Return on Expectations (ROE) and Return on Investment (ROI) are different ways of calculating returns on business decisions. As a metric for learning and development (L&D) programs, ROE measures how successfully a training program meets its objectives, typically based on changes in employee motivation and performance after completing a course. More generally, ROE helps measure the effectiveness of a training program on overall profitability.
ROI measures the financial return on investment expense. For L&D, both the ROI and ROE of training programs should be taken into account when evaluating a training program.
What makes training programs successful?
The success of a training program can depend on the expectations (that is, the ROE) a company establishes for that training. Like playing roulette, there is a calculable chance for both success and failure. Knowing the odds can lead to a much higher rate of success and profitability. Business decisions can be based on the statistical probability of success.
Continuing the roulette analogy, putting your chips on a consultant or program that has a high success rate at L&D is the equivalent of putting your chips on red, while dealing with a consultant that has produced less profitable results would be like putting your money on a single number on the roulette wheel. You can use ROE metrics to help identify the L&D bet most likely to be a winner.
How do you calculate ROE?
The calculations that comprise ROE metrics are important for achieving effective outcomes in L&D decisions. Training expert and industry consultant Dr. James D. Kirkpatrick refined the ROE model developed by his father, industry icon Dr. Donald Kirkpatrick. The Kirkpatrick model presents a layered method by which training can be effectively developed, delivered, and measured.
The ROE model calls for training programs to be based on the change or improvement in worker performance a company is looking for. For example, if the company introduces a new machine into its production line, the training goal might be for workers who use that machine to increase the number of items that pass quality inspection. The training should be designed and implemented to achieve this goal. Further, correct use of the machine should be reinforced on the assembly line post-training, helping maximize the course benefits.
When evaluating the benefits of its investment in training on the new machine, the company should include the increase in items that pass the quality inspection, that is, of the ROE, along with the ROI. The results of designing a course strictly for financial return – ROI — may not be as great as when ROE is also used.
James and Wendy Kirkpatrick, in their article “ROE’s Rising Star: Why Return on Expectations is Getting So Much Attention,” describe the four levels of ROE as follows:
Level 4: Results:
To what degree targeted outcomes occur, as a result of the learning event(s) and subsequent reinforcement.
Level 3: Behavior:
To what degree participants apply what they learned during training when they are back on the job.
Level 2: Learning:
To what degree participants acquire the intended knowledge, skills and attitudes based on their participation in the learning event.
Level 1: Reaction:
To what degree participants react favorably to the learning event.
They emphasize the importance of defining the Level 4 goals toward achieving a cost-effective training program. Check out the complete article.
Learning specialist Asha Pandey demonstrates that ROE can be used to measure and better understand the ROI for a training program. See her article at the eLearning Industry website.
Creating a financial return on investment based on sound L&D expectations is the ultimate goal and the reason why the ROE metrics matter. Estimating the ROE and ROI measurements is important for evaluating training program effectiveness and for improving the profitability of L&D investments.
Are you looking for consultants who know how to set up, track, and report key metrics in a learning program?
For more tips on how to build out an effective ROE and ROI measurement strategy for your learning and development program, reach out and connect with the experts at Clarity Consultants today. Our team is uniquely skilled at helping companies like yours measure and act on the data that helps drive business success. Contact us today!