Understanding ROI Methodology Application in 10 Easy Steps

For any organization that aims to stay one step ahead of the curve, investment in Learning and Development (L&D) programs is a must.

Organizations usually determine the process benefits by the returns that those processes can generate. This mechanism applies to L&D programs as well.

So, how does one determine the effectiveness of a given training program?
The answer is simple. All you need is the ROI Methodology®. 

The ROI Methodology helps you measure the impact and Return on Investment (ROI) of your programs in 10 Easy Steps.

Step 1: The Objectives of the Project and Business Alignment

The objectives of any given project should be developed based on the needs. Hence, you must first assess the program needs. This assessment will start with the review of the different measures which the program can influence if implemented.

To do so, consider the following.

• What are the individual business measures influenced as a result of the project? 
• What are the actions that the participants must take or must stop doing to modify the specific business measure? 
• What are the specific skills, information, or knowledge required for an improvement in performance?

Step 2: Evaluation Plan

Evaluation planning should start as soon as you decide that a study on the ROI is necessary. It generally involves collaborating with different stakeholders. Evaluation planning helps determine the method to gauge the efficacy of the program.

This particular step involves the completion of the following three documents:

• ROI Analysis plan
• Data Collection plan
• Project plan

Step 3: Types of Data Collected 

We collect data during two stages. The first one is during project implementation, and the second after its completion. There are generally two kinds of data collected during the implementation of your project or program. The first one is reaction data, and the second one is learning data.

The following methods can be applied to collect these data: 

• Written test or exercises
• Feedback questionnaires
• Interviews
• Demonstrations
• Focus Groups

After the implementation of your project, application data and impact data is collected. The different methods of collecting those kinds of data are as follows:

• Follow up questionnaires
• Follow up surveys
• Interviews
• Observation on the job
• Action planning
• Performance records
• Performance contracting
• Focus groups

The response rate for such data collection must be improved as much as possible. Response rates are an issue that one experiences during data collection after the project implementation. When effective techniques are applied, one can achieve up to 80% response rates for surveys action plans or questionnaires.

Step 4: Isolation of the program effects

In this process, one of the most crucial steps that you can take is the isolation of the effect of your program or project. To do so, you can apply the following techniques:

• Utilization of control group arrangements
• Trend line analysis of the performance data
• Utilization of forecasting methods
• Supervisor's estimates of the impact
• Participant's estimates of the impact
• Management's estimates of the impact
• Utilization of experts
• Utilization of previous studies
• Calculation or estimation of the impact of the other factors
• Use of the customer input

The isolation of the project's effects with the other various influences is, at times, a difficult task. However, it is still a vital measure for ensuring the quality of the overall study. If you skip this specific step, you will have no proof or evidence that your program is associated with the improved business measure or the amount of improvement caused due to the program.

Step 5: Conversion of data into monetary values

Ultimately, you need monetary terms to determine the impact your project has on the overall business. For the calculation of the program ROI, it is necessary to convert the improvements made in business measures into money.

In other words, you will be developing the monetary benefit for the different impact measures that are associated with the program or project. This particular step follows isolating the project impact.

Some of the methods that you can use to convert data into monetary terms:

• Standard values
• External Studies
• Historical costs
• Estimates by supervisors or managers
• Expert input
• Participant estimates
• Linking with other measures

Step 6: The Intangibles

The intangible benefits are simply the benefits of the project that you choose not to convert into monetary terms. They are the different measures that are difficult to convert into money values with minimal resources. Nonetheless, it is vital to gather the intangible data and benefit from such intangibles for all programs or projects.

To understand the impact of the program on the intangibles, the most credible source of data will be the participants themselves. A simple survey can gather the information required. Some possible intangibles include teamwork, sustainability, stress, and risk. 

Step 7: Cost calculation

When you are conducting any impact study, you should consider the total cost of the program. Total cost is essential for the calculation of ROI. In other words, you should include all direct and indirect costs. A few common cost categories include the following:

• Cost of program design and development
• Cost of equipment or software
• Cost of facilities 
• Cost of coaches and facilitators

Step 8: ROI Calculation

As you may know, Return on Investment is a financial metric that represents the final measure of the success of the project. To calculate the ROI, you need to use the benefits as well as the costs of the project.

The formula for calculating ROI is:

ROI (%) = (Net Program Benefits/Program Costs) x 100

Step 9: Results reporting

Once the program analysis is complete, you should report the results that you have calculated through the study. None the less, it is essential to identify the right audience and deliver the appropriate data and information.

There are four possible audience groups for the reports you create viz.:

• Participants of the program
• The immediate managers or supervisors of the participants
• The sponsors of the program
• The staff members involved in the program

Depending on the audience group, choose one of the following options to report results:

• Impact Studies
• Executive Summaries
• Case Studies

Step 10: Optimize Results

Evaluation of the data gathered and reporting it to stakeholders is not the last step of the process. The final task is the correct use of this data. 

With the data gathered, you can start improving the design and the delivery processes of your future programs. It can help increase budgets while establishing support from various groups.

The evaluation data will also be invaluable for the optimization process. With the data reported to key stakeholders in the previous step, it is now time to optimize the value offered to ensure continued support from the leadership of the organization. This step is necessary irrespective of whether the program is bringing in the desired results. Optimization allows for improved program design in the future, which in turn delivers increased ROI. It becomes particularly essential when there is intense competition for funding.

As long as you follow the basic outlines given above, you should have no issues in formulating a plan to determine the effectiveness of your program.

You can always contact ROI Institute India to help you determine the success of your projects or to get the certification and training necessary to measure the return on investment for your programs.