As the name implies, Return on Investment deals with two factors: Your investment, and your return. In the human resource world, both returns and investment can be hard to measure, but the quantitative one can be, the better ability one has to gauge the success of various programs and initiatives, as well as compare the results to other initiatives.

Many are tempted to consider the dollar cost of a program or initiative: this includes things like outside speakers or presenters and collateral materials. But the real cost, the real investment, includes all the internal sunk costs such as people assigned to work on a program and ongoing monitoring costs. The better an organization is at identifying all the costs of a new program or initiative, the better the ROI calculation.

Historically, training programs have been evaluated using “smile sheet” where participant rank outcomes and value on a scale of 1 to 5. While this is valuable information, it is not a measure of the actual return from a program or initiative. One must quantify the actual incremental benefit to the organization (usually in the form of dollars contributed to the bottom line). Only when the measurement is at the actual bottom line of the company is there any basis for evaluating the outcomes or comparing them with other outcomes.

One factor that is often missed in considering ROI is that of opportunity cost. When employees are involved in a new program or initiative the “real investment” is not just their salary of time contributed, but also the benefit to the company that they otherwise would have contributed had they not been involved in the new program or initiative. Most of the time hard numbers for components of the investment and return are illusive. The key, however, is following reasonable methods of estimating, and continually revisiting the issue as better numbers and measures become available.

Here is a link for some more information on the financial side of measuring “return on investment”: