Training Return on Investment

Job Education, ROI

Training ROI

Assets is a category most often defined to include tangible things such as capital, land, stocks, bonds, equipment, goods and property. What about intangible assets like knowledge or skills? Those are just as important as tangible assets if not even more so. Intangible assets are much harder to quantify and measure precisely because they are not visible things. They can only be seen indirectly through their effects on tangible assets.

Evaluating the return on investment or ROI for further training or education can be thus fairly difficult. Assigning or imputing money amounts to specific intangible assets is almost impossible. However, the Philips ROI Methodology can help put a dollar sign on the possible return from investing time and energy in additional study.

Philips ROI Methodology

The basic formula is Net Program Benefits/Net Program Costs multiplied by one hundred. The apparent simplicity of this formula is shattered when the actual benefits and costs are calculated. Estimates for them must be prepared according to this methodology. Essentially, participants are asked to assign percentage values as expressions of certainty to their estimates of how much a particular result is worth to them in money terms. Multiplying the dollar estimates by the percentage amounts supposedly yields a reasonably firm foundation for building a quantitative analysis of any prospective benefits.

Accountants are understandably wary of such practices because they are necessarily uncertain. They cannot be accurate enough to be accepted into the corpus of generally accepted accounting principles or GAAP used in the United States. GAAP only recognizes intangibles in so far as they relate to other accepted concepts like intellectual property. This presents a major problem for proponents of this ROI methodology. What is the best way to estimate ROI for education?

One way, which may not be the best, is to use current salary data for different occupations to gauge how much a worker’s salary could be increased by continuing his education. Matching this data against the full cost of additional training can provide a relatively good proxy of a cost/benefit analysis. Potential salary increases over and above the cost likely indicate that more education in the chosen field is an investment that will yield a return.

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