Chapter 2: Return on Investment of Training Programmes
When you can measure what you are speaking about and express it in numbers, you know something about it; but when you cannot measure, when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely in your thoughts advanced to the state of science, whatever the matter may be.
—Lord Kelvin (1824–1907
Nowadays, a company’s human capital is accepted as one of their most valuable assets. In the ever increasing competitive and globalised business environment, a company’s people are ever increasing accepted as the foundation of their competitive advantage. A study by the American Society for Training and Development (ASTD) showed that through a study conducted between 1996 and 1998, on 575 US companies, that investment in training and education provided a direct link in increased profitability and share price performance. The study ranked companies by how much they spent on training per employee, it was found that the companies that spent the most on training per employee were the highest performing companies. Companies in the top 50 percent of training spend were found to have a 45 percent higher Total Shareholder Return (TSR) that the weighted average of the S&P 500, and 86 percent higher than the firms in the bottom half of the study (Bassie, McMurrer and Van Buren 2000).
In another ranking carried out by the US publication ‘Training Magazine’, which ranked the Top 100 best companies in terms of Human Capital, it was found that the most highly regarded US companies spent 4 percent of payroll on training which is twice the industry average. In addition, it was also discovered that the top companies evaluated and measured their investment in training to a much higher level than the industry norm. Ninety two percent of the top companies evaluate their training to Kirkpatrick’s evaluation level 4 (business results), compared to the industry average of 11 percent, and 67 percent evaluate to level 5 (ROI), compared to the industry average of between 5 to 10 percent.
In Ireland, a study carried out by the Economic and Social Research Institute, showed that training directly contributed to increased productivity (Barrett and O'Connell 2001)
In the current times of continuous cutbacks and cost savings, training programmes are often the first to be axed. The problem for HR departments is proving their activities have and produce monetary value for the company.
The literature on evaluation of training has been dominated by Kirkpatrick’s evaluation model (Kirkpatrick 1959). Under it he defined four levels at which an organisation should assess their training programme.
Level 1: Reaction, satisfaction and planned action - measures the reaction and namely satisfaction of the participants to the training, usually measured using surveys at the end of the training, it also analyses whether participants intend to put...