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The Human Capital Return On Investment

A paper from Global Learning Alliance and Knowledge Advisors

Part 5 - The Human Capital ROI Score Card

So far we have discussed the need for ROI and the methodologies and approaches to get reasonable data on ROI. This section discusses the output of an ROI approach that has the following benefits:

• Cost effective to measure
• Resource efficient to measure
• Provides indicators of all 5 levels of evaluation
• Is scaleable and replicable across all learning classes, courses, curriculum and programs
• Is benchmarkable for both internal and external comparisons
• Uses reasonable assumptions based on industry proven principles and methodologies
• Provides valuable business intelligence to a variety of stakeholders
• Provides quantitative, financial evidence of return on investment

The premise behind the scorecard is in the underlying assumptions from which it operates. The key is deriving a monetized benefit from training. The benefit can be derived by calculating it for a specific result such as sales, quality, productivity or cycle time. However, it may also be derived by linking it to the known monetary value that is placed on human capital, an employee salary.

Let's use an example, if one buys a computer for $3,000 the expectation is that the company will get $3,000 of value out of the computer. The computer may help a salesperson increase sales or help a plant floor operator increase quality but the goal is to improve the users job performance through the technology. The expectation is that at least $3,000 will be of benefit in exchange for paying a cost of $3,000 to acquire the computer.

Compare this analysis to a person, (i.e. human capital). If the fully loaded salary (wages, benefits, and overtime) of a newly hired employee is $50,000, the organization paying that expense expects $50,000 of value from the employee. This value could come from their contributions in one or more key business objectives such as sales, quality, productivity, cycle time, customer satisfaction etc. But, in general, the organization expects a return of at least $50,000 from the employee.

Now, say in our computer example our IT department added a $500 upgrade to it. The upgrade is intended to make the machine faster, more resistant to bugs, and more accurate in its processing computations. The business result is more productive employees, higher quality and reduced cycle-time for a user of the computer. The expectation is that the $500 spent on the upgrade will result in at least $500 returned in various benefits.

Compare this analysis with training. We use training to upgrade our people just as we add components to a computer to upgrade technology. Training and organizational development are proven tools to add knowledge and skills to our workforce. So, if an employee goes to a $1,000 training event over a week long period, the goal is that the employee will leverage the training to help achieve various business results back on the job. Such results include increased sales, quality, customer satisfaction, productivity etc. The expectation is that the $1,000 spent on the training will result in at least $1,000 returned in various benefits.

Part 4 < Back to Top > Part 6   

© 2004 Global Learning Alliance and Knowledge Advisors. Reproduced with permission. Any opinions or views contained in this article are solely those of the author and do not necessarily represent those of Training Reference.

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