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June 6, 2017
The real ROI of Learning and Development
Pamella Carrasquel
Understanding the importance of L&D as a key investment is a challenge for most organizations. This article takes a look and explains the real ROI of L&D.

To most organizations, speaking of return of investment takes them directly to hours-on-end talks about profitability.  For this reason, when the topic of employee training and development is approached, and benefits such as employee engagement and motivation, improvement in the work environment and such other non tangible positives are mentioned, most organizations question the real value and therefore whether and how much L&D is actually worth as an expense.

Philip Seely says that “one of the largest asset any business could have is its people”, and it’s that untapped potential that brings about the real ROI of L&D, and in this case, the ROI is not only profits but much more.  Maia Josebachvili, in her article How to understand the ROI of investing in People introduces and defines the concept of “Employee Lifetime Value (ELTV)”, to help understand the depth of the impact that investing in employees has on organizations.

While one of the most evident benefits of learning and development is the increase of profit it brings to the organization, there are many other aspects that L&D influences. These aspects are mainly employee motivation, engagement, acquisition and retention, as well as increase in productivity for both the organization and its employees.  The latter in particular, is important, as it is can be reflected in the organization’s increased profit and the employees’ met objectives.

In her article, Josebachvili applies her findings and illustrates how great people practices, affect positively the productivity of employees in two different scenarios.  With two clear examples she demonstrates how, by increasing the productivity of the employees, there is a clear increase in the organization’s profits in one case, and how a job usually done by six people can be done by just one if trained properly.  

The first scenario is that of a two sales companies, one with regular people practices and the second with more optimised practices looking to better the conditions of the employees.  We can see with a graph how “the difference between average and slightly optimized People Practices for one salesperson over the course of three years is $1,300,000 in net revenue, or a 2.5x difference for the organization.”  This is due to many factors, among which we can find the fact that poorly trained employees will leave within the first 24 months in the organization, making their ELVT shorter and bringing as a consequence additional costs in regards of recruitment to replace them, and train the replacement.  On the other hand, a well-trained employee will most likely stay, making their ELVT longer and increasing their net revenue as explained in the abovementioned quote.

The second scenario takes this example and applies it to the case of an engineer with exposed to regular people practices against one exposed to optimised ones.  According to Josebachvili, “The ELTV difference between these two engineering examples is 6.6x over three years. Put another way, that means that one engineer in scenario 2 can do the work of 6 engineers in scenario 1. That’s a staggering return on investment from a handful of People programs.

The return of investment of employee Learning and Development cannot be measured only by the profitability of it.  To account for it properly, we need to factor in all the aspects it affects, such as employee motivation, and engagement, as well as the other aspects mentioned before.  However, as Josebachvili was able to prove, all these aspects that are affected positively, reflect directly on the employee’s productivity and therefore, in the profit this brings to the organization.