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The Human Capital Return On Investment

A paper from Global Learning Alliance and Knowledge Advisors

Part 8 - ROI Indicators

Now that we have established a way to obtain a monetized benefit from training, we can use guidance from finance to establish some ROI indicators for our Human Capital ROI Score Card. The main ROI indicators from a finance perspective include the following:

• Benefit to Cost Ratio
• ROI Percentage
• Payback Period

The benefit to cost ratio is probably the most relevant of the three. It is simply the monetized benefit divided by the costs of the training. The cost s should also be fully loaded for conservatism. Typical costs need to include cost items such as needs assessment, design, delivery, materials, overhead, evaluation, lost work time of participants and travel expenses of participants. The benefit to cost ratio will then be a conservative view on the financial ramifications of your training program. Ratios greater than 1 are positive in ROI. Ratios less than 1 are negative in ROI and ratios equal to one are break even. So, for example, if you have a benefit to cost ratio of 2.5 that means the training program returned 2.5 dollars for every dollar spent on it.

Another financial ratio is the ROI percentage. This is the benefit less the cost divided by the cost, expressed as a percentage. Although more common than benefit to cost ratio, the benefit to cost ratio is a more typical measure in training's use of ROI financial measures because it is not as hard to interpret as the ROI percentage and has less tendency to be compared to other ROI projects that are not human capital based.

Finally is the payback period. This is a time based financial metric. It tells you how many months (or whatever time period you use) are required before you break even on the investment, after which is a positive return. It is good to provide time -based metrics to balance out your scorecard.

Part 7 < Back to Top > Part 9   

© 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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