E-Learning Return on Investment (ROI): May
31st, 2002
By
Paul Stacey
For
a given use of money in an enterprise, Return On Investment (ROI) is how much
return, usually profit or cost savings, results. An ROI calculation is sometimes
used along with other approaches to develop a business case. The overall ROI for
an enterprise is sometimes used as a way to grade how well a company is managed.
(Definition
courtesy of www.searchebusiness.com)
The
ROI of e-learning has been a hot topic in the field for the past year or so. ROI
is bringing the business case for training and education into focus in a way
I've never seen before in my 20 years of education and training experience. It's
an exciting development. If e-learning projects can show ROI, growth and
expansion will follow.
So
what am I talking about when I say e-learning ROI? Let me give you some
examples.
I've
been listening to e-learning ROI descriptions from all kinds of companies. Over
the past two years I've heard:
-
reduced
travel expenses (including flight costs, per diem, lodging, meals, etc.)
-
reduced
time away from the workplace
-
access
anytime anywhere
-
higher
rates of innovation
-
reduced
turnover
-
greater
readiness, responsiveness, alignment
-
faster
understanding, selling, utilization and service
-
time
to change procedure
-
increased
communication to vast numbers
-
better
first 45 day experience for new employee
-
better
first 45 minute experience for new customers
-
more
loyal employees, vendors, and customers
-
tap
more organizational intellect and productivity
and
the list goes on and on.
How
do you define your e-learning ROI? From the list above the answers are many and
diverse. Yet I can't help be struck by some commonalities.
E-Learning
ROI:
-
is in dollars
-
is defined as benefits
-
measures outcomes
-
presents a business case
Many
of the E-Learning ROI descriptors are focused on enabling change, doing more,
doing better, going faster. I think these are merely the tip of the iceberg.
Many
of you may read the e-learning ROI descriptions above and wonder how you can
create something similar for your organization.
ROI
Approaches
There
is no one right e-learning ROI definition. It varies depending on circumstances
and the motivations behind e-learning use.
Are
you looking for ways to improve productivity or performance and see e-learning
as a tool to do so?
Do
you work in the human resources department providing internal e-learning as a
benefit to employees?
Are
you a company delivering external customer training via e-learning, for a
profit?
Are
you transitioning your company from old economy to new economy and see
e-learning as a change agent enabler?
For
each scenario I expect the e-learning ROI would be different.
Still
for many of you this will not really have been helpful. How do you go about
defining e-learning ROI?
Part
of the ROI challenge is building a frame of reference to get started.
ROI
Frame of Reference
Donald
Kirkpatrick's model for evaluation of training benefits is a popular place to
start. This model considers the value of learning on four levels:
Level
1: The classic "happy sheet" given out to students at the end of a
course surveys participants reaction to the training and what they plan to do
with it.
Level
2: The achievement tests given throughout the training measure the new skills
and knowledge participants have acquired.
Level
3: A post-training evaluation of whether the new skills and knowledge acquired
successfully transferred to the job.
Level
4: An assessment of whether the employee's new skills and knowledge enabled the
company to achieve a business goal.
To
Kirkpatrick's original four levels of evaluation a fifth level has been added by
Jack Phillips.
Level
5: Assesses whether the monetary value of the produced results exceeds the cost
of training. Here finally is the ROI measure.
For
a great overview of these concepts in the context of e-learning ROI I highly
recommend you read:
Many
Happy Returns: Calculating E-Learning ROI
http://www.learningcircuits.org/2001/jun2001
This excellent article also provides some practical formula.
Most
e-learning ROI articles discuss e-learning ROI generically. I believe the
e-learning ROI approach and measures depend on circumstances and motivation.
In
a corporate context e-learning ROI for internal training will differ from
e-learning ROI for external training. E-Learning ROI in a for-profit context
will be different from e-learning ROI in a non-profit or public-service context.
Lets
explore e-learning ROI in the context of corporate internal and external
training.
Internal
E-Learning ROI
Internal
training is usually a Human Resource function provided to enhance employee
professional development and performance. Traditionally internal training could
be corporate-wide and mandatory or optional based on employee and job needs.
