pp_human capital contribution model, a systematic aproach for learning organizations to roi and...

8/9/2019 PP_Human Capital Contribution Model, A Systematic Aproach for Learning Organizations to ROI and Profit Impact_G

1/34

Human Capital Contribution Model:

A Systematic Approach for Learning Organizations toAssess Needs, Effectiveness, Business Results,

ROI and Profit Impact


2/34

2005 KnowledgeAdvisors, Inc. & GeoLearning, Inc. All Rights Reserved. 2

Executive Summary ................................................................................................................ 3Human Capital Contribution Model Overview......................................................................... 3Business Needs Analysis........................................................................................................ 6Performance Analysis ............................................................................................................. 9Business Results Analysis .................................................................................................... 15ROI Analysis ......................................................................................................................... 24Profit Impact Analysis ........................................................................................................... 29Conclusion ............................................................................................................................ 31Contact Us ............................................................................................................................ 32Appendix A: ROI Analysis on GeoLearning Analytics .......................................................... 33


3/34


Executive Summary

The Human Capital Contribution Model (HCCM) is a process and toolset that enables learningorganizations to measure and improve business results and bottom-line impact. The benefits ofimplementing HCCM include:

Ensures that business results are aligned with business objectives. Significantly reduces wasted L&D expenses. Substantially increases productivity. Simplifies the process of tracking actual business results. Cost-effective approach to measuring ROI. Enables you to link learning investments to bottom-line impact. Data-driven approach to optimizing the impact of your L&D programs.

Business Case: Without systems in place to track business impact, most organizations are notreaping the full benefit of their Learning and Development (L&D) investments. According to IDC,50% of all training expenses are wasted. KnowledgeAdvisors research shows that 35% of peoplewho go through learning programs do not apply what they learned and, perhaps more

importantly, most learning programs could be improved to significantly increase productivity backon the job.

According to IDC, a typical Fortune 500 company or government agency invests approximately2% of its revenue in L&D. If half is wasted, that means organizations on average waste 1% ofrevenue. This means that an organization with $5 billion in revenue is probably wasting$50 million per year. By implementing HCCM, organizations can systematically drive out waste.In our example above, if waste is reduced by only 10% it will improve earnings by $500,000.The cost of implementing HCCM and its underlying technology, GeoLearning Analytics, isapproximately 1% of what an organization wastes in training.

More importantly, by systematically finding ways to improve impact, organizations cansignificantly impact earnings. For example, if an organization with $1 billion in labor cost can

increase productivity by just 1%, it will increase earnings by $10 million.

HCCM enables organizations to redirect wasted or poor-performing L&D investments intohigher impact programs, which will significantly impact the bottom-line.

Human Capital Contribution Model Overview

The balance of this document is a guide for L&D organizations on how to implement a processand toolset to better assess needs, effectiveness and business impact. There are five coreworkflow components to this model. The process can be implemented in phases and can

leverage existing technology with GeoLearning Analytics as the platform.

The five components of the Human Capital Contribution Model are Business Needs Analysis,Performance Analysis, Business Results Analysis, ROI Analysis and Profit Impact Analysis.


4/34


Business Needs Analysis is the up-front planning process used to understand the drivingbusiness factors prompting the creation of a learning and development program.

Why is this important?Because the key to a successful learning and development interventionthat maximizes impact on the business begins with a formal analysis of business needs.

Whats the process?To ensure the right L&D investment is designed, developed and delivered aneeds assessment should be conducted to understand the business objectives. Once identified, aknowledge and skill assessment should be conducted to examine the gap between the currentstate and desired state.

What are the tools?The primary tools are needs assessments, knowledge and skillsassessments, pre and post tests, and competency assessments. Using GeoLearning Analytics tocollect, store, process and report these results greatly facilitates the process.

What are the results?Better designed learning programs and more clearly defined andmeasurable business objectives that can be linked to post-learning business results.

Performance Analysis is a systematic approach to redirecting poor performing investments intoprograms that drive on-the-job productivity.

Why is this important?Because research has shown that nearly half (50%) of all training iswasted. In financial terms, for a typical Fortune 500 company that is more than $50 million per


5/34


year, more importantly, a typical Fortune 500 company could drive another $10 million in earningsif productivity were improved by 1%.

Whats the process?To ensure waste is eliminated and productivity continually improved asystematic review of key indicators is needed to pinpoint the root cause of poor performinginvestments. Performance analysis focuses on where the investment occurs (Which programs?Which courses? Which vendors? What customers or l ines of business?). It also analyzes keyattributes of activity and performance data including attendance rates, learning effectiveness, jobimpact, and value indicators.

What are the tools?Data sources for this analysis include LMS (learning management system)data and evaluation data. Using GeoLearning Analytics to collect, store, process and report theseresults greatly facilitates the process.

What are the results?Better information for decision-making. Future allocations of L&D resourcesto more value-added programs, courses, vendors, and clients or lines of will significantly impactthe bottom line.

Business Result Analysis is a systematic approach to connecting L&D investments to abalanced set of actual results.

Why is this important?Because you cant manage what you dont measure. By systematicallyanalyzing the link between learning and business results, one can identify areas for improvementand help drive better results. In addition, by analyzing business results, validation for ongoinginvestments can be made.

Whats the process?HCCM is based on a balanced approach and being as closely aligned tofinancial statements as possible. After all senior management performance is almost alwaysbased on financial results.

The recommended balanced set of business results most closely aligned with financialstatements are:

1. Revenue2. Profitability3. Productivity

This approach applies to both the public and private sector and is recommended for all majorlearning programs including corporate universities, leadership programs and business unitprograms. When appropriate, it is also recommended that additional business results be trackedsuch as quality, cycle-time, employee loyalty, customer loyalty and risk mitigation.

What are the tools?Data sources for this analysis include ERP (enterprise resource planningdata), financial and cost accounting data, customer satisfaction data, error rate data, CRM(customer relationship management) data, and HRIS (human resource information systems)data. GeoLearning Analytics provides L&D managers with templates and wizards to analyze the

key business results but is flexible to provide for customized business results analysis and thendisplays the analysis on interpretive and graphical scorecards and dashboards.

What are the results?A thorough and timely understanding of organizational impact. L&Dbecomes advisors for improved performance.

