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Training Return on Investment (ROI)

Training Return on Investment (ROI). Pitfalls & Problems. Cost vs. Investment. Cost : An amount paid, price; a loss, sacrifice or penalty. Cost vs. Investment. Invest: To spend or utilize for future advantage or benefit. Accounting Questions.

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Training Return on Investment (ROI)

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  1. Training Return on Investment (ROI) Pitfalls & Problems www.bmsproject.weebly.com, www.mymba.weebly.com

  2. Cost vs. Investment • Cost: An amount paid, price; a loss, sacrifice or penalty www.bmsproject.weebly.com, www.mymba.weebly.com

  3. Cost vs. Investment • Invest: To spend or utilize for future advantage or benefit www.bmsproject.weebly.com, www.mymba.weebly.com

  4. Accounting Questions • How are “fixed” costs allocated & distributed? • Which “variable” costs are included? • Over what time frame is the measurement made: Quarterly, Annually, Longer? • How is lowered productivity measured when people are being trained? www.bmsproject.weebly.com, www.mymba.weebly.com

  5. Accounting Questions • Discounted Cash flow Rate of Return (DCFROR) depends on discount rate, time frame, cash flow, etc. • Internal Rate of Return-depends on a management established ‘threshold’ • KEY QUESTION: Should training decisions meet the same investment criteria as other capital investments? www.bmsproject.weebly.com, www.mymba.weebly.com

  6. Accounting Questions • “Break-Even Point” is a simple technique • KEY QUESTION: When is the cost of training not worth the benefit? www.bmsproject.weebly.com, www.mymba.weebly.com

  7. Management Focus • Cost vs. Investment “philosophy” • Training “costs” get cut or eliminated during economic downturns www.bmsproject.weebly.com, www.mymba.weebly.com

  8. Management Focus • Some skills are “perishable”; training effectiveness may decline over time. • Dangerous Oversimplification: training is the only influencing variable. www.bmsproject.weebly.com, www.mymba.weebly.com

  9. Management Focus • Identify the expected outcomes from the beginning • Know the “rules of the game” before you start www.bmsproject.weebly.com, www.mymba.weebly.com

  10. The “ex-post facto” calculation • Done “after the fact” • Lack of proactive stance • “Reproduce” original baselines www.bmsproject.weebly.com, www.mymba.weebly.com

  11. The “ex-post facto” calculation • Justification of an outcome with no influence or control of the variables • Variables outside organization’s control • Questionable conclusions about measured effects www.bmsproject.weebly.com, www.mymba.weebly.com

  12. Reliable & Valid Measures • Valid: measures what it is supposed to measure • Reliable: consistent and reproducible www.bmsproject.weebly.com, www.mymba.weebly.com

  13. Reliable & Valid Measures • Simple for physical output • Somewhat easy for Psychomotor • More difficult for cognitive domain • Most difficult for affective domain www.bmsproject.weebly.com, www.mymba.weebly.com

  14. If you are going to use ROI: • Know your accounting system. • This analysis approach is complex, time consuming & costly: Is it worth it? • Determine the organizational “philosophy” about “cost” versus “investment”. www.bmsproject.weebly.com, www.mymba.weebly.com

  15. Final Advice • Using ROI as the “bottom line” may not be the best criteria for determining the value of training. It can be a good indicator, but it may not be the indicator. www.bmsproject.weebly.com, www.mymba.weebly.com

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