How is profitability measured

If people really are your greatest asset, isn’t it time to look at your training programmes as investments in your organisation’s human capital and not just as an expense? The evaluation of training, like motherhood and apple pie, is inherently a good thing. But, because short term priorities always crowd out their longer term competitors, it’s typically something we plan how is profitability measured do better next year – after all, we’ve got away with it so far, so another year won’t hurt! And even if training evaluation is undertaken, it is usually at the easiest and lowest level – the measurement of student reactions through happy sheets.

Reactions are important and the happy sheets serve a purpose, but will they be enough to back up your arguments when there is a need for a greater investment in training, when major changes need to be made in direction, when there is stiffer competition for resources, when times get tough? Training is one of many actions that an organisation can take to improve its performance and profitability. Only if training is properly evaluated can it be compared against these other methods and expect, therefore, to be selected either in preference to or in combination with other methods. We all know that when money is tight, training budgets are amongst the first to be sacrificed. Only by thorough, quantitative analysis can training departments make the case necessary to resist these cuts. Training programmes should be continuously improved to provide better value and increased benefits for an organisation.

Without formal evaluation, the basis for changes can only be subjective. These days there are many alternative approaches available to training departments, including a variety of classroom, on-job and self-study methods. Using comparative evaluation techniques, organisations can make rational decisions about the methods to employ. Although by no means a true measure of the effectiveness of training, student numbers do reflect the fact that the training is addressing a need and that the design and methodology is meeting expectations. If the programme did not take place, these costs would not be incurred. Many organisations only ever take direct costs into consideration when measuring training costs.

Indirect costs are costs that may or may not be directly associated with a training event, but which would have been incurred anyway, whether or not the training took place. Examples are salaries of in-house trainers and students and the costs of rooms and equipment. Any analysis of the true costs of training will include both direct and indirect costs. Efficiency is a measure of the amount of learning achieved relative to the amount of effort put in. In practical terms this means the amount of time it takes to complete a piece of training. In these situations, the extent to which a training programme performs to schedule is a critical measure of success.

If you are a training provider operating externally to a client organisation, then income received is a vital measure of your success. Some internal training providers may also cross-charge their clients, although, because this correspondingly increases the cost to the organisation, this is not regarded as a benefit when assessing return on investment. A justification often made for training, particularly group events, is that it provides an opportunity for students who work in different departments or regions to meet with each other, share experiences and make contacts. Because this is a valued outcome of training, it needs to be considered when comparing training methods. Similarly, some training may be regarded as a perk, a benefit of some value, even if this is not directly related to learning.