ROI Analysis is a process-based approach to determining the financial return on L&Dinvestments given cost considerations.


6/34


Why is this important?Because investments should provide more positive financial value back tothe organization than the resources consumed in the original investment. It is also a commonlyused financial analysis to validate investment decisions.

Whats the process?To ensure L&D management focus on benefit vs. cost leveragingmethodologies from experts such as Dr. Jack J. Phillips ROI Process helps provide a frameworkfor ROI. The process of collecting, storing, processing, and reporting data that create a monetarycost and benefit from training are inputs to the ROI process and then isolating the benefit totraining and adjusting it for bias and conservatism is part of the Guiding Principles of the ROIProcess.

What are the tools?Data sources for this analysis include ERP (enterprise resource planningdata), financial and cost accounting data, customer satisfaction data, error rate data, CRM(customer relationship management) data, and HRIS (human resource information systems)data. GeoLearning Analytics wraps automation, templates and wizards around the Phillips ROIProcess to make the administrative burden of ROI feasible and practical when there arelimitations on resources to apply to ROI analysis.

What are the results?A credible and reliable ROI expressed as a benefit to cost ratio that whencompared by learning delivery, program, vendor, client or line of business will help the L&D

manager make better decisions from a dual dimensional perspective (benefit and cost). It will alsovalidate the investment (or invalidate it in the case of a negative ROI).

Profit Impact Analysis is a data driven planning and reporting process that helps to optimize theimpact of L&D investments and to connect learning to financial statements.

Why is this important?Because L&D expense is part of the calculation, these profit measures arearguably the most meaningful ways to analyze past and future impact of learning on earnings.

Whats the process?If learning intervention is effective, it will ultimately impact profit in a positiveway. The financial goal of a corporate university is to increase the profit contribution of its people.That profit contribution can best be measured by taking revenue less labor costs and L&Dexpense, which is called The Human Capital Contribution Profit. A corporate university will be

most successful when the Human Capital Contribution Profit is growing faster then the revenue,which is measured by calculating the Human Capital Contribution Margin (Human CapitalContribution Profit divided by Revenue).

What are the tools?Data sources for this analysis include financial and accounting systems.GeoLearning Analytics provides templates to guide a manager through the inputs and structuredanalysis to trend and track the actual to projected results.

What are the results?A sensitivity analysis tool that can help plan investments better andoptimize L&D impact. It also enables learning professionals to discuss financial impact withbusiness executives.

Business Needs Analysis

Core Diagnostic Tools

Analogous to a doctor, an L&D consultant needs to ask the right questions before prescribing asolution. Just as the doctor uses basic medical devices such as thermometers and stethoscopesto gather initial data about the condition of a patient, an L&D consultant can use business needsassessments, tests and competency tools to assess the health of a client in need.


7/34


The business needs assessment is a series of questions conducted via survey, interview or focusgroup meant to identify the underlying reasons for an investment to be made in an improvementinitiative. Business needs assessments are used before the learning intervention is designed.They are meant to understand the requirements and expectations as well as set appropriate L&Dscope given resources.

In Figure 1 below we illustrate a needs assessment regarding customer satisfaction with atechnology tool. Several users were asked to comment on their needs with respect to keyelements of the technology and related service and support. From the assessment one can easilysee the average results amongst the respondents for the major categories covered in the needsassessment. All areas are in need but the greatest need is in technology functionality. So if thereare limited resources this would be an area of higher priority as that is where the greatestbusiness need exists. To further refine the analysis, the analytics tool can drill down into eachcategory to further pinpoint the specific area of greatest need.

Figure 1: Example Business Needs Assessment for Customer Technology Needs:

Source: KnowledgeAdvisors

In addition to Business Needs Assessments there are knowledge and skill assessments. Acommon way of measuring knowledge and skill is by a test. A pre-test or a self-assessment canmeasure knowledge or skill before the learning intervention and can be a great job aide to usebefore a learning intervention is ever developed. Unlike a business needs assessment this tool isdesigned to focus on human capital knowledge or skill.

For example in Figure 2 the L&D organization created a simple test for the finance andaccounting organization to take prior to the creation of a learning program. The test was meant tounderstand if the workforce had certain knowledge to accomplish the business need identified inthe needs assessment. The test results revealed that only 38% of the finance and accountingemployees had sufficient knowledge and skills as determined by test pass rates. The L&Dmanager can then conduct more detailed item analysis on each test question to determine whichquestions were missed the most/least to further pinpoint where the greatest skill gap exists.


8/34


Figure 2: Test Summary Report


Finally, conducting competency assessments is a way to understand if the workforce is strong inthe required behaviors to carry out the business need. Competency assessments can be self-reported or done via manager, peer, or subordinate (i.e. 360 feedback). A competency tool in thearea of leadership may have the following competencies that are the attributes of an effectiveleader: coaching, delegation, communication. The competency assessment measures whereindividuals or groups are strong, sufficient, or need improvement in certain behaviors that drive

impact. Figure 3 shows the results of the leadership competency assessment. Communication isthe area with the most improvement needed.

Figure 3: Competency Assessment Output



9/34


Process for Business Needs Assessments

We suggest that every L&D organization create a set of organized steps to ensure there is ametric focus on identification of needs, knowledge, skills and competencies.

At a high level, the following are the basic process steps for Business Needs Analysis:

1. Prepare a business needs assessment at the organizational or individual level.2. Collect, store, process and report results.3. Analyze results and identify areas of strongest business need given resource constraints.4. Prepare a knowledge or skill based test.5. Collect, store, process and report results.6. Analyze results and identify areas of strongest skill gap.7. Prepare a competency assessment for individuals and their managers.8. Collect, store, process and report results.9. Analyze results and identify areas of strongest competency gap.10. Based on strongest business need and largest skill and competency gaps design,

develop and deliver targeted learning.

GeoLearning Tools and Services for Performance Needs Assessment

As was illustrated by the examples, GeoLearning Analytics is a comprehensive learninganalytics technology. It, combined with GeoLearnings Analysis Services (when needed), canfacilitate business needs assessments by:

1. Collecting, storing, processing and reporting the results of business needs assessmentsso L&D managers can quickly pinpoint strongest business needs.

2. Collecting, storing, processing and reporting the results of tests and self-assessments soL&D managers can quickly pinpoint the largest knowledge and skill gaps.

