Getting Started with Calculating Return on Training Investment (ROTI)

We all need to expand our thinking when it comes to return on investment (ROI). Sure, we’re always watching our ROI for a new product, or the ROI for a marketing campaign, but what about the ROI for the training we require of our employees?

Enhancing the four levels of evaluation

In the late 90s, the Jack Phillips ROI model added a fifth level to the four levels of evaluation developed by Donald Kirkpatrick. The four levels of Kirkpatrick’s model are reaction, learning, application and implementation, and results. Phillips’ fifth level is the return on training investment (ROTI).

Below are brief descriptions of each level.

• Reaction: In this first level, training professionals use short surveys to gather participants’ reactions to their training. Keep in mind, this data doesn’t reveal too many direct benefits to the organization, but it can reveal how cohesive (or incohesive) the learning strategy is.

• Learning: In the second level, training professionals administer pre- and post-surveys or assessments to measure how much knowledge is gained when employees complete the training. Typically, a baseline or foundational level of knowledge is established before the training occurs, so any improvements can be measured against the baseline.

• Application & implementation: During the third level, training professionals investigate the root causes of program success or failure. They use a variety of methods to gather data including observation, tests, and surveys.

• Results: In the fourth level, training professionals isolate, compile, and analyze the data specifically associated to the jobs that were targeted for training. A common data set might include the sales revenue pre-training and revenue post-training.

• Return on Training Investment: In the fifth level of evaluation, training professionals use the ROTI mathematical formula to perform a cost-benefit analysis and map impact data to tangible monetary benefits. The results of their calculations become the evidence they need to articulate the benefits of their program to other departments in the company.

Measuring Against Key Performance Indicators (KPIs)

The return on great learning and development is the exponential impact that a better-prepared workforce has on the business. Increasing knowledge and improving specific skills through training programs that help employees perform their roles touches every part of an organization. That’s why learning can and should be measured against tangible key performance indicators (KPIs) including boosts in sales, lower spending, improved product quality, fewer workplace accidents, increased productivity, and improved customer retention.

Before you begin an assessment of training and its return on investment, determine what KPIs are related to which class or cohort of employees going through the training. Continue to collect these before training and at least six months to a year after the training completes. And then run the numbers!

The basic ROTI formula

Gathering data to calculate ROTI can be a challenge, but once you have the data, your ROI calculations are relatively easy with this formula:

Notes:

• To obtain the total profit from the trainees’ work, multiply the estimated profit per trainee by the total number of trainees.
• To obtain the total cost of training, multiply the number of trainees’ hourly pay by the number of hours spent in training.

An Example

A training program targets a new sales team. It costs $20,000 to train your new sales employees. And in six months, this group generates $500,000 in profit from their efforts based on the new training. By plugging those numbers into the formula, your positive percent ROTI is 24%.

After performing these calculations, regularly and over time, you can determine a baseline of ROTI. Once that’s determined, you can investigate whether you can improve training, develop more rigorous or comprehensive training, or apply training more frequently or recurringly.

Employees with Multiple Roles

If a group of employees with multiple roles create marketing content and job aids, you can isolate the KPI data for the marketing content by sales revenue and isolate the KPI data for the job aids by document views or downloads. Additionally, your training should be targeted by role, verifying that the multi-role employees have training that specifically focuses on developing and delivering marketing content and training that specifically focuses on developing and delivering job aids. Once the isolation of training and data collection are established, you can run the ROTI formula separately for each type of training and data set.

Conclusion

The ROTI formula is a simple calculator with big results. It’s relatively easy to implement for small companies with employees who have specific roles, but if you can isolate the roles, the corresponding data, and training programs, then you can figure out the return on training investment no matter what size your organization.

You can find plenty of free resources online to conduct your own ROTI calculations and, of course, you can always hire outside consultants to perform the assessment. Some of the consultants for hire also have free tools to assist you in applying an ROI analysis to your training.

References

• Phillips ROI Model: The 5 Levels of Training Evaluation (2022)

• ROI Methodology – ROI Institute Canada

• Is Level 1 Training Evaluation Of No Use Or Can We Put It To Good Use?

• 5 Easy Ways to Measure the ROI of Training