There
is plenty of e-learning available for this HR function. Libraries of e-learning
content exist for a multitude of skills and competencies. Corporate e-learning
can be custom created.
What's
exciting about e-learning is its growing use for company business objectives.
E-learning isn't just about ethics training and learning the latest Microsoft
product. Its about improving the bottom line. This significantly broadens ROI
considerations around internal use of e-learning.
Some
e-learning ROI's are being set and paid for by internal business units rather
than HR. I am particularly intrigued by e-learning ROI around "time to
market". Can e-learning for the sales force improve the speed to market of
a new product or service?
Traditionally
companies have perceived internal employee training as a cost. To senior
management, money spent on internal training comes off the bottom line, reducing
profits. This is the primary reason internal training budgets have been cut when
times are tough.
E-learning
ROI and the growing focus of e-learning around business objectives and the
bottom line is changing that.
Historically,
HR as administrators of internal employee training programs have not had to
really show much ROI. Reports up to senior management might typically provide
data on how many courses were offered, how many students took each course, total
costs and maybe some basic level 1 and 2 evaluation data.
As
we know from our model that's not really ROI. Business executives and managers
are increasingly looking for ROI metrics to ensure e-learning investments
contribute to profitability.
For
internal training, e-learning's ROI is often described in terms of cost savings.
This is done typically by showing that costs associated with an existing (or
new) program can be reduced using e-learning. An obvious e-learning ROI is
savings in travel expenses.
For
a quick snapshot of the kind of travel cost savings you might achieve try out
the Distance
Learning Calculator.
The
bigger challenge for internal e-learning is setting ROI measures around things
like improved productivity and reduced turnover. But to me that challenge is
just what is so exciting.
If
internal training administrators measured and proved an ROI, budgets would be
less likely to be cut and training's importance to the organization would be
better substantiated.
Intriguingly
training's importance to the bottom line has already been substantiated by an
American Society for Training and Development study. The "Profiting from
Learning" study shows a positive correlation between organizational
training investments in one year and total shareholder return the following
year. See ASTD's "Profiting from Learning" research white paper at www.astd.org/virtual_community/research
External
E-Learning ROI
External
training is usually developed and delivered by a training department for
customers of the company's products and services. This form of training is a
profit centre to the company, contributing to the bottom line.
The
circumstances and motivations of external training are different than those of
internal training. As a profit centre external training has always had to show a
dollars ROI. Revenue must exceed expenses.
Amazingly
while many customers will spend huge amounts of money for a product, they
frequently skimp on the training. In addition, using Kirkpatrick's model, most
customers will pay for level 1 and level 2 evaluation but not usually for level
3 or level 4.
While
customer learning benefits have always been described as part of the sale I
think defining e-learning ROI for customers will become a new requirement.
What's
exciting for me is the way e-learning opens up not just ways of doing external
customer training better but the way it offers the ability to do things
differently in a new way. This will prove fertile ground for new and different
ROI measures.
Can
external customer e-learning increase speed to revenue for the company?
Will
external customer e-learning shorten time to use for customer adoption of a new
technology?
Can
external customer e-learning generate repeat sales and loyal customers?
Closing
Thoughts
Internal
and external training within a company are often done on a shoestring. I once
worked for a company that took great pride in engineering world-class technology
but couldn't really care less whether the customer ever really learned how to
use it.
As
an enterprise entity training and learning are often low in stature and
importance. ROI brings an exciting business focus to e-learning. Use of
e-learning ROI will go a long way to changing perceptions, stature, and the role
of learning in an organization.
The
use of e-learning to contribute to business goals and the revenue side of the
balance sheet make e-learning a strategic corporate tool. Use it wisely. Define
and measure e-learning ROI.
Further
readings:
ROI
for E-Learning
www.learningcircuits.org/2002/feb2002/moran.
The
E-Learning Factor
www.internetweek.com/indepth/indepth110600.
Paul
Stacey is an e-learning specialist in the corporate and higher education
sectors. Paul is the Canadian correspondent for LearningWeek Live
http://www.learningweek.com
an interactive webcast from New York featuring stories about the people,
technology, and business of learning. Contact: Paul
Stacey
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