3. Collecting, storing, processing and reporting the results of knowledge and skillsassessments so L&D managers can quickly pinpoint largest competency gaps.

4. Analyzing results of assessments and providing written feedback on where to prioritizeL&D design and development resources.

Performance Analysis

Waste Reduction

KnowledgeAdvisors research shows that 81% of all L&D measurement resources areadministrative in nature. This means the vast majority of resources are allocated towardreadying data for analysis versus making decisions. Analytics tools are designed to collect, store,process and report data. This frees the analyst up for information decision-making time. SeeFigure 4 for an illustration of the activities taking place when readying the data for analysis whereGeoLearning Analytics reduced administrative burden.

A great first step in managing investments in human capital performance is to identifyopportunities for waste reduction. This primarily falls into three categories:

1. Reduced administrative costs to properly evaluate programs2. Reducing infrequently used resources3. Changing suboptimal training solutions

Reduced administrative costs is an easy first step. Integrations between analytics technologiesand feeder systems such as Learning Management Systems (LMS) allow automation and


10/34


interoperability between systems. This saves duplicate data entry, paper processing, andautomates storage, processing, and reporting. See Figure 4 for a schematic of a typicalintegration between a learning analytics tool, GeoLearning Analytics and a Learning ManagementSystem.

Figure 4: Integration of LMS with Analytics Technologies:


In addition to systems integrations, identifying the elements of measurement that areadministrative versus value added and then leveraging technology and templates to reduceadministration to save resources for data analysis is key to waste reduction. Figure 5 shows theadministrative elements of learning analytics. Within each step pinpoint technology leverage andtemplates. For example in data collection use Internet technologies vs. paper to collect anevaluation.

Figure 5: Integration of LMS with Analytics Technologies:



11/34


Reducing under-utilized resources is another waste reduction mechanism. KnowledgeAdvisorsresearch studies show that nearly 75% of organizations investing in E-Learning libraries utilizeless than 30% of the library. By default, most organizations under-utilize those libraries.

The key to reducing waste with under-utilized resources is to identify the resources and analyzethe root cause of under-utilization. Examples of resources to consider in an L&D operationinclude:

Instructor workforce. Physical training locations. Courseware completions.

For example, change suboptimal training solutions where waste reduction can occur. In thisaspect it is powerful to trend and track indicators of poorer performance. Reviewing some of thefollowing can help with waste reduction and reallocation of resources.

Areas where there is little actual application of training on the job. Courses or business units with high percentages of low learning effectiveness (indicates the

right people were not in the training or the training is weak). Areas with low alignment between training content and business outcomes. Identification of barriers to impact of training on the job.

In Figure 6, a table from GeoLearning Analytics illustrates application on the job and barriers touse for a corporate university over a month of organization-wide training. This data was collected60 days later, automatically by the technology to understand when application happened (if at all)and if not, why not. There is 14% waste (where training had not applied yet) and the biggestbarrier was lack of opportunity. Trending this data over time or by key program can help in wastereduction.

Figure 6: Job Impact and Barriers to Impact


Another example of waste reduction is an analytic output such as Facility Utilization Ratio. It isillustrated in Figure 7. A manager looking at waste reduction can see that the Chicago site is theone most utilized and several locations have only 1 training day. This can lead to decisions toconsolidate or close physical training locations under-utilized. However, if this data is hard toobtain or not tracked these low-hanging opportunities will be missed.


12/34


Figure 7: Facility Utilization


Performance Improvement

Investment analysis should also cover performance improvement. An optimized investment notonly reduces waste but continuously improves its process making it more efficient and effective.

Performance improvement is complimentary to changing a sub-optimal training solution. An L&Dmanager should look at the following types of indicators for ensuring the L&D process iscontinuing to deliver value-added training and improves upon doing so:

Review quality indicators which include: 1) instructor performance, 2) courseware quality, and3) environment conduciveness to learning.

Review knowledge transfer indicators which include: 1) pre- and post-test results, and2) evaluation indicators of training from the students perception.

Review behavior change on the job that could be gained from observation, follow-up

evaluation, managerial evaluation. Review alignment with business results, if sales training occurred did sales increase?

Using analytics technologies like GeoLearning Analytics to slice the aforementioned data bycourse, program, vendor, instructor, business unit, job function, office location, years of serviceetc. can provide for profiles of learners and training to pinpoint performance improvementopportunities.

In Figure 8 below, the data shows the effectiveness or impact courseware. The easy-to-readanalysis shows the red items that should alert an L&D manager to take action. In this case if wefind that wrong prerequisites exist or if the content lacks has real-world, relevant examples and isnot current content we will likely find the culprit to poor performance. But the data highlightedwhere to look. In business when resources are limited, rely on the right data to guide you.


13/34


Figure 8: Courseware Effectiveness of Impact by Course.


Another example is the analysis of impact by line of business. Performance improvement analysisneeds attributes of the participant not just the training to be identifiable and actionable. In figure 9we see data for the impact training had on the job several months later sorted by job function at atypical organization. The R&D group has had little job impact compared to the HR and IT groups.This can help the L&D management understand which areas of their business have significant

performance improvement opportunities.

Figure 9: Job Impact by Job Function


Process for Waste Reduction and Performance Improvement

We suggest that every L&D organization create a set of organized steps to ensure there is ametric focus on waste reduction and performance improvement.


14/34


At a high level, the following are some basic process steps for Performance Analysis:

1. Identify the most strategic, costly and visible programs.2. Identify the elements of the L&D organization that will be enablers of these programs.

These elements include the financial, physical and human resources allocated to theseprograms.

