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9th January 2023

Return on Learning: How to Calculate the Benefit of Training

Masterplan TeamMasterplan Team
Return on Learning: How to Calculate the Benefit of Training

Employee training is an investment - not an expense. Nevertheless, HR and L&D departments need to know to what extent training  pays off. In this article, you'll learn how Return on Learning can help you win the argument in investment decisions and budget negotiations.

This article shows you:

  • the difference between monetarily measurable and non-monetarily measurable learning effects

  • the possibilities and limitations of calculating the Return on Investment (ROI) of Learning

  • how the Learning Transfer Measurement Model (LTEM) can be used to measure further learning effects

  • what future significance Return on Learning will have for companies

Professional development is becoming increasingly strategic for companies, and this is especially true for e-learning solutions. According to a study by aimprosoft, the global e-learning market will grow from $185 billion in 2022 to $388 billion by 2026.

In 2022 alone, the continuing education budgets of companies in Germany increased by 18 percent, according to the Bitkom Continuing Education Study 2022.

But as demand and supply grow, it is increasingly important for L&D managers to be able to compare the costs and benefits of learning initiatives.

This is where Return on Learning comes into play!

The dream for many HR managers is a clear one – the ability to quantify the benefits of training measures. Be it to defend budgets, to make investment decisions, or to optimize existing measures.

Relevant questions in this context include:

  1. To what extent could an e-learning training save costs compared to a classroom training?

  2. To what extent could online training reduce onboarding time?

  3. To what extent has the turnover rate in the company changed as a result of the training?

  4. How effective has the training program been in helping employees gain skills or knowledge?

  5. Can employees apply the newly acquired knowledge to their work? How do the newly acquired skills and knowledge affect job performance?

But how exactly can such questions be answered in the first place? Let's take a look below at how these and other effects of training can be systematically recorded and how you can better assess the success of training.

>>>Download Free Handbook "Return on Learning"<<<

Return on Learning: Monetarily Measurable vs. Non-monetarily Measurable Effects

In order to approach the effects of further training and to record the return on learning, we must first distinguish between two categories of effects of further training:

1. Effects of Training That Can Be Measured in Monetary Terms

Continuing education measures can result in direct cost benefits, such as savings in travel costs due to the switch from face-to-face to e-learning courses. These and other aspects can therefore be measured in monetary terms. However, there are different challenges and limitations in determining these effects, as we will see in a moment.

  • Costs

  • Resources

  • Productivity

  • Recruiting

Example:

"We could already see a significant gain shortly after introducing Masterplan: After 6 months, we were already able to save 30 percent in organizational effort." (Swantje Toaspern, Personnel Officer, Hein & Oetting)

2. Effects of Further Training That Are Difficult or Impossible to Measure in Monetary Terms

At the same time, training also has a positive impact on the skills of individual employees, the corporate culture, and the competitiveness of companies in the future. In contrast, these learning effects can be measured in little to no monetary terms, including:

  • Performance, e.g.:

    • Development of individual employees

    • Motivation of individual employees

    • Knowledge transfer

  • Corporate culture, e.g:

    • Employee satisfaction

    • Communication style

    • Sustainability (e.g.: less material expenses and travel activities)

  • Competitiveness, e.g.:

    • Transformation capability

    • Reduction of the skill gap

    • Attractiveness as an employer

Example:

"Since I've been using Masterplan and we've also been working with it in the team, communication has definitely improved and feedback discussions are also much easier and without misunderstandings." (Mareike Bär, Head of Product & Pricing, DOMINO's)

Status Quo: How Companies Measure the Success of Their Learning Offerings

What insights are companies currently gaining into the learning effects of their training programs? In 2020, an international survey by LinkedIn of more than 1,000 L&D professionals revealed that most HR departments measure the success of their online learning offerings through qualitative feedback, usage statistics, and quantitative surveys:

  • 43% Qualitative feedback on learning platform

  • 38% Number of lessons completed

  • 35% Number of active users (e.g., at least two sessions per month)

  • 34 % Employee satisfaction survey

  • 31 % Qualitative feedback on behavior change

Overall, systematic evaluation of learning opportunities does not yet seem to be widespread: Only a bit more than one-third of companies collect qualitative feedback or evaluate statistics on training completion rates.

Furthermore, very few companies make an effort to actually calculate a monetary return on investment (ROI): Just 3% of companies try this in the U.S. - according to a broad-based survey by the American industry association "Association for Talent Development."

Why is this figure so low?

What hurdles do L&D managers face in measuring the economic and strategic benefits of training? And what approaches can they use to address them?

Let's take a look at the ROI formula and the Learning Transfer Evaluation Model (LTEM) - two concepts that help HR managers better understand the monetary and non-monetary effects of training.

Status Quo: How Companies Measure the Success of Training

The economic return on learning (ROI of Learning) can be calculated using the following formula, which is similar to the traditional cost-benefit calculation for return on investment (ROI):


ROI of Learning (%) = (benefit of the learning program (in Euro) - cost of the learning program) / cost of the learning program x 100.


