The Concept of Return on Investment

Listing and Valuing Resources

Return on investment (ROI) is a measure used to determine how the benefits of training in the organization can exceed or cover the costs of training. Planning the on-the-job training program, it is necessary to create a list of all the items and resources used during the training period in order to state the costs of the intervention (Elkeles & Phillips, 2007, p. 172). It is important to focus on the development costs, materials costs, and administration costs converted into dollars for the training sessions for the group of 25 employees.

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The ROI Table.

N Items and Resources Value Hours
1 1 Outside trainer for coaching sessions $900 18 hours
2 1 Instructor for seminars $1216 32 hours
3 1 Instructor for workshops $1008 24 hours
4 26 Workbooks $1404
5 26 Manuals $832
6 Video equipment (3 items) $450
7 PowerPoint Projector (3 items) $510
8 3 Whiteboards $330
9 Instructors’ teaching materials (8 items) $210
10 Administration / Evaluation Costs $1245
11 Equipment for training rooms (54 items) $5350
Total $13,455

The table includes all the items and resources necessary to implement an on-the-job training program in the learning organization (Ellinger, Ellinger, Yang, & Howton, 2002, p. 5-7). While listing the resources necessary to implement the program, it is possible to predict all the costs which are not associated with purchasing materials and hiring instructors. It is important to refer to the administration and evaluation costs in order to determine the effectiveness of the program.

The ROI Calculation

Having developed the resource and valuation list, it is necessary to focus on the cost savings and revenues associated with the proposed learning initiative in order to calculate the ROI (Frigo, 2008, p. 25). The next step of the procedure includes the discussion of the predicted revenues and the ROI calculation with references to the used ROI formula. It is also important to explain the rationale for the ROI calculation depending on the previous estimates and to defend the received results with references to the organization’s goal and the purpose of the intervention.

Cost Savings and Revenues

N Cost Savings and Revenues Value Period
Increased efforts $150,000 12 months
Higher levels of motivation $70,000 12 months
Effective teamwork $120,000 12 months
Effective individual work $150,000 12 months
Lower employees’ turnover $200,000 12 months
Increases in the services’ quality $210,000 12 months
Improved decision-making process $180,000 12 months
Total $1,080,000

ROI Calculation

% ROI = (benefits / costs) x 100

ROI = (1,080,000 / 13,455) x 100 = 8026%

The goal of the company is to improve its performance and to become an active learning organization. While investing in a training program developed for the organization’s employees, it is possible to receive significant benefits after the first 12 months of the specific training program’s implementation. It is important to invest in the proposed learning intervention because the benefits are expected to increase for a long period of time after the completion of the first stage of the training program involving the first group of employees (Antariksa, 2007; Deiser, 2009, p. 24).

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The same training can be proposed for the other group of the employees during the second year of the program’s implementation. Furthermore, the costs associated with the use of equipment will decrease, and the benefits will increase significantly.

References

Antariksa, Y. (2007). Measuring the ROI of training. Web.

Deiser, R. (2009). Designing the smart organization. San Francisco, CA: Jossey-Bass.

Elkeles, T., & Phillips, J. (2007). The chief learning officer: Driving value within a changing organization through learning and development. Burlington, MA: Butterworth-Heinemann.

Ellinger, A. D., Ellinger, A. E., Yang, B., & Howton, S. (2002). The relationship between the learning organization concept and firms’ financial performance: An empirical assessment. Human Resource Development Quarterly, 13(1), 5-22.

Frigo, M. (2008). Return driven: Lessons from high-performance companies. Strategic Finance, 90(1), 25-30.

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