3. Construct a list of key performance indicators for the activity (how much was trained) andperformance (how well we trained) attributes of these programs.

a. Activity KPI examplesi. Location Utilizationii. Instructor Training Daysiii. Courseware Utilization by deliveryiv. Number of completions to enrollments

b. Performance KPI examplesi. Instructor Performanceii. Courseware qualityiii. Location Conduciveness to Learningiv. Learning Effectiveness / Knowledge Transferv. Weeks to Apply Trainingvi. Barriers to Application

vii. Alignment with Business Resultsviii. Perceived Training Value

4. Determine practical data sources and collection mechanisms5. Identify a central database for storage of the data6. Automate the processing of the raw data into KPIs by program7. Review the KPIs on a regular basis against 1) trends of prior periods, 2) realistic yet

challenging goals, and 3) internal and external benchmarks.8. Based on analysis drill down into data to find the root cause of waste or poor

performance. Drill down by:c. Classd. Coursee. Curriculaf. Instructor

g. Vendorh. Learning deliveryi. Location of delivery

j. Attribute of the participant (years of service, job role, business unit, area of theworld)

9. Prioritize improvement opportunities based on resource available to allocate toimprovements. Focus first on items requiring little resources and change management(ex. change prerequisites for a leadership course from 5 years to 10 years). Next focuson areas where automation and technology could play a role (ex. implement anautomated and integrated technology to cut down on L&D admin). Finally focus on long-term solutions like a complete revamp of a major program.

10. Continue to monitor and measure the KPIs to ensure changes made do not revert backto the old process.

GeoLearning Tools and Services for Investment Analysis

As was illustrated by the examples, GeoLearning Analytics is a comprehensive learninganalytics technology. It can reduce waste by:

1. Integrating easily with any LMS to automatically retrieve L&D related and participantrelated data to tabulate activity metrics (ex. student enrollments by course) andperformance metrics (courses with low learning effectiveness)


15/34


2. Automating the process of collecting, storing, processing and reporting metrics. Ananalysis done by GeoLearning can save at least 1/3 of an FTE(full-time equivalent)by leveraging technology for these tasks as opposed to manual processes. SeeAppendix A for details on analysis.

3. Identifying suboptimal training by easily highlighting through user friendly charts andgraphs where this is occurring (ex. courses with low course quality). An analysis doneby KnowledgeAdvisors indicates that an L&D organization can save $18 in wastedor poor training delivery cost for every $1 invested. This is assuming thatGeoLearning Analytics only reduces waste by a conservative 1%. See Appendix Afor details on analysis.

GeoLearning Analytics will also identify performance improvement opportunities. The technologycan facilitate this by:

1. Allowing the manipulation of L&D data by multiple filter parameters (class, course,curricula, program, instructor, location, delivery, job function, years of service, businessunit, client, etc.)

2. By tracking the data against a balanced set of performance indicators (quality,satisfaction, effectiveness, impact, results and value)

Business Results Analysis

The Challenges with Business Results Analysis

The first step in business result analysis is to understand those results important to managementand which drive the business and create shareholder value. Profitability analysis focuses moredirectly on shareholder value. Secondly, tracking these results for a key program is necessary toensure a strategic, visible, or costly program was in fact aligned with the business results drivingthe need for the program. Thirdly, tracking macro results on a continual basis and being able tolink the results to training can help an L&D manager understand where a learning interventionpositively, negatively, or neutrally affected the end result. This not only helps an L&D manager infuture resource allocation but also helps the L&D manager in emphasizing to his or herstakeholder the predicted or actual effect training had on the result (this is known as isolation andwill be discussed further in ROI analysis).

Business results analysis faces several challenges. It is essential that the L&D manager clearlyrecognize the challenges before engaging in business results analysis. Common challenges tobusiness results analysis include the following:

L&D does not have the appropriate competencies to consult with the stakeholder and identifythe results then analyze the L&D effect on them.

L&D does not have the money or time to allocate to a comprehensive analysis of businessresults tied to every key program.

There is not a direct and clear link to a specific business result for the L&D intervention. Forexample a leadership program may be established to increase delegation skills and coachingskills but it is not intended to then increase sales growth directly.

The stakeholder does not have or is not willing to provide the resources to work with L&D toperform a business results analysis (yet the stakeholder wants to know the business resultlink anyway).

The actual business result data does not exist or does not exist in a clean format that isacceptable to use for analysis purposes (i.e. garbage in would be garbage out).

There is no formal system or database that houses the business result to then automaticallypull into an analytics system on a regular basis for analysis.


16/34


Do these challenges, when in existence, imply that the L&D manager has an acceptable excusenot to analyze business results and to simply ignore them? HCCM strongly argues against thispractice.

GeoLearning Recommended Actual Business Results

To overcome the aforementioned challenges of measuring business results HCCM will presenta practical, scaleable and repeatable way of measuring business results. HCCM has arecommended set of core business results ANY L&D department should consider tracking,regardless of what specific programs or micro business results you may track. Using ourexperience in financial analysis with personnel from banking and accounting who understand howto read and interpret financial statements to derive the recommended Actual Business Results.Based on this collective wisdom, we believe that by building data feeds or simply inputting fivedata points on a quarterly basis a robust scorecard can be generated that il lustrate real incomestatement impacts in terms of growth, productivity and profitability, derived from L&Dinvestments. These business results: growth, productivity and profitability are the metrics thatmatterto senior managers.

The inputs necessary for growth, productivity and profitability business results only require fivesimple inputs which are as follows:.

1. Revenue directly from income statement financial data or from sales/financial systems2. # of Employees directly from notes to financial statement data or from HRIS systems3. Labor cost- total payroll expense directly from income statement financial data or notes to

financial statements or from payroll systems4. # learners directly from LMS information or registration data5. Actual L&D expense L&D organizations should have this as it is necessary to provide to

accounting departments as an expense when closing general ledgers

As a result of inputting or establishing a regular data feed for these inputs between the feedersystem and the analytics technology an L&D manager can derive:

Growth: [{Current period revenue Prior period revenue} / Prior period revenue].

Growth is a key indicator that shows revenue change against goal or period to period. This allowsan L&D manager to understand fluctuation in revenue and alert themselves once this reaches acritical point.

Productivity: [Current period revenue / # of Employees]

This particular productivity indicator is revenue per employee. Best practice organizations shouldbe able to increase revenue with steady or fewer employees due to better process, technologiesand a well-trained workforce. Analyzing productivity defined as revenue per employee can be asignificant factor in understanding both the revenue and the cost side of the profit impactequation. Revenue is inherent in its numerator and # of people in workforce used in thedenominator. The monetary value of personnel is an expense on the income statement. Business

decisions should be made with revenue per employee in mind. If the number is declining, itmeans revenue is not at pace with employee additions. If the number is improving it indicates theprocesses, technologies and people are generating more revenue without increasing humancapital at the same rate.