The net benefit of the learning program is obtained by subtracting the benefit and the training cost. The result is then divided by the training costs. This number is then multiplied by 100, to get the ROI of learning as a percentage.

ROI of Learning: Example
A company carries out sales training with total costs of 10,000 euros, which subsequently leads to more sales being made in the amount of 100,000 euros (benefit of the learning program). This results in an ROI of learning of 900 %. 

ROI of Learning (%) = (100.000 Euro - 10.000 Euro ) / 10.000 Euro) x 100 

2 Scenarios for the ROI of Learning

The ROI formula can be applied to different aspects of benefit. To make it concrete, we will show you three other plausible examples:

Upselling training in sales

Starting in 2001, the U.S. consulting firm Accenture partially replaced campus-heavy classroom training with cost-effective scalable and location- and time-independent learning formats, such as online training, multimedia content and webinars. According to the company's own calculations, this has resulted in a return on learning of $1.266 billion in terms of productivity and length of service.

Less organizational effort after 6 months

Hein & Oetting, a system provider in the field of precision mechatronics and precision engineering, saw a significant gain shortly after introducing Masterplan: After 6 months, it was already possible to save 30 percent in organizational effort.

Limitations and criticisms of the ROI formula

The ROI of learning can help to demonstrate the financial benefits of training. But there are several challenges in determining ROI of Learning.

However, Accenture's ROI calculation must also be viewed critically:

  1. For example, if an ROI calculation is based only on the cost savings of the learning program, the ROI may be negative, despite any productivity gains and organizational savings that may not have been accounted for – either due to lack of data or other unmonotized factors.

  2. To isolate the effect of learning offerings, companies should measure relevant metrics before and after the offerings are introduced. his is often difficult however, as most companies install  numerous learning offerings before beginning to measure. Moreover, these internal learning concepts are usually in a constant state of flux. A clearly defined "before" often does not exist.

  3. Only immediate monetary effects can be expressed with the ROI formula. Other learning effects, such as those with regard to increased competence acquisition, an improved communication culture, or competitiveness, can hardly be measured in monetary terms, if at all.

When Does the ROI Formula Make Sense?

Calculations of ROL using the ROI formula are only meaningful if the following conditions are met:

  1. Data regarding the benefits and costs of the training can be collected before and after the introduction of a learning offer - or compared with a reference period.

  2. Other influencing factors can be calculated out.

  3. The ROI calculation only serves to estimate the influence of monetarily measurable factors.

The Learning Transfer Evaluation Model (LTEM) - Determining Non-monetarily Measurable Learning Effects

Every training measure results in non-monetarily measurable learning effects that the ROI formula cannot map, such as increases in employee competencies or an improved mood among the workforce.

These kinds of learning effects do not provide any conclusions about economic effects, but they do offer crucial insights into whether and to what extent the training measures pay off in terms of the company's strategic goals. The Learning Transfer Evaluation Model (LTEM) shows which quantitative and qualitative evaluation concepts you can use to survey such learning effects.

Here’s How You Measure Effects in the Eight Phases of Learning

Thalheimer divided the learning process into a total of eight phases and created separate assessment categories for each level. Similar to the Kirkpatrick-Katzell model, the measurement of success becomes more complex with each level. At the same time, the significance in terms of learning effects increases.

The first phases (phases 1 to 4) initially refer to the learners' handling of the learning materials. Measurements are not used to evaluate learning, but rather provide important insights into the motivation and interests of the learners, as well as the quality of the learning program. Measurements of competence gains (from phase 5) then enable well-founded conclusions to be drawn about learning effects.

While for levels 1 to 5 a learning platform should be able to generate useful data, for levels 6 to 8 the L&D teams themselves are asked to collect data through qualitative feedback, quantitative surveys and/or observation.

Why L&D managers should use the LTEM:

The LTEM is a roadmap for figuring out where HRD managers are in terms of learning evaluation and identifying missing stages where evaluations make strategic sense.

What tools can facilitate data collection:

Modern e-learning providers, such as Masterplan, already build assessments and evaluations into their learning solutions (especially in LTEM levels 1 to 4), providing L&D managers with tailored reports with important insights into their employees' learning behavior. Learning providers also benefit from this and can continuously improve their offering as a result. In this way, the foundation for learning success is laid.

When L&D managers should conduct more comprehensive evaluations of learning phases 5 to 8:

More in-depth evaluation methods are particularly suitable for determining the return on learning for strategically important, cost-intensive learning measures that are deployed over many years. Systematic education controlling can ensure that the measure actually pays off in terms of strategic goals.

Return on Learning - The Engine of a Successful Learning Culture

To be competitive, the development of a successful learning culture must be an integral part of corporate strategy. Small and large companies need a mature education infrastructure in order to manage continuing education in terms of an optimal cost-benefit ratio and effective learning transfer.

And it is precisely at this point that the ROL plays a central role. It becomes the basis for decision-making in order to manage, steer and plan training initiatives. It must be collected at the central points in the company and at the relevant learning phases of the employees, and be interpreted in terms of monetary and non-monetary effects.

In the future, this will set the standard between a mere company and a learning organization of novel employees.

Download Handbook "Return on Learning"

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