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8/8/2019 ROI Of Training 05
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Session 6 Converting Value and
Calculating ROI
MEASURING
ROIOF
TRAINING
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PRE-AMBLE
Traditionally, most impact evaluation studiesstop with a tabulation of business results,detailing improvements such as quality
enhancements, reduced absenteeism, orimproved customer satisfaction;
The aim however should be to show the valueof the improvements in relation to cost;
To do this distinguish first between hard andsoft data.
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The first step in converting tomonetary value is to sort out hardand soft data
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CHARACTERISTICS OF HARD DATA
Objective;
Easy to measure and quantify;
Easy to assign monetary values;
Common measures of organizational
performance;
Very credible with management.
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EXAMPLE OF HARD DATA
A state government office approving applications fornew drivers licenses;
It will have these four measures among its overallperformance measures:
The number of applications processed (Output);
Cost per application processed (Cost);
The number of errors made processing applications(Quality);
The time it takes to process and approve anapplication (Time).
Ideally, performance improvement interventions in thisunit should be linked to one or more hard datameasures.
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MAJOR CATEGORIES OF HARD DATA
Primary Measurements
of Improvement
Hard Data
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ACCRA BRICKWORKS EXERCISE
What category does
your measure fall in?
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OUTPUT
Units Produced
Tons Manufactured
Items Assembled
Money Collected
Items Sold
Forms ProcessedLoans Approved
Inventory Turnover
Patients Visited
Applications Processed
Students Graduated
Tasks Completed
Output Per Hour
ProductivityWork Backlog
Incentive Bonus
Shipments
New Accounts Generated
COSTS
Budget Variances
Unit Costs
Cost By AccountVariable Costs
Fixed Costs
Overhead Cost
Operating Costs
Number of Cost Reductions
Project Cost Savings
Accident Costs
Program Costs
Sales Expense
TIME
Equipment Downtime
Overtime
On Time Shipments
Time to Project Completion
Processing Time
Supervisory TimeBreak in Time for New Employees
Learning Time
Meeting Schedules
Repair Time
Efficiency
Work Stoppages
Order Response
Late ReportingLost Time Days
QUALITY
Scrap
Waste
Rejects
Error Rates
Rework
ShortagesProduct Defects
Deviation From Standard
Product Failures
Inventory Adjustments
Time Card Corrections
Percent ofTasks Completed Properly
Number ofAccidents
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MAJOR CATEGORIES OF HARD DATA
How to calculate
Per category
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Units Cost Per
Unit
Before Value After Value
Widget
Produced
R 1 100 R 100 200 R 200
Units Cost Per
Unit
Before Total cost After Total Cost
Widget
Cost
R 1 100 R 100 R.5 R 150
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Units Cost Per
Unit
Before Value After Value
Widgets R 1 100 R 100 200 R 200
Units Cost Per
Unit
Before Value After Value
Hours
Worked
for n
R 50 100 R 5000 50 R 2500
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CHARACTERISTICS OF SOFT DATA
Subjectively based in many cases;
Difficult to measure and quantify,
directly;
Difficult to assign monetary values;
Less credible as a performance measure;
Usually behaviorally oriented.
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EXAMPLE OF SOFT DATA
Employee turnover, absenteeism, andgrievances are considered soft data
items; Not because they are difficult to
measure, but because it is difficult toaccurately convert them to monetary
value
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WORK HABITS
Absenteeism
Tardiness
Visits to the Dispensary
First Aid TreatmentsViolations of Safety Rules
Number of Communication Break-downs
Excessive Breaks
Follow-Up
WORK CLIMATE/SATISFACTION
Number of Grievances
Number of Discrimination Charges
Employee Complaints
Job Satisfaction
Employee Turnover
Litigation
Organization CommitmentEmployee Loyalty
Increased Confidence
CUSTOMER SERVICE
Customer Complaints
Customer Satisfaction
Customer Dissatisfaction
Customer ImpressionsCustomer Loyalty
Customer Retention
Customer Value
Lost Customers
EMPLOYEE DEVELOPMENT/ADVANCEMENT
Number ofPromotions
Number ofPay Increases
Number of Learning Programs Attended
Requests for Transfer
Performance Appraisal Ratings
Increases in Job Effectiveness
INITIATIVE/INOVATION
Implementation of New Ideas
Successful Completion ofProjects
Number of Suggestions Implemented
Setting Goals and Objectives
New Products and Services DevelopedNew Patents and Copyrights
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Soft Data Related Value Measure
Absenteeism
Labour unrest
Industrial Accident
Poor work climate
Staff loyalty
Customer loyalty
Customer complaints
EXAMPLE OF SOFT DATA
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AbsentAbsent ProductionProductionLostLost
Value ofValue of
ProductionProduction
LossLoss
PresentPresent
LessLess
ProductionProduction
LostLost
Value ofValue of
ProductionProduction
GainGain
EXAMPLE OF SOFT DATA
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AbsentAbsent ProductionProductionLostLost
Value ofValue of
ProductionProduction
LossLoss
PresentPresent
LessLess
ProductionProduction
LostLost
Value ofValue of
ProductionProduction
GainGain
EXAMPLE OF SOFT DATA
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Converting Data Exercise Sheet
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How then do you calculate the value
of the improvement?
