Approximate reading time: 3.5 minutes
What price Return on Investment (ROI)? Once, it was possible to argue that complexity, hard to quantify benefits and hidden factors made ROI on developing people an almost impassable minefield.
Today there are plenty of worked examples showing that ROI is a perfectly feasible metric that investors in people development can demand.
That an ROI calculation is feasible though does not make it readily obtainable or cost effective to obtain. Even the strongest advocates of ROI calculations rely on case examples and methodologies that are seldom simple or even easy to understand.
One of my consultant colleagues, who I respect as highly insightful and extremely experienced in the field of behavioural change, recently admitted that whenever he engages with the ROI issue at any level of detail he feels “the will to live drain from my body.
It all seems light years away from what we do and why we do it that is, to unlock people’s potential and that of their organisations.”
Nor is he alone in wondering how to turn the ROI argument into more than just a bean counting exercise. Poor Ian Duncan Smith in charge of Work and Pensions for example, is currently attempting to make his own version of the ROI case.
A sceptical Treasury is unconvinced that spending x billion on reforming the benefits system will actually produce a sufficient financial return within a four year period.
That the treasury wants a return in four years hardly seems unreasonable. Until you consider how fiendishly complicated the existing system has become, and why taking a mere four-year horizon for the ROI is extremely short-sighted.
Much the same applies to investing in people development within organisations. Policy makers who demand an almost instant return on any L&D investment are making unreasonable, if perhaps understandable demands for clarity about when they can get their money back.
Complex though ROI exercises can be, the essentials are perfectly clear. You need to know for sure what the cost is, and to obtain convincing evidence about the benefits that can be quantified in financial terms.
Benefits minus the costs gives you the net benefit which, for those with a love for percentages, can be expressed over the original cost to give…a percentage return on investment.
Eyes glazing over already? Fair enough. But just how simple is this thing supposed to be? After all, working out the profits of the average company is hardly child’s play.
When it comes to determining what the “profit” or “loss” is from investing in say 10 staff attending a presentation course for example, the commendable desire for great simplicity soon comes up against the reality of what it will cost to actually obtain the necessary data.
Not that the data is unobtainable. Quite the reverse, it is almost always traceable in some form, depending on the original aims of the development in the first place.
For example, in the case of learning to present better this is seldom done out of altruism but because the individuals concerned need to improve their impact in certain situations.
These might include: making a coherent case internally for an investment, convincing potential customers to buy goods or services, or to seek a decision from a meeting.
Each of these will have some business benefits attached to them, you just have to be willing to trace these back to some kind of quantifiable gain.
However policy makers are more likely to demand evidence that the L&D effort is closely aligned to business goals than they are to want a balance sheet of figures. As Peter Butler, director of learning at BT Group put it recently:
"I am trying to remember the last time a chief executive asked me to do an ROI study on learning.
ROI is a great place for self-righteous consultants and suppliers to make themselves look good or super diligent. “Look, see how we measured ROI, so don’t let anyone tell you it can’t be done.”
A good example of this is Garry Platt’s otherwise sensible article in the Training Journal on demonstrating that “ROI of soft skills training really does pay dividends.” Of course it does, which is why companies keep on doing it, even without entirely convincing metrics to prove it.
Disingenuously, Platt concludes with the somewhat self-serving argument that “Next time you ask a trainer, consultant or coach and he tells that “soft skills can’t be analysed for return on investment,” he either does not know what he is talking about or “is frightened of the result.”
The implication of course is that Platt is one of a treasured few who do ROI and make it work. In fact, any trainer, consultant or coach who knows their stuff will be strong advocates for ROI calculations.
The problem of ROI in fact falls into two areas when it comes to doing it cost effectively.
The first is how to produce traceable and therefore measurable results. Far too often people development takes place without sufficient clarity about the end result and what is expected in the form or a benefit.
With presentation skills for example, you can usually tie it back eventually to something tangible such as winning pitches, or raising a corporate profile in the media and so on.
The second is how to produce the necessary cost and benefit data in a sufficiently economic and timely fashion. The fact that you can produce a quantified ROI metric does not necessarily make it worth seeking.
A much more “quick and dirty” assessment of effectiveness based on subjective judgements may well be perfectly acceptable in most cases.
See also: Development Opportunity,People Management September 2010