Making Money While Training Employees

by Carolyn B. Thompson

Carolyn B. Thompson
Training Systems, Inc.
221 Vermont Road
Frankfort, IL 60423

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Making Money While Training Employees
by: Carolyn B. Thompson

Employee training is an investment. We all say it and we all mean it and we all know how much we spend on it - but an investment signifies return, not just cost - so what's your company's return on it's training dollar?

Most companies track how much they spend on employee training in a line item on the budget. Few track it per employee, even fewer track it by the individual time an employee is trained on a procedure or piece of equipment and few is way too big a word for the number of companies that track the amount of money they make on employee training! You heard me right, I said make! Why do we talk about training as an investment if we aren't planning on making money on it? We run around saying "training is an investment", "training is an investment" (a good investment we believe) and then we plunk down our company's cash because we know it's a "good investment". Would you ever give $2000 of your own personal money to someone who said "this is a great investment"? No way, we'd all want to know how much we'd get back for this $2000, in other words, how good an investment! But that's just what we do with our company's training dollars, including the huge amount of time (which, trite as it is, is money in a big way) on the one-on-one training we do on the job. I surely hope, and so do your employees, that none of us are making investments in their retirement plans like this!

We all need to be tracking the return on investment of our training dollars and to do this you simply need to be a bit more structured in your training. For formal, classroom training most of our companies use an evaluation form - what did you learn in the training, what did you like, what didn't you like, what else do you need to do your job? This is called Level I Evaluation.

There are 4 levels of evaluation, a model designed way back in 1959 by Donald L. Kirkpatrick (this evaluation stuff is not so new as you thought). Because companies are really beginning to take an interest (very specific numbers are tracked in all parts of the company now to determine effectiveness, where to cut waste, etc. and now finally training) in how they spend and what they make on training dollars he wrote a great book, Evaluating Training Programs: The Four Levels. His book gives a very detailed account of how to determine return on investment in training by evaluating.

Today - the short version:

Level I Evaluation is the one you're probably familiar with: "what I learned today", "what I liked". This level, while valuable for how the training was conducted, how good the person was who was doing the training, isn't a good predictor of whether the employee can actually do the job they've just been taught. They said they learned certain things but did they, and can they use them in practice and will they remember them? Can they do this job is, after all, the only the thing we care about, the reason we're spending the money/time. So, we must do Level II Evaluation to determine whether the employee can actually perform after the training.

Level II Evaluation is where you actually measure the employee's performance after the training. It can be done by a post-test (paper or hands-on on the job), it can be done with an observer (the supervisor, a co-worker, the trainer or even a customer), it can also be done by a self report questionnaire or depending on the job, there are already existing performance measures (number of calls, number of mistakes). Deciding which one of these to use depends on the performance you're measuring. You also need to determine how long after the training you'll measure. It will be different depending on the skill (if the performance to be measured is - can they complete a mail merge of 25 names and a letter in 5 minutes, you can measure that at the end of the training; if the performance to measured is - can they delegate work to their team members so that the team members can actually complete the work successfully, you probably should measure that 2 months after the training because part of the training will be the on-the-job practice). Now you know if they can do it, but why did you want them to be able to perform this job, at this level in the first place? Of course, we're ultimately looking to make money, but how? You need fewer errors, increased sales, lower turnover, less cycle time? This is why you need to do a Level III Evaluation.

Level III Evaluation is where you actually measure a change in quantity or quality - this could be increased production, shorter shipping time, fewer customer complaints, anything you need to achieve! You set the measure (obviously it has to relate to the skill - measuring increased sales based on training for completing a mail merge, though I can see a relationship if the letters are sales related, is probably a little broad of a measure of so narrow a skill). After you set the measure then all you have to do is set up a tracking system. It can be a paper log completed by the employee or already existing reports or a special survey of employees or customers (depending on what you're measuring). When to conduct Level III? Determine a reasonable time after the training that you'd expect to see these changes. Now you have some really cool information, all you have to do is put dollars to your Level III Evaluation information - your quantity or quality change, and you have Level IV Evaluation.

Level IV Evaluation is where you figure Return on Investment. You add up all your costs for training - materials, trainer's time x salary and overhead, space for training, travel if applicable, lost production, billing or sales time x dollars and anything else spent. Then you attach a dollar amount to what you measured in Level III - fewer customer complaints, increased sales, reduced employee turnover, reduced cycle time, or others. This is not an exact science but putting a dollar amount on something like fewer customer complaints can be done by determining the average cost in lost customers or staff time or replacement of service or product, etc. Other things are more exact to measure but some numbers that are approximates are a lot more than you have now! The final step in Level IV is of course to multiply the dollars by the changed quantity or quality amount and match the cost and the income or dollars saved numbers. If the income or dollars saved numbers are bigger than the cost, you have a winning investment and you now know that training Betty didn't cost you $3000, you actually made $2000 because the company earned or saved $5000 as a direct result of her training - net $2000! Does this sound hard, time consuming, a lot of paper work? No one who does Level III and IV Evaluation pretends it's quick, easy or free, but without these numbers, how do you know you're spending your money wisely? How will you know when a particular kind of training isn't cost effective for your company? How many times when cutting costs may you cut some training that could have made your company more than the amount you just saved by cutting?

Make money by training employees and make sure you know how much you made by evaluating the effectiveness of each training.

Carolyn B. Thompson is the President of Training Systems, Inc., a customized training and HR consulting company that helps small and medium sized organizations enhance their ability to recruit, inspire and retain quality employees and improve performance through training. Training Systems, Inc. also provides training design and delivery services to training companies and the training departments of large companies, and professional and trade associations. Carolyn B. Thompson is an experienced trainer and consultant knowledgeable in the challenging area of employee recruitment, inspiration and retention. She is an exciting, inspirational trainer who leads people to learn. She has written articles for prominent magazines, has been interviewed for Chicago's TV Channel 26, the "You're Hired" radio show, Safety & Health, Small Business Computing, Business Week, Working Woman, Redbook and Inc. magazines, been the subject of articles in the Daily Southtown and Star newspapers, as well as written chapters in several books. Most recently, Carolyn produced a two-tape audio cassette set entitled "Straight Talk for Employers" , has written a book entitled "Creating Highly Interactive Training Quickly and Effectively" and is writing a book about on-the-job training for Crisp Publications.

(c) Training Systems, Inc. 1999

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