PCCA Journal|2
nd
Quarter 2010
32
years’ productivity increases.
Add 5 and 6 to total estimated profit increase from
7.
training.
Calculate total training benefits after training cost
8.
by subtracting 7 from 3.
Calculate training ROI. This method rolls all return
9.
into the first-year calculation (which is the period in
which the training cost is expensed), so an annual-
ization of return is not needed.
Individual Commitments Approach
This approach focuses on changes accomplished and
overall business results instead of mathematical projec-
tions. The idea is to identify two or three core behav-
iors that if employed by a specific business unit within
the organization, would dramatically improve business
results. The next step is to provide the training and
focus on ensuring that participants who complete the
program are truly capable of performing the specified
behaviors.
The participants then receive three to six months of
reinforcement and support related to the target per-
formance and their subsequent progress. The specific
financial impact related to that business unit is com-
pared each month (or week) after the training experi-
ence. The impact of implementing the target competen-
cies is determined and evaluated in terms of strategic
benefit.
The ROI process involves the participants and their
managers and extends well beyond the learning event.
Once the detailed commitments are established, em-
ployees submit progress reports. Implementing the new
skills is linked directly to the business activity that is
the beneficiary of the changed behaviors.
Root Cause Analysis
Identify the root cause of organizational “pain”
1.
(e.g., closeout, change orders, or customer service).
Determine how much the pain costs. Using closeout
2.
as an example, determine the total cost of delay in
closing out, number of days of accounts receivable,
cost of general conditions for extra days, cost of
each “additional” punch list item, overtime, and call
backs.
Design a training program around focused training
3.
that would reduce the closeout cycle by a targeted
number of days, identify who and how many
people would be involved, and determine the costs
associated with it.
Develop a cost/benefit ratio. How much is earned
4.
by implementing training to closeout sooner versus
the current closeout cycle?
These are just a few examples of how you might try
to determine ROI. Return on investment in the area of
training is a somewhat subjective exercise. Collecting
enough evidence to point to training as the main rea-
son for success will undoubtedly require a great deal
of time, calculations, and expertise. It may take some
time for that investment to return to you through the
changes exhibited in your people. However, remember
that any training is an investment in your greatest as-
set, your employees. Training and development shows
them how valuable you think they are and increases
their value to you.
One-time training is useful but ongoing develop-
ment demonstrates to your people that you continually
invest in their value. A common concern from many
companies in this economy is they just do not believe
they have the money for training. Former Harvard
University President Derek Bok said, “If you think
that education is expensive, try ignorance.” With that
in mind, consider an analogy in our industry to help
frame this discussion. During this slowdown, a number
of companies have used the time to do maintenance on
their “fixed assets” (equipment). The “yellow iron” is
the cleanest and most maintained it has been in years.
The strategy is sound: you have to do the maintenance
on it anyway and it is money well spent in the end. It
is a good time to get everything in good working order
so that it is ready to go when you need it (or want to
sell it.) An added bonus is that you can keep some
good workers busy for a while. You spent some money,
but you know it will pay back when the work picks up
again. After all, as long as the equipment was sitting
An Upside to the Downturn
Continued from page 31
Cost of Training
Consider a two-day training program for 16 em-
ployees.
If you pay each employee $200 per day, multiply
•
that by two days. You would pay $400 times 16
employees for a total of $6,400 in trainee wages.
Estimated costs for training facilitator, materials,
•
room, a/v equipment, and travel equals $16,500.
If the company makes 20 percent profit on each
•
employee hour worked, the loss in employee
productivity while in training would be $1,280
($200 per day X 20 percent X 16 people X 2 days)
= the total training costs are $24,180, in this
example.
Assume that each of the 16 employees improved
productivity, which resulted in an additional 10
percent of profit per employee. The added profit af-
ter the training would equal $79,360 ($200 per day
X 10 percent X 16 people X 248 days) in the first
year, which, in this example, is a return of three
times the cost of the training.