There are times when companies consider staff training a cost rather than an investment. A useful way to measure whether training policy is coherent with company goals can come through ROI calculation, which, however, is not easy to do when it comes to training. Here are some tips.
by Davide della Bella
Eurostat data confirms a significant increase in continuous training spending on the part of Italian companies. However, Italy remains behind the European average: only 8.5% take part in training compared to an EU average of 10.8% with countries like Sweden and Denmark reaching figures around 30%.Reasons for these differences can be found in two macro-areas: the first being that training in Italy is not precisely monitored, while this is the case in other countries – primarily for financial reasons.
Think, for example, about induction training which is done in a very similar way in Italy as in the rest of Europe. The new staff member will be supported by colleagues with greater experience, gain knowledge of various departments, company policy and unwritten company rules. In countries benefitting from tax credits for training, the amount of time a person will spend in training is immediately quantified (and in some cases, exaggerated). In Italy, excepting large, well structured companies, this type of training is invisible making it impossible to register in official data.
Careful calculation of the ROI is essential
There is a second reason, which is less technical and more cultural, concerning the habit of considering training more as a cost than an investment. In a minority of cases, this stems from the conviction that human resource skills don’t influence the success of a business. In the majority of cases, instead, the problem lies in the difficulty of objectively measuring the return a company can enjoy coming from money spent on training. Italian companies, above all those a small and medium size, tend to calculate ROI (Return on Investment) in a fairly simplistic way. When productivity goes up as a result of investment in a good or service, the more that good or service is of advantage. In manufacturing companies, the ability to measure such variables (pieces, time, revenue) is highly precise and investment will be studied in minute detail before any decision is made.
When investment concerns training, there are problems not only in terms of evaluation but also finding the correct variables, the payback period metric: Will the advantages of training concerning team management be measured taking into account production increase? Or the resulting reduction in staff turnover? And why not its positive impact on absenteeism? Should costs also include the value of working hours? And loss of production during the training program? Will internal costs of organization, should the course not take place, be calculated? After how long will results be assessed? While the age of machinery will determine its productivity, are the advantages of training permanent or do they decrease after a certain period? Should the training be subsidized, the problems mount in terms of variable measurements, including the risk factor of using public financing and the hidden costs of possible inspections and checks which companies are often not able to evaluate.
Start from a simple calculation that can be up-graded
However complex the calculations may be, no company should ever consider training as a simple cost to be born. The best advice is to start with a simple system of analysis to then fine tune it as time goes on. Start by thinking about the reasons for doing the training, if improving company efficiency is the goal, look for an easy to use economic basis like EBIT or others, if organizational change is required, indirect variables should be focused on like turnover rate, absenteeism or how the training is perceived by the staff themselves. Good methodology in metrics is also a key issue. Start from the clearest indicators like cost of external supplier (trainer, design, organization) and the cost of the workers involved in the training with their return to work being co-ordinated with the training experience they have gained. When it comes to the payback period, look to the typology of project undertaken and organize annual checks where the project has been related to company efficiency, every other year where training concerns organizational needs. Bringing together this data concerning company training may not assist the company in calculating the ROI, but will certainly help decision makers to better understand whether training policy is coherent with company goals. Analysis of a single program will allow the training manager to grasp the effectiveness of the supplier and the eventual repetition of the scheme. Thus, it is essential to measure, even if using only rough data, because you get only what you measure!