Making ROI-based Decisions About TRAINING AND DEVELOPMENT
In our first post in this series, we proposed that supply chain management (SCM) discipline should be applied to human resource processes to understand opportunities to enhance efficiencies in these processes. This is especially important for CFOs with increasing responsibility for improving financial efficiencies in all areas of the company. That post specifically discussed applying SCM discipline to the recruiting process as a way for CFOs to ask the right questions about HR programs, and, as a result, to make decisions about people spend that positively impact the bottom line. In this post, we’ll explore the application of SCM thinking to another powerful HR process — training and development — with an eye to a similar improvement in financial decision making.
Why the CFO Should Pay Attention
As with recruiting, training and development can also be costly. But unlike recruiting, a benefit of providing training to employees is that the company will more directly reap some level of return on its investment – hopefully in employee productivity, retention and loyalty. The relationship between training and a firm’s overall performance has been the subject of study for more than sixty years.
Recently, Harvard professors Aaron Bernstein and Larry Beeferman, concluded that “training is frequently associated with higher profits for firms.” However, the benefits of training programs can be hard to quantify financially for two major reasons: 1) It can be hard to directly correlate the impact of training with better performance, better decision-making or leadership quality. 2) It is hard to pinpoint the time when the benefit of the training intervention will “kick in” – a week, a month or longer.
As we said, in Part 1 about SCM and recruiting: Applying an SCM lens can help CFOs ASK THE RIGHT QUESTIONS of HR to confirm the alignment of programs and processes to business strategy and identify opportunities to improve efficiencies. We are in no way suggesting that CFOs get into the nitty-gritty of designing and managing HR programs; we are suggesting that CFOs partner with CHROs to enhance the impact of HR on bottom-line performance. The partnership of financial rigor with program and people expertise will generate measurable benefits.
To identify where improvements in efficiencies (and therefore ROI) can be achieved in training investments, we suggest examining each step in the recruitment process with an SCM approach before making critical decisions including how much to invest in these programs
- Demand, Planning, and Forecasting: In SCM this is focused on predicting future resource needs. For training, this involves predicting the quantity and timing of the skills/competencies required based on today’s needs and future needs. Understanding how skills/competencies have been affected by attrition trends help to understand where these gaps are. Questions to ask:
- Do we have the skills/competencies we need today and in the future to achieve our business strategy?
- How effective have our training programs been in the past – what is our baseline ROI on training?
- What changes in technology, product line, etc do we predict and how do we prepare our employees for the changes?
- Production Planning and Scheduling: In SCM, this exercise established future inventory acquisition schedules and optimizing production to fit quality and quantity needs. For training, this would encompass predicting and planning future training interventions. Questions to ask:
- Are we training the right people at the right time with the right protocols?
- Are we identifying the future talent needs aligned with our business strategy?
- Distribution and Logistics: In SCM this is planning how goods will move through space and time, identifying where to place goods and optimizing choices about which sources to use. For training, this would inform decisions on whether to use in-house training resources or use contracted/consulting resources to deliver training. Questions to ask:
- Are we tapping internal expertise to deliver training?
- What is the cost/benefit analysis and the opportunity cost of using internal versus out-sourced training talent?
- Are we optimizing the timing of training delivery to coincide with slow work periods?
- Inventory Management: In SCM the key concept is managing resources – how much inventory should we have, where can shortages and surpluses be tolerated, and how much is this costing the organization. For training, this would address how to quantify the inventory of skills and competencies in the organization to facilitate deployment of this asset where and when needed. Also addressed would be planning how far in advance to build inventories of needed skills/competencies. Questions to ask:
- What is the impact of training on retention, engagement, employer brand, productivity?
- What is our ROI on training and the ultimate benefit to the organization?
CONCLUSION: While CHROs can powerfully determine which programs are achieving the KPIs and goals set, CFOs can begin to identify opportunities to better align cost/benefit for the organization and optimize dollars invested and resulting return in the training process. An authentic synergistic partnership between Finance and HR.
Solange Charas is a senior-level human resources expert with 30+ years of experience as a consultant, practice leader, top corporate executive, and board director across all industry sectors. She was the Chief Human Resources officer at Havas Worldwide, Benfield and Praetorian Financial Services Group and held senior-level positions at Ernst & Young and Arthur Andersen. She serves of the boards of 2 public companies, a non-profit organization and a higher-education institution. She is the Founder and CEO of Charas Consulting, and HCMoneyball – a SaaS company founded to provide support for enhanced decision making about spend on people in any organization.
Solange earned a PhD in Management from Case Western Reserve University’s Weatherhead School of Management, an MBA in Accounting and Finance from Cornell University’s Johnson Graduate School of Management, and a BA in International Economics from the University of California, Berkeley. She has authored numerous articles, including “The Art and Science of Valuing People” in HR Director, “6 Ways to Coach Your Company’s Teams to Be Champions” in Entrepreneur Magazine and “Why Men Have More Help Getting to the C-Suite” in Harvard Business Review.