Profitability: [Sales {Payroll Expense + L&D Expense} / Sales]

The profitability metric is referred to as the Human Capital Contribution Margin. Financial analysisrelies on margin analysis to tell us what is left over from sales after expenses are covered. To an


17/34


L&D manager the expenses are human capital. Two major human capital expenses exist: 1)payroll expense and 2) L&D expense.

This calculation should be monitored by L&D managers closely. It helps them understand howmuch revenue is left over after human capital expenses (that directly hit the income statement)are covered. Organizations with high human capital contribution margins are indicative ofproductive organizations that generate the most revenue without increasing human capitalexpenses at the same rate as revenue increases. On the contrary, lower margins indicateopportunities for improvement. They tell us that sales growth is not aligned with human capitalgrowth. It indicates that human capital performance is not optimized.

A visual dashboard can be generated that illustrates these vital business results as well as somecomplimentary metrics that should be reviewed in conjunction with growth, productivity, andprofitability. See Figure 10 for a visual of this dashboard that can measure actual results period toperiod or against goals. The dashboard can be generated from an analyst inputting the data intotemplates or setting up a system link to feeder systems that automatically populate the inputtemplates.

To round out the dashboard, in addition to growth, productivity, and profitability, we review L&Dactual expenses and L&D activity. If learners completing training is increasing while L&D budget

is held constant or decreasing and while human capital contribution margin is increasing, thatsuggests a highly effective L&D organization optimizing its resources. So these additional twometrics are part of the standard GeoLearning Analytics Actual Business Results Dashboard.

By tracking these actual and recommended business results and computing KPIs tied to realfinancial statement results an L&D manager can directly see how his or her budget and theactions taken with the budget can influence the income statement and profitability of theorganization.


18/34


Figure 10: Actual Business Results Dashboard with default Profit Impact Metrics


Analyzing and Improving Business Results Program by Program

Not withstanding the actual business results recommended in the prior section that links to theincome statement and ties to profitability, there are potentially hundreds if not thousands of microbusiness results an L&D manager could track or be held accountable. For example, a macroresult such as quality has micro results such as reduced transaction errors, lower safetyincidents, or improved evaluation scores for courseware ratings.

Beginning with a macro set of business results and tracking those against key programs is avaluable way to understand where L&D is aligned with results. KnowledgeAdvisors research


19/34


suggests there are eight core business reasons organizations invest in learning. These are asfollows:

1. Increased revenues2. Decreased costs3. Increased productivity4. Increased quality5. Decreased cycle time6. Increased customer satisfaction7. Increased employee retention8. Decreased risk

Any manager with a significant budget should be held accountable for the budgets link to resultsthat drive the business. Accountability is a key driver in resource allocations in business today. Itis so critical that the U.S. Federal Government renamed the General Accounting Office (GAO) tothe Government Accountability Office (GAO).

So the question is how does L&D obtain business results when challenges (like those mentionedpreviously) exist? The answer is there are many ways to do this. We will explore them now.

1. Modify evaluations to include a linkage to business results. This takes advantage ofwhere natural data collection in the existing process occurs. Figure 11 shows how themacro results mentioned above are evaluated across all programs to view on ascorecard. In this example over 12,000 respondents are rating how aligned the L&Dprogram was to macro results. Sales had the lowest alignment at 28%. This L&Dmanager was able to make adjustments to programs to increase this percentage overtime as sales increases were core profitability metrics.

Figure 11: Business Results Alignment


2. Use technology to create conditional questions that show the significance to businessresults. Figure 12 shows how a technology company was able to understand in moredetail how business results linked to technology training improved on the jobperformance. In the example below productivity, quality and customer satisfaction are

most impacted by the training. The GeoLearning Analytics technology factors into theresult the training effect and the adjustment for bias in analysis (more of this is covered inthe ROI Analysis section.)


20/34


Figure 12: Training Impact on Business Results


3. Compare actual business results against goals and trends. L&D managers should beaware of key drivers. Understanding the trends are important. To add to the analysis,color-coding it to facilitate interpretation and action is just as important as the datacollection itself. In Figure 13 the L&D Manager is able track actual results important to theorganization. It trends the inputs period-over-period and against goals. The color codingshows where variances exceed 10% in a positive or negative direction (with red fornegative and green for positive and yellow neutral.) If the result is going to be analyzedon a regular basis the inputs can be imported into the learning analytics technology via

pre-arranged data feeds.

Figure 13: Actual Business Results Scorecard with Trends, Goals and Color Analysis


4. Track the business results specific to each strategic, visible or costly program. Thisensures that in addition to tracking results at a macro/organizational level, L&D is able todrill into key results for key programs. Figure 14 illustrates how an L&D manager can linka sales program to sales revenues by tracking sales before and after training. To makethe analysis more credible additional analysis is also tracked. Additional analysis includescontrol group comparison and a root-cause (isolation) analysis as well as a bias factoradjustment. A tool like Figure 14 is an excellent consultative tool for L&D to use whenpartnering with lines of business to understand L&D effects on business results.


21/34


5. Dashboards are great visual aides. Ensuring that the key business results are not onlyplaced on scorecards but also on summary dashboards is important for executives inL&D to ensure the metrics are top of mind. Figure 15 displays a few of the dashboarditems that aide in Actual Business Results analysis which was strongly recommended asthe core results to track. The key to effective dashboards are 1) small subset of metrics,2) relevant metrics, 3) easy-to-interpret, 4) display trend and goal comparison.

Figure 14: Technology Template for Inputs of Actual Business Results by Strategic Program



22/34


Figure 15: Business Results Displayed in Dashboard Format


Process for Business Results Analysis

We suggest that every L&D organization create a set of organized steps to ensure there is ametric focus to track and trend business results

At a high level, the following are some basic process steps for Business Result Analysis:

1. Identify the business results that are financial statement drivers (most significant results).We suggest the following:

a. Growthb. Productivity per employee (as measured by revenue per employee)c. Profitability (as measured by human capital contribution margin discussed in the

Profitability Analysis section of this paper)2. Identify macro business results that drive investments in L&D or any other resource

allocation. We suggest the following:

d. Increased revenuese. Decreased costsf. Increased productivityg. Increased qualityh. Decreased cycle timei. Increased customer satisfaction

j. Increased employee retentionk. Decreased risk

3. Identify the most strategic, costly and visible programs and identify the business resultsthat should be outcomes of those programs.

