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Learning Management Systems: What is the ROI of training?

On Jan. 19, 2009 Fortune Magazine ran an article stating that “Recessions end...When this lousy stretch is over will your company be more competitive or less? The most successful companies never stop funding their most critical competencies. For virtually all companies, a critical part of their core is the continual development of employees. It's remarkable how many businesses cut training and development in a downturn. The best never do.”

What is the value in training and development?
Why is it that the best companies never cut their training programs? What do they know that others may not?

 

Jim Collins, the author of the groundbreaking management book Good to Great, writes that “Past accomplishments guarantee nothing about future success.” In his more recent book How the Mighty Fall, he writes to survive, a business needs “never-ending creative renewal.” Creative renewal is an essential component to staying competitive and surviving in an economic downturn. It is this practice of ongoing renewal that makes the best companies continue to fund employee development, even in the middle of an economic downturn.

But what is the actual value of training? Employee development is notoriously difficult to measure. Perhaps the only certain way we can measure its value is to stop doing it. But can you imagine what would happen if we stopped providing, say, safety training?...Or environmental compliance training?...Or supervisor training? Companies would open themselves up to potential fines for being out of compliance. Accidents, inefficiencies, and poor business decisions would increase. Also, this would slow the development of those preparing to take on additional responsibility in the business. The most talented people report in survey after survey that learning and development are the most important benefits in their workplace, often more important than pay. These are just a few reasons why training is critical to a company that wants to stay competitive.

But what does the research say about the dollar value of training & development? An ASTD study reports that, on average, companies assign 2.7% of their payrolls toward training. This is quite an investment. But what kind of return are they getting?

First, the U.S. Department of Labor found that training leads to a 16% increase in productivity. Significantly, an FMI report states that a 1% increase in productivity equals a 4% increase to the bottom line.

Second, the Construction Industry Institute found that, for every dollar invested in training, the return is between $1.30 and $3.00. To get a 300% return on any investment is quite impressive.

Third, Caterpillar University saves an average of $87 per person for every e-learning course taken. Many larger construction companies, like Turner Construction, offer training to employees, subcontractors, and customers. Caterpillar, Turner, and others have shifted much of this training to a web-based format because of the large cost savings.

With numbers like these, it's easy to see how crucial a learning management system is in increasing efficiencies and decreasing costs.