There has been much debate over learning ROI (return on investment). In a corporate setting, it usually comes up around content or the learning management system renewals or during budgeting time. Executives will ask, and rightfully so, "are we getting our money’s worth?" It’s a fair question. But when the question is asked after implementation or when a training program is in full swing, it often throws the training or learning manager into a tail spin.
I have seen many corporate L&D departments scurrying around trying to run reports that will somehow demonstrate ROI for the learning management system (LMS). I always encourage organizations to address this ROI question from the very beginning, i.e., when you are in the process of selecting an LMS and capturing stakeholder buy-in.
Start By Asking the Right Questions
There are two key questions to ask when considering learning ROI -- or more specifically ROI for the LMS. "Why are we procuring an LMS?" and "How do we validate our reasoning?" It starts with why we are investing in an LMS. Many L&D professionals will argue that this is a dumb question – the answer is obvious – right? But if you are the head of manufacturing, for example, in a large corporation and you were not a participant in the original discussions when an LMS was initially selected and implemented, the answer is not at all obvious. If I were that head of manufacturing and I’m told that I must contribute to the funding of the system, I would want to know the reasoning behind why I must contribute. It is not sufficient to answer that question by simply stating that knowledge is a good thing, I’m going to need more rationale than just that.
Particularly in large companies, a business plan is usually developed to justify the spend. It should include an explanation of ROI and measurable ways to quantify the investment over time (e.g., monthly, semi-annually, or annually). In terms of answering the "why are we procuring an LMS?" question, think about the possible answers:
- To increase productivity?
- To decrease costs (e.g., less travel to classrooms and more eLearning)?
- To satisfy mandatory training for compliance?
- To improve employee job performance?
- To increase revenue (e.g., beef up sales training to drive more sales)?
- To enhance career development?
- Some combination of the above?
You get the picture. But answering the "why" question is usually verbalized and not concisely documented. My advice is to document your rationale in the business plan or whatever document you are using to justify the investment.
Equally important is stakeholder buy-in by function or line of business. In addition to HR, the IT department will likely be involved and they need to be a part of any implementation from the start – even if they don’t own the project. It is not always easy to see how revenue-generating lines of business, for example manufacturing, are stakeholders who ultimately fund the LMS – so they should also have the opportunity to weigh-in on the project. Unless you sell your learning content to finance the LMS, it is an indirect cost to the company.
Document It Well
My advice is to document stakeholder input and/or commitment in your business plan. This should help satisfy the new head of manufacturing’s concerns about why we procured an LMS. But we are not done yet.
When documenting the reasons why the company procured the LMS, it needs to be followed with "how the system investment will be measured over time". See, it gets harder now. Some of the possible answers above are more difficult to measure than others. For example, if one of my reasons was to decrease employee travel costs by reducing instructor-led training and increasing eLearning delivery, then I would want to benchmark current travel and labor costs, calculate the initial system investment, track ongoing maintenance costs, and finally track employee travel and labor costs – or something similar to achieve the needed metrics to "measure the investment". Much of this data can be programmed and retrieved from the LMS – but usually not all of the data. So, a concise model for measuring the system investment over time needs to be conceived and documented for this to work.
And that, my friends, was one of the easier answers to "why we procured an LMS".
This is the first in a series on the ROI of learning. In the next blog, I will share my thoughts on how integrated talent management can help to answer and measure the more difficult "why" questions.