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CALCULATING THE VALUE OF AN
IMP
ROVEMENT
Identify the unit of improvement;
Determine the value of each unit (V); Determine the performance level
change ( P);
Calculate the improvement value (Vtimes P);
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CONVERTING THE COST OF
QUALITY
The cost of quality is an important measurein most organizations;
Since many performance improvementinterventions are designed to improvequality, the performance staff must place avalue on the improvement in certain qualitymeasures;
If quality is measured with a defect rate, thevalue of the improvement is the cost torepair or replace the product;
The most obvious cost of poor quality is thescrap or waste generated by mistakes;
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CONVERTING EMPLOYEES TIME
Reduction in time for employees is a commonperformance improvement objective;
In a team environment, perhaps a programenabled the team to perform tasks in ashorter time frame or with fewer people;
On an individual basis, time managementworkshops are designed to help professional,sales, supervisory, and managerial employeessave time in performing daily tasks;
The most obvious time savings are from laborreduction in labor costs for performing work;
The monetary savings are the hours savedtimes the labor cost per hour however alsoa component of contribution to profit
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Cost per Unit
Cost Per Unit Less
INCREASE/DECREASE
IN EXPENDITURE
- IMPACTON PROFITProduction
More
Time; Quality; Output
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Contribution
to profit
Contribution to
profitMore
INCREASE/DECREASE
IN EXPENDITURE
- IMPACTON PROFITSales
Less
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USING HISTORICAL COSTS
This strategy involves identifying theappropriate records and tabulating the
actual cost components for the item inquestion;
For example, a training program wasimplemented to improve safety
performance for a large constructionfirm. The program was designed toreduce the number of accidents;
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Actual cost
from records
Estimated
additional
from staff
Staff time;
Management
time
Cost
R 285,000
Total of
35 complaints
Legal fee;
Settlement
cost
R 285,000/35 = Cost per complaint
Cost of Sexual Harassment Complaint
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The Cost of an Accident
Direct Medical Costs Related to Accidents 114,390.00
Worker Compensation Payments 327,430.00
Insurance Premiums 120,750.00
Legal Expenses 75,600.00
Total Operating Budget for Safety and Health Department (Minus theAbove Values) Including Salaries and Benefits of Safety Staff
455,280.00
Management and Supervisory Time Devoted to Accident Prevention andInvestigation 105,000.00
Safety Training Costs Not Included in Above Operating Budget31,000.00
Safety Awareness Materials 31,000.00
Lost Productivity for Safety Training, Safety Meetings, AccidentInvestigation, and Replacement Staff 95,000.00
Total R 1,347,450.00
Total Number of Accidents 53
Cost Per Accident 25,423.60
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USING INTERNAL AND EXTERNAL
EXPERTS
When faced with converting soft data
items where historical records are not
available, it might be feasible toconsider input from experts very
knowledgeable with the processes;
Because the credibility of the value is
directly related to his or herreputation, the credibility and
reputation of the expert is critical.
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USING DATA FROM EXTERNAL DATA
BASES
Data are available on the cost of
turnover, absenteeism, grievances,
accidents, and even customersatisfaction. The difficulty lies in
finding a database with studies or
research efforts for a situation
similar to the program under
evaluation.
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USING PARTICIPANT ESTIMATES
In some situations, programparticipants can estimate the
value of a soft data improvement.This strategy is appropriate whereparticipants are capable ofproviding estimates of the cost (or
value) of the unit of measureimproved by applying the skillslearned in the program.
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LINKING WITH OTHER MEASURES
When standard values, records,experts, and external studies are notavailable, a feasible approach might
be developing a relationship betweenthe measure in question and someother measure that may be easilyconverted to a monetary value. This
involves identifying existingrelationships, if possible, that show astrong correlation between onemeasure and another with a standardvalue.
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USING SUPERVISOR/MANAGER
ESTIMATES In some situations, participants may be
incapable of placing a value on theimprovement. Their work may be so
far removed from the output of theprocess that they cannot reliablyprovide estimates. In these cases, theteam leaders, supervisors, or managers
of participants may be asked to providea value for a unit of improvementlinked to the program.
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USING LEARNING STAFF
ESTIMATES
The final strategy for converting data
to monetary values is to use
performance improvement staffestimates. Using all the available
information and experience, the staff
members most familiar with the
situation provide estimates of thevalue.
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Converting Data Exercise !!! See
Worksheet
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Still not finished.the cost of the
intervention!
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REASONS FOR DEVELOPING COST
DATA
To determine the overall expenditure for humanresource development
To determine the relative cost of each individualHRD program
To predict future program costs
To calculate benefits versus costs for a specificprogram
To improve the efficiency of the HRD department
To evaluate alternatives to a proposed HRDintervention
To plan and budget
To integrate data into the Human ResourceInformation System.
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TABULATING PROGRAM COSTS
Development Costs (Prorated);
Program Materials;
Instructor/Facilitator Costs; Facilities Costs;
Travel/Lodging/Meals;
Participant Salaries and Benefits;
Administrative/Overhead Costs;
Evaluation costs;
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MEASURING FINANCIAL PAYOFF
Cost Benefit Analysis
Return on Investment
Payback Period
Discounted Cash Flow
Consequences of not providinglearning systems
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Be efit/ st
ti =
Be efitsI =
Pr gr m Be efits
Pr gr m sts
Net Pr gr m Be efit
Pr gr m sts
Measuring Financial Payoff
X 100
1
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Guidelines for Successful Benefit-
Cost Analysis
Keep the process simple;
Use sampling for ROI calculations;
Always account for the influence of otherfactors;
Involve management in the process;
Educate the management team;
Communicate results carefully;
Give credit to participants and managers;
Plan for ROI calculations.
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Final Case Study !