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Return On Investment Analysis

1233 words - 5 pages

Return on Investment Analysis


Every business must devise a means to make and measure the profit from an investment. Profit reflects the very nature of business. Businesses that provide a product or service want to know if their efforts in a particular field will result in financial gain (Wiens 1997). The concept "Return On Investment" provides a means to measure the profit obtained from an investment. I will discuss the area of return on investment from a training and staff development perspective and why it is important.

To Train or Not To Train

Companies and educational institutions at one time or another will face the question of whether training will help their company remain competitive. Training is very expensive and time consuming. The employee will miss time from work. Someone will have to fill in for the employee. The "fill-in" may not perform as well as the employee which results in lower productivity. Travel and site procurement add to the cost. The trainer will demand a salary and materials. A subject matter expert may possibly factor in the equation. Furthermore, the company usually will conduct a needs analysis to determine if training is the actual solution needed to increase profitability. All of these elements translate into time and money. However, research has discovered that a new medium of delivery has cut cost significantly. The medium is computer based training (Schriver 1999). The expense is reduced by travel, instructor hours, record handling, and productivity (Schriver 1999). Many businesses and educational institution are examining the possibility of computer based training. Many decision makers reason if the same results can be obtained at a cheaper rate, by all means implement the cheaper system. Nevertheless, investment in training has proven its worth over the years. In 1995, the American Management Association conducted a national survey of major businesses and identified a very strong interaction between increased training budgets and decreases in personnel. They found that 68% of businesses that had increased their training budget after a significant downsizing improved their profits (Stolovitch 1998). Training if needed, translate into a return on the investment.

Calculating Return On Investment

There are many ways to calculate return on investment (Kearsley 1986). Accounting professionals look at the Operating Income divided by the Average Operating Assets to determine the return on investment. Some accounting professionals fail to examine training investment in a positive light. Training investment usually ends up on the expense side of a balance sheet without any further consideration. Accountants look at capital, which loosely defined is a form of wealth used produce more wealth. Humans also fall in that category as employees of a corporation. The journal Performance Improvement devised a working model from some of the leaders in the field such as Schneider. Monnetta,...

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