t sure how they would ac­tu­ally mea­sure the re­turn on L&D. We need to re­mem­ber that L&D is an in­vest­ment no dif­fer­ent than up­grad­ing ma­chin­ery and equipment or in­vest­ing in new projects or soft­ware re­place­ments. These are real dol­lars that need to see real im­prove­ments in cash flow. The sooner we can learn to see train­ing and de­vel­op­ment from this per­spec­tive, the sooner we’ll see bet­ter qual­ity L&D ser­vices.

Ac­cord­ing to a re­cent L&D sur­vey from Op­ti­mus Learn­ing Ser­vices (2018), one of the top strate­gies for L&D de­part­ments is to move away from be­ing re­ac­tive so­lu­tion fin­ders to adding greater value through con­sul­ta­tion and lead­ing on strat­egy. This trans­lates to build­ing le­git­i­mate learn­ing cul­tures. But in or­der to be treated like a le­git­i­mate part of the busi­ness, L&D de­part­ments need to show their fi­nan­cial value. The fol­low­ing are two strate­gies I rec­om­mend for L&D de­part­ments to em­bark on: (1) ac­count for all train­ing ac­tiv­ity, and (2) demon­strate re­turn on in­vest­ment per learn­ing ac­tiv­ity.

Ac­count for All Train­ing Ac­tiv­ity

To help move to­ward build­ing a le­git­i­mate train­ing and de­vel­op­ment cul­ture, start with track­ing all learn­ing data. Meth­ods for cap­tur­ing learn­ing data range from us­ing so­phis­ti­cated Learn­ing Man­age­ment Sys­tems to sim­ple Ex­cel work­sheets. This starts with ac­count­ing ev­ery train­ing event, the num­ber of par­tic­i­pants and the to­tal hours of train­ing de­liv­ered. Second, pull train­ing-re­lated costs from L&D bud­gets, as well as de­vel­op­ment dol­lars that may be oc­cur­ring out­side the de­part­ment. Fi­nally, de­velop met­rics that can be tracked from year to year in or­der to show themes

and trends. A great start­ing place is to re­fer to the As­so­ci­a­tion for Tal­ent De­vel­op­ment learn­ing met­rics. They have a stan­dard­ized process for track­ing L&D and re­port their find­ings an­nu­ally. For ex­am­ple, L&D met­rics for 2017 in­cluded the fol­low­ing (ATD 2017 State of the In­dus­try Re­port):

• The direct ex­pen­di­tures for train­ing are $1,273 per em­ployee per year.

• The av­er­age hours of learn­ing are 34 per em­ployee per year.

• The per­cent­age of pay­roll for train­ing and de­vel­op­ment is 3.62%.

• The per­cent­age of rev­enue for train­ing and de­vel­op­ment is 1.36%.

• The cost of train­ing and de­vel­op­ment per train­ing hour is $80.28.

This is a nice large-scale per­spec­tive of how to gauge your com­pany’s state of learn­ing and lets you see how ef­fi­cient your to­tal train­ing and de­vel­op­ment dol­lars are. Once you be­gin cap­tur­ing learn­ing met­rics, you can com­pare your fig­ures from year to year as well as com­pare your fig­ures to those of your peers.

Demon­strate Re­turn on In­vest­ment per Learn­ing Ac­tiv­ity

L&D de­part­ments need to pro­vide a fi­nan­cial pic­ture of each learn­ing ac­tiv­ity. Fur­ther, they need to be per­for­mance coaches and walk their cus­tomers through mean­ing­ful ac­tions to achieve re­turns on in­vest­ments for learn­ing ac­tiv­i­ties. Be­low, I pro­vide a sim­ple math ex­er­cise demon­strat­ing the eco­nomic in­vest­ment of any L&D ac­tiv­ity.

• Step 1: Cal­cu­late in­vest­ment of train­ing (dol­lars spent on ven­dor or es­ti­mated value of in­ter­nal trainer). Ex­am­ple: $4,200

• Step 2: Cal­cu­late lost value of pro­duc­tion. Ex­am­ple: 42 em­ploy­ees x $20 per hour per em­ployee x four hours = $3,360

• Step 3: Add Step 1 and Step 2 to de­rive to­tal eco­nomic in­vest­ment. Ex­am­ple: $7,560

• Step 4: Cal­cu­late an­nu­al­ized re­turn on in­vest­ment of 10% (rate de­pends on cost of cap­i­tal). Ex­am­ple: $756

• Step 5: Add Step 3 and Step 4 to de­rive to­tal needed re­turn on in­vest­ment from the L&D ac­tiv­ity (as­sum­ing a one-year pay­back in this ex­am­ple). Ex­am­ple: $8,316

This trans­lates to $198 of value needed from each em­ployee for one year (as­sum­ing a one-year pay­back) in greater pro­duc­tiv­ity, ef­fi­ciency, sales, safety, theft, etc. Another way of look­ing at the same value is per hour value needed. Per hour would trans­late to $0.10 per hour ($198 ÷ 2,080 work hours per em­ployee). In other words, each em­ployee, as a re­sult of the L&D ac­tiv­ity, needs to add $0.10 per hour in ad­di­tional eco­nomic value to their work.

