ROI Before or After? (Part 1)

DSA thanks Ray Halagera, President and COO, Career Systems, Intl., who started us thinking about Pro Forma ROI and came up with this handy tool.

Decision makers prefer Pro Forma ROI. The dictionary defines Pro Forma as:

“Provided in advance so as to prescribe form or describe items.”

Decision makers increasingly want to know what the return will be BEFORE they invest in learning and/or performance initiatives. After the fact is too late in the eyes of decision makers. In short, you need to make the business case for learning and performance initiatives or lose out to others in your organizations that are accustomed to making a business case for their projects. For example, learning and performance interventions often lose out to IT solutions, just because the IT department is able to present a strong business case for their solution.

To build the business case for learning and performance interventions, you need to gather data for the business case by conducting a Pro Forma ROI. This can help you and your decision makers decide on the most cost-beneficial solution to the business need.

Lets define Pro Forma ROI. I’ll give you the formula and then define each part starting with identifying the quantifiable benefits of an intervention.

• Benefits are the estimated increased revenue or decreased costs attributable to the proposed learning or performance initiative.
  
• Costs are the estimated ongoing costs associated with maintaining the stream of benefits attributable to the training or performance initiative.
  
• Investment is the estimated investment needed to do the proposed learning or development initiative.

Got it? Not quite? OK, let's try it again. Pro Forma ROI is the expected sum of the annual benefits minus the ANNUAL cost OVER the life of the intervention (in some cases this may be one year; in others it may be 3-5 years or longer). This number is divided by the investment. The answer is then taken times one hundred to get a percent. To help you in calculating Pro Forma ROI, we have created an Excel spreadsheet calculator, Comment: Needs to be provided which includes an example of a training intervention.

The next TIPS column will include a description of the Pro Forma ROI process and provide sample checklists on common learning and performance intervention benefits, costs, and investments, so be sure to watch for that.

Conducting a Pro Forma ROI is a first step to building the business case for learning and performance interventions.
Building a business case for your recommended interventions will increase your credibility with decision makers on the business side of your company–and for good reason. You will be providing the information to make good decisions about alternative learning and performance interventions.