4. Once all financial, macro, and program specific results are identified, determine, withregard to available financial, physical and human resources, how the data will becollected.

l. Collect data on evaluation forms

m. Collect data using action-plan templates (see ROI Analysis for further details)n. Collect data via templatized, consultative input formso. Collect data via automated data imports from feeder systems (sales, finance etc.)

5. Identify a central database for storage of the data6. Automate the processing of the raw data into KPIs by program7. Review the KPIs on a regular basis against 1) trends of prior periods, 2) realistic yet

challenging goals, and 3) internal and external benchmarks.


23/34


8. Based on analysis drill down into data to find the root cause of trend and goal variances.Drill down by:

p. Classq. Courser. Curriculas. Instructort. Vendoru. Learning deliveryv. Location of deliveryw. Attribute of the participant (years of service, job role, business unit, area of the

world)9. Prioritize where L&D investments should be increased, decreased or maintained at

existing levels based on root cause and variance analysis.10. Continue to monitor and measure the KPIs to ensure resource allocations are aligned

with changes in business results.

GeoLearning Tools and Services for Business Results Analysis

GeoLearning offers technology tools, learning consultant templates, and professional services tohelp organizations design, develop, implement and maintain business result analysis in L&D

organizations.

GeoLearning Analytics has specific tools within it to aide in business result analysis:

1. Business Results Scorecards Allow for linkage to business results through aseries of estimation, isolation and adjustment questions on specific end ofprogram, post program follow up and manager evaluations. The results show, ina practical manner how the program tied to specific results.

2. Business Results Question Constructs On basic evaluation forms (nowcontaining over 200 million external benchmark points) the macro businessresults discussed in this paper are evaluated for significance to the learningintervention.

3. Analyst Worksheet A template within GeoLearning Analytics that guideslearning consultants through the process of forecasting and actualizing businessresult linkage to a specific program. The tool has control group, root cause, andadjustment analysis to ensure conservatism and credibility with input variablesfor actual business results at the program level both before and after the learningintervention.

4. Actual Business Results Scorecards Templates and integration conduits forL&D managers to input or import key business results to track against trends andgoals over time. Default KPIs within this tool include suggested profitabilitymetrics (discussed in Profit Impact Analysis).

5. Business Results Dashboards graphically displayed versions of a subset of theActual Business Results Scorecards. Can display activity metrics, performancemetrics, profitability metrics and business results.

6. GeoLearning has professional services with expertise in data analysis andstatistics. Professionals who can ask the right questions to find appropriate datasources to analyze business results.


24/34


ROI Analysis

The Phillips ROI Process Model

In most departments there is a need to justify or validate the training cost. In L&D it is no different.

If an organization has limited resources, ROI Analysis can help the organization validate theinvestment.

In the mid 1980s Dr. Jack J. Phillips developed the Phillips ROI Process. It has since helpedhundreds of organizations prepare ROI analysis on strategic, visible and costly L&D programs.Figure 16 shows the flow of the Phillips ROI Process. It begins with organizing what, how andwhen data will be collected, followed by an isolation of results to training, a conversion tomonetary value and the ROI calculation itself.

Figure 16: Phillips ROI Process2

Source: Jack and Patti Phillips, ROI Institute

Phillips has a set of best practices referred to as Guiding Principles. A key guiding principle tothe ROI Process is Estimation, Isolation, and Adjustment. This has added tremendous value toROI Analysis for L&D Managers.


25/34


For example, consider a sales training program and the use of Estimation/Isolation/Adjustment toderive an ROI (in the form of a benefit to cost ratio) for the program:

Training cost for the program: $15,000 Improvement Measure Significantly Impacted: Sales Define the measure and its unit of measure: 1 closed sale Estimate the value of 1 unit of improvement in the measure. For example, the value of a

closed sale is sales value times the profit margin ($10,000 x 20% = $2,000) State basis for value of 1 unit of improvement: Example standard cost or sales price How much the unit will improve in performance and frequency: 4 sales per month Isolate performance improvement due to training: 60% Adjust for bias, confidence, conservatism: 65% Calculate monetized benefit = $2000x4x12=96,000 in total sales improvement annualized Adjust for isolation to training and confidence: 96,000x60%x65%=27,690 Calculate ROI = $27,690 - $15,000 = $12,690

Calculate Benefit to Cost Ratio: $27,690/15,000=1.85

Investigating each element of this principle we can see that Estimation is merely stating thechange in the business result. In the Business Result Analysis section of this paper we discussedthe need to constantly track core results and to track results on a program by program level. TheBusiness Results Analysis is a feeder into the ROI Analysis.

Isolation is a next step. There are many variables that drive the change in a business result. If anL&D organization desires to show a specific ROI on a business result it must factor out thevariables that impacted the result but were not L&D related. GeoLearning has tools to help in theisolation exercise and has identified some major root cause factors for isolation which include thefollowing:

1. People2. Process3. Technology4. Culture5. Externalities

6. Measurements7. L&D Program

The training variable is the piece to focus on in an L&D ROI Analysis. The other factors may drivethe business result as well but an L&D manager is interested in his/her part of the result variance.

Dr. Phillips also discusses various isolation techniques. The more rigorous techniques arepreferable but less frequently used because they are more costly and time consuming. Isolationtechniques include the following:

1. Control Group Analysis2. Trend line Analysis3. Statistical Analysis

4. Participant, Manager or Expert Estimation

The fourth isolation technique is most frequently used but not as credible as the others. Thus theROI Process takes into account a final factor: adjustment. Adjustment is to account forimperfections in the analysis, self-reported bias, lack of confidence, and conservatism. It is afactor by which the impact from L&D on a business result is reduced.

GeoLearning Analytics employs the principles of Estimation/Isolation/Adjustment into its ROImodels. The learning analytics technology, GeoLearning Analytics is the only tool in the


26/34


marketplace endorsed by Dr. Jack Phillips because of its integrating the ROI Process into thedesign of ROI tools and calculations.