This might not sound like much, but us­ing the same $20 per hour wage, at 34 av­er­age hours of train­ing per em­ployee (seen above in ATD’S An­nual Re­port), this trans­lates to $2.58 per hour needed in ad­di­tional eco­nomic value. With an ad­di­tional $2.58 needed in eco­nomic value, you should see man­agers and lead­ers highly mo­ti­vated to hold them­selves ac­count­able for en­sur­ing that all L&D ac­tiv­i­ties pay off!

Now comes the hard part: per­form­ing the role of per­for­mance coach for com­pa­nies and their lead­ers. L&D lead­ers need to sit with the stake­holder and iden­tify how they will de­ter­mine what suc­cess looks like. How do you mea­sure suc­cess from an L&D ac­tiv­ity? Some­times this is easy, like achiev­ing new sales tar­gets, pro­duc­tiv­ity and ef­fi­ciency met­rics. These types of suc­cesses are quan­ti­ta­tive and likely al­ready ex­ist as busi­ness met­rics. Some­times this can be very dif­fi­cult, how­ever, like hav­ing clearer com­mu­ni­ca­tion re­gard­ing the team’s weekly ex­pec­ta­tions. This can be a very qual­i­ta­tive topic and harder to mea­sure. To turn a highly qual­i­ta­tive out­come, like bet­ter com­mu­ni­ca­tion, into some­thing tan­gi­ble, you can build pre- and post-sur­vey state­ments that get to the heart of the qual­i­ta­tive goal. For ex­am­ple, one op­tion in a bank of state­ments could read “I have a clear un­der­stand­ing of this week’s ex­pec­ta­tions.” You can ad­min­is­ter the state­ment se­lec­tion be­fore the train­ing and then again af­ter, to de­ter­mine growth. In the case of this ex­am­ple, the mea­sure­ment could be a 25% in­crease in sat­is­fac­tion for “I have a clear un­der­stand­ing of this week’s ex­pec­ta­tions.”

Where L&D drops the ball nearly ev­ery time is in help­ing a cus­tomer de­velop a plan for suc­cess as a re­sult of the de­vel­op­ment ac­tiv­ity. To add even more spice to ac­count­abil­ity, build into your L&D bud­gets a re­ward sys­tem for when goals are ac­tu­ally met. For ex­am­ple, if a team iden­ti­fied the right kind of L&D ac­tiv­ity, de­vel­ops mean­ing­ful goals re­lated to the ac­tiv­ity, is held ac­count­able by man­age­ment to hit their tar­gets and meets/ex­ceeds their goals, re­turn 5% of the ini­tial in­vest­ment value back to the stake­holder group. This can be used as a re­ward and cel­e­bra­tion for the team, to re­flect on what got them there, and

builds con­tin­u­ing de­grees of team com­radery and mo­ti­va­tion.

Or­ga­ni­za­tions re­ally need to im­prove their learn­ing cul­tures. In­stead of be­ing re­ac­tive so­lu­tion fin­ders, com­pa­nies need to in­vest in their L&D de­part­ments and en­cour­age them to con­sult and lead on strat­egy. Fur­ther, com­pa­nies need to help man­agers im­prove their abil­ity to help their em­ploy­ees learn. But for L&D to be con­sid­ered val­ued and rel­e­vant in to­day’s com­pet­i­tive en­vi­ron­ment, they have to clearly demon­strate how they will pro­vide a mean­ing­ful re­turn on in­vest­ment.

Ref­er­ences:

As­so­ci­a­tion for Tal­ent De­vel­op­ment (2017). 2017 State of the In­dus­try Re­port. Alexan­dria, VA: ATD Press.

Op­ti­mus Learn­ing (2018). Over­com­ing the Chal­lenges for L&D in 2018. Saw­bridge­worth, Eng­land: Op­ti­mus. Re­trieved at op­ti­muslearn­ingser­vices.com/blog/ld­strat­egy/chal­lenges-for-ld-in-2018/.

Dr. Chance Ea­ton has over a decade’s worth of EX­PE­RI­ENCE WORK­ING IN THE FIELD OF LEARN­ING AND OR­GA­NI­ZA­TIONAL DE­VEL­OP­MENT. DUE TO HIS UNIQUE ED­U­CA­TIONAL AND WORK EX­PE­RI­ENCES IN FI­NANCE, PSY­CHOL­OGY, LEAD­ER­SHIP AND MAN­AGE­MENT, ED­U­CA­TION, NOETIC SCI­ENCES AND AGRI­CUL­TURE, DR. EA­TON PRO­VIDES HIS CLIENTS WITH REL­E­VANT BUSI­NESS SO­LU­TIONS GROUNDED IN THE­ORY AND RE­SEARCH. TO LEARN MORE ABOUT DR. EA­TON’S SER­VICES, VISIT Hc­sin­ter.com.

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