Welcome to the fifth blog in our “Humanizing Human Capital” series. The focus of the series is to define human capital measurements associated with different aspects of the worker journey and provide Human Capital practitioners with necessary facts and approaches to determine the most impactful interventions and investments in people, supported by data-driven evidence, that will prove the economic value contribution to the company’s bottom-line performance.
Humanizing Human Capital: Training Measurements
Metrics in this category can provide information about an organization’s absolute and relative investment in training and the effectiveness of that investment. Given that training is often the biggest human capital expense after compensation and benefits, metrics that can quantify the impact of training on organizational performance can be particularly useful. The main question is whether the organization can validate and quantify the positive impact of training on financial outcomes. The first step is to understand trends in training investment, both in terms of hard-dollar costs and in terms of training hours delivered to employees. Below are the definitions, algorithms, appropriate application, and relevance, as well as potential “signals” of human capital health for each measurement in the “Training Measurements” category:
Training Hours Per FTE is the average length of time (in hours) that employees spend in training during a period
How to calculate: Total number of hours (of all employees participating in training) in the period ÷ Average number of FTEs for the period
How to use it: A direct relationship between training and financial outcomes is well documented. Training can also greatly enhance a desirable corporate culture.
Why does it matter? In addition to the number of hours provided for training, an evaluation of the cost of training might be considered. This metric can be compared to future productivity, manager satisfaction on training outcomes, employee engagement and satisfaction, bench-strength for succession planning/mobility, as well as retention trends. Research suggests there may be a time lag between training and the recognition of benefits based on content, complexity and sophistication of training protocols. It is important to look for patterns that can be explored to identify time lags as well as personal, department, function, and enterprise impact. In other words, don’t have an unrealistic expectation that the benefits of training will be observable in the same quarter the training occurs!
Training Costs Per FTE is the total cost of training during the period
How to calculate: Total cost for training during the period ÷ Average number of FTEs for the period. Costs include both hard-dollar and soft-dollar costs (including the hourly cost based on wages of those attending training and the cost of HC staff or out-sourced training support in administering and delivering training programs.)
How to use it: A direct relationship between training and financial outcomes is well documented. Training can also greatly enhance a desirable corporate culture.
Why does it matter? We invest in employees in a variety of ways and perhaps the most significant (beyond cost of acquisition and remuneration) because it is an on-going investment is training. Many organizations have significant training budgets and it is critical to not only understand how to allocate that budget to the most efficient and effective training programs delivered to the right talent at the right time, but also to understand the time horizon to expect a return on investment in training programs. At a minimum, you should expect training to enhance the performance and productivity of employees. Aspirationally, you should expect training to extend tenure, and also to develop needed FUTURE skills in employees to meet the skills/competency needs of the organization in the future. Strategic workforce planning efforts should go hand-in-hand with learning and development initiatives. When this process is done in a thoughtful way, the organization and its employees win – the organization because it has optimized the return on investment in learning and development; the employees because they gain new skills/competencies and have a positive experience and perception that the organization is investing in them!
Correlating training investment to human capital and enterprise performance indicators
Organizations need to identify the fundamental goals underlying providing training to employees and then measure if those goals are being met. For example:
Retention: Correlate training investment by targeted segment of the employee population to average tenure of that segment. If average tenure is increasing for employees receiving training, you have achieved your goal. Make sure you select the appropriate performance cycle for measurement – if you expect that training impact won’t be realized for 1 year, use that time period to measure retention trends.
Attrition: Correlate training investment to attrition by targeted segment. Just as above, measure attrition rate instead of tenure trend. Remember that employees will stay with an organization if they anticipate they will receive training in the future, so communicate your training policy and practices as an incentive to reduce or delay attrition.
Productivity: Correlate training investment to productivity. If the goal is to add skills/competencies that would enhance performance, then overall productivity (revenues ÷ FTE) should improve over time. The better the overall productivity, the more profitable the organization should be, all things being equal.
Succession planning/mobility: Correlate training investment to internal mobility/promotion rates. It is more economical to promote from within than recruit external talent. Not only will the time to expected performance be shortened because of the institutional knowledge the incumbent has (over a new employee), but morale in the organization is improved because of the perception that there is upward and/or lateral mobility opportunities for employees.
HCROI: Appropriate investments in learning and development should enhance HCROI, which will enhance profitability performance! This also helps to financially justify additional investments in learning and development, as you are proving out the financial value of additional training budget allocations. As long as the ROI in learning and development is positive and greater than the overall ROI for the company, there is a compelling narrative/argument for continued investments in these initiatives - and your CEO/CFO will recognize these value-creating initiatives.
In the next post we will focus on Workforce Diversity Measurements.
To learn more about ways to bring evidence-based practices to your organization read Humanizing Human Capital: Invest in Your People for Optimal Business Returns.