Figure 17 shows an ROI calculation from the Human Capital ROI Card. The technology derivedthe monetary benefit in Figure 17 by automatically performing an Estimation/Isolation/Adjustmentcalculation on the input data, in this example evaluation data received at the end of a program.The user of the technology then input the cost of the program and the average salary levels ofprogram participants (the monetary value of human capital) to then derive the ROI. Technologywrapped around credible process and methodology make the ROI Analysis easier to do. Oncethe ROI is generated, comparing it by program, vendor, client, line of business and learningdelivery helps in the resource allocation decision-making.

Figure 17: Human Capital ROI Score Card


Dr. Jack Phillips has worked closely with KnowledgeAdvisors and GeoLearning to author specifictools and templates into the GeoLearning Analytics Learning Analytics Technology. The primaryelements that can save significant time in conducting ROI Analysis are in the automatedtabulation of costs, benefits and summary scorecards while maintaining the integrity of the ROIProcess.

Figure 18 illustrates a key feature to ROI Analysis, the tabulation of costs. Costs are typicallycomprised of the following components.

Tuition Costs Analysis Costs Development Costs Acquisition Costs Delivery Costs Evaluation Costs Overhead Costs Participant Opportunity Costs

Conservatism in cost analysis is a best practice. A wizard not only prompts for all costs to ensureconservatism but it can tabulate costs in multiple currencies, necessary for L&D organizationsthat are multinational in scope.


27/34


Figure 18: Cost Calculation Wizard for ROI Analysis


A second ingredient of ROI Analysis is deriving and monetizing benefits. The Phillips ROIProcess recommends Action Plans. Action Plans are methods by which an L&D consultantgathers the business result data for program participants and isolates the impact of the data

specific to the program and applies the adjustment factors.

Figure 19 illustrates the results of an Action Plan exercise for a strategic program where multipleparticipants contributed to an action-planning exercise. Each participants annual improvement fortheir specific results accruing from the program are stated and the isolation (contribution from theprogram) and confidence (adjustment factor) are computed to arrive at the adjusted value. Thismakes tabulating and monetizing results more methodological and process oriented versus ad-hoc and inconsistent.

Figure 19: Action Plan Tabulated Results


Finally, Estimation/Isolation/Adjustment need not be a one-off exercise. Building it into themeasurement process can ensure the right data is ready for ROI Analysis when needed.


28/34


Research suggests that when managers make decisions they use analysis to validate their gutinstinct. If not done in a timely manner the analysis diminishes in value over time.

As such, we suggest gathering data and building seamless processes to estimate/isolate/adjust ina real time manner both at the end of an intervention (post event) and in follow up (when back onthe job) and to derive similar data inputs for ROI Analysis from managers for the expertestimation Phillips mentions.

Figure 20 illustrates the results of an estimation/isolation/adjustment query in the GeoLearningAnalytics Learning Analytics technology. The final adjusted percent improvement due to trainingis the main variable used for ROI Analysis. Comparing the adjusted percent across key programs,clients, lines of business. Learning deliveries and training vendors can help in sharpening futureresource allocations.

Figure 20: Estimation/Isolation/Adjustment


Process for ROI Analysis

We suggest that every L&D organization create a set of organized steps to ensure there is anorganized process for ROI Analysis.

At a high level, the following are some basic process steps for ROI Analysis:

1. Identify strategic, visible, and costly programs where ROI Analysis is needed.2. Derive a data collection plan that outlines the data inputs (cost and benefit) needed,

when the data will be collected, and how.

3. Identify a central database for storage of the data (cost and benefit)4. Where feasible, automate the processing of the raw data into total program costs and

adjusted benefit data where benefits have been estimated/isolated/adjusted.5. Compute financial ROI calculations for the program by computing an ROI percentage, a

Benefit-to-Cost Ratio, and a Payback Period ratio.6. Review the ROI calculations at the 1) end of program as a forecast, 2) post program as a

more accurate estimate. Forecasting can help in making decisions on whether tocontinue the program through the end and what adjustments to make during the courseof the program.

7. Analyze ROI calculations by drilling down into data to pinpoint the profiles of highperforming ROI programs and low performing ROI programs. Drill down by:

Class Course

Curricula Instructor Vendor Learning delivery Location of delivery Attribute of the participant (years of service, job role, business unit, area of the

world)8. Prioritize where strategic, costly, visible programs should be expanded, contracted or

remain the same.


29/34


9. Where positive ROI does occur, use it as a validation point with stakeholders. Be carefulnot to compare against the ROI on traditional assets as the ROI on human capital tendsto be higher and it is not a valid comparison.

10. Continue to monitor and measure ROI to ensure resource allocations are being placedwhere the benefit relative to cost is optimal.

GeoLearning Tools and Services for ROI Analysis

GeoLearning offers many technology tools, templates and professional services to aide in ROIAnalysis:

1. Human Capital ROI Card. A tool within GeoLearning Analytics that automaticallycalculates the financial and non-financial ROI on L&D programs.

2. Phillips ROI Cost Wizard and Templates. Tools to ensure conservatism andcompleteness in the tabulation of program costs.

3. Phillips ROI Action Plan Wizard and Template. Tools to consultatively gather individualprogram benefits and tabulate a net benefit based on estimation/isolation/adjustment.

4. Phillips ROI Scorecard. A tool within GeoLearning Analytics that automatically calculatesthe financial ROI tied to specific program action plans. It also has over twenty other KPIsfor the program as defined by Dr. Jack Phillips.

5. Impact Study Templates. Reporting templates to take results of ROI Analysis and build afinal, professional report in the format recommended by Dr. Jack Phillips.

6. Impact Study Analysis Services. Professional services dedicated to performing analysison a strategic, visible or costly program to derive ROI and illustrate L&D impact resultingfrom the program.

Profit Impact AnalysisProfit Impact Template for L&D Organizations

All roads lead to an end. In analytics the Holy Grail is in reporting how an investment in L&D tiesto bottom line impact. We already discussed recommended business results critical to thisanalysis: growth, productivity, and profitability. Now the business results that are tracked andtrended are further analyzed here. Profit impact analysis encompasses:

Sensitivity analysis to forecast profit impact of future L&D investments. Optimization analysis to derive the optimal level of actual L&D investments necessary to

achieve desired profit impact results. Alignment of L&D analysis with income statement analysis and other financial analysis.

To achieve the above, GeoLearning recommends a template that can receive automated datafeeds from feeder systems or be used to manually enter actual and projected profit impactvariables.

Figure 21 shows a completed profit impact analysis. The template is organized like the incomestatement of a financial statement. Revenue then cost then the computation of a contributionprofit and margin. Like financial statements projected statements are used to aide in forecasting,

and sensitivity analysis. Just like a sales manager forecasts sales, the L&D manager can set agoal for human capital profit using payroll and revenue as inputs and base their L&D budget onwhat is needed for human capital profit contributions.


30/34


Figure 21: Profit Impact Analysis


Figure 22 below shows another form of profit impact analysis. It illustrates how L&D managerscan use the analysis to forecast future years investments with and without proper L&Dinvestments.

Figure 21: Projected L&D Profit Margin Impact


Process for Profit Impact Analysis

We suggest that every L&D organization create a set of organized steps to ensure there is anorganized process for Profit Impact Analysis.


31/34


At a high level, the following are some basic process steps for Profit Impact Analysis:

1. Create a template to house the key data inputs for profit impact. We suggest revenue,labor cost and L&D costs.

2. Where feasible create automated data feeds from feeder systems to track on a scorecardthese profit impact inputs. If not feasible, have manual input fields for an L&D manager toinput these actual figures at least quarterly.

3. Derive the human capital contribution profit and margin:a. Projectedb. Actual

4. Through sensitivity analysis determine the optimal L&D investment to achieve the desiredhuman capital contribution. Use this as a benchmark to determine if L&D is too high, lowor on track to support revenue and human capital expenses (payroll).

GeoLearning Tools and Services for Profit Impact Analysis

We have thought extensively about the drivers of profitability and assembled them into an incomestatement-based input tool to help clients derive the human capital contribution margin.

In addition the template, GeoLearning Analytics includes a benchmark database of human capital

contribution margin ratios of leading corporate training organizations. This database will help theindividual learning organization understand if its human capital contribution margin is above, at, orbelow industry or overall norms. This is similar to how a CFO or controller would analyze gross ornet profit margins.

GeoLearning also has the technical expertise to integrate ERP, LMS, HRIS, and financialsystems with the GeoLearning Analytics learning analytics technology to routinely gather thesedata points in an automated manner. However, realizing that every organization and system isunique, GeoLearning provides data input templates to allow L&D managers with the toolsnecessary to plug in data inputs.

Finally, GeoLearnings analysis services teams can work directly with organizations looking to doprofit impact analysis and consult with them on design, development, and implementation of

custom dashboards and one time studies of profit impact analysis.

Conclusion

There are five critical elements to the human capital contribution model. These are:

1. Business needs analysis which focuses on planning for an L&D intervention bydiagnosing needs, skills and competencies

2. Performance analysis which focuses on waste reduction and productivity improvement.3. Business results analysis which focuses on tracking and trending organizational and

program specific business results4. ROI analysis which focuses on an ROI process to estimate/isolate/adjust to arrive at a

financial ROI

5. Profit impact analysis which focuses on bottom-line results tied to revenue and profitmargin.

Each analysis is important. Taken as a whole they are comprehensive. The right templates, toolsand integration points will yield the most effective use of these analyses. GeoLearnings learninganalytics technologyat the cost of a rounding error in a training budgetcan help automate thisprocess.


32/34


Contact Us

GeoLearning, Inc.4600 Westown ParkwaySuite 301

West Des Moines, IA 50266-1000800.970.9903 or 515.222.9903 (P)515.222.5920 (F)[email protected]


33/34


Appendix A: ROI Analysis on GeoLearning Analytics

The purpose of this appendix is to demonstrate the kind of return on investment an organizationshould expect when implementing GeoLearning Analytics.

Most organizations see a return between $2 and $29 for every dollar it invests in GeoLearningAnalytics. The following analysis is based on a standard Level 3 implementation of GeoLearningAnalytics for an organization that has at least 1,000 employees and has not implemented a fullyautomated Level 3 solution.

A typical organization should see three primary benefits from using GeoLearning Analytics:

1. More Productive Employees2. Better use of Training Resources3. Less Administrative Costs

Assumptions: 1,000 employees

3 courses per employee per year 3,000 evaluations per year (1,000*3) $6,000 annual cost for GeoLearning Analytics standard Level 3 Solution $2 cost per Level 3 evaluation ($6,000/2,000) $3,600 average monthly cost per employee (FTE) including benefits 20 business days per month $180 compensation cost per student day ($3,600/20) $180 training delivery cost per day including trainer, facility, curriculum, etc $360 investment per student day ($180 + $180) 33% of FTE time to replicate GeoLearning Analytics using off-the-shelf-technology 3% of FTE time to administer GeoLearning Analytics (one hour per week) 30% FTE benefit by using GeoLearning Analytics (.33-.03) 1% of training wasted .5% of total training investment invested in GeoLearning Analytics ($2/$360)

More Productive EmployeesBy using GeoLearning Analytics to measure and improve application to job, the averageemployee productivity should go up substantially. Assuming a very conservative .1% productivityincrease due to measuring and improving job impact, the benefit to cost ratio would be 18 to 1.

$36 annual improvement in productivity ($36,000*.001) 18 to1 Benefit to Cost ($36/$2)

Better use of Training ResourcesIDC estimates that half of every dollar invested in training is wasted. By measuring application to

job with GeoLearning Analytics, poor use of training resources can be reduced substantially.

Assuming GeoLearning Analytics helps reduce waste by a very conservative 1%, then theGeoLearning Analytics benefit to cost ratio would be 9 to 1.

$18 reduction in wasted or poor training delivery cost ($180*.01) 9 to 1 Benefit to Cost ($18/$2)

Less Administrative CostsAssuming GeoLearning Analytics GeoLearning Analytics replaces a less automated solution thatleverages off-the-shelf technology, the benefit to cost ratio typically is at least 2 to 1.


34/34

.30 reduction in FTE (.33-.03) 2.1 Benefit to Cost (.3*3,600/500)

An organization should expect to see a return of 2 to 29* times on every dollar it invests inGeoLearning Analytics. In certain cases, the benefit to cost ratio can be significantly higher;

particularly if GeoLearning Analytics is used to find ways to help employees become asproductive as possible.

Combines all three benefits above (18+9+2)

pp_human capital contribution model, a systematic aproach for learning organizations to roi and...

Documents