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which, at that time, was making cables and wires for shavers, TVs and other electronic
equipment. I envied some of my colleagues in the management team who “battled” for
their share of the annual budget. Especially the marketing manager always presented
his proposals, based on assumptions about market growth, growth in market share,
Impressed as I was I also made the observation that the assumptions made by this
marketing manager were not based on “rocket science” but more on “educated
I wondered why HR in that company only presented the costs of HR-investments and
did not show scenarios for benefits of HR-initiatives for training. Most of us are familiar
formula via which we can make an estimate of our (financial) return on learning?
We know that learning and development potentially can contribute a lot to the
case for the added value of training of quality control inspectors in the factory. I was
reading literature about utility analysis at that time, giving me the faith that also in HR
company from various HR interventions designed to enhance the value of the workforce
(Sturman, 2003).
The effect size is the difference between before and after a training. For example, you
have someone who is not trained (T0). After training this person (T1) you expect this
person to be better at the thing he/she was trained at. So the score of T1 increase
To test this effect, you can take the average (mean) score of the group for both T0 and
T1. You deduct the mean at T0 from the mean at T1 and then hope that the difference
is positive.
To standardize it, you divide it by the standard deviation of the pretest. The picture
below represents the size of the effect of the training program.
How d (the effect size) is computed? It is simply the difference between the means of
the trained (the red curve) and untrained groups (the blue curve) in standard Z-score
units. This might be the difference in average job performance, time to competency,
Their job performance was evaluated in terms of a work sample – that is, the number of
defects identified in a small sample of products with a known number (for example, 10)
of defects.
Suppose the average job performance score for employees in the trained group is 7 and
for those in the untrained group is 6.5, and the standard deviation of the job-
Ideally, you should work with an experimental group (receiving training) and a control
group (receiving no training). In the literature you can find estimates for the effect size
(or dollars, etc.) of an individual who performs one standard deviation above average
When we multiply the effect size as described above by SDy we can estimate the euro
The simplest approach, estimating SDy, is feasible when there is clear euro-value
performance data on each employee (e.g. in sales jobs). Unfortunately, such financial
salary;
Cost of learning
Of course, the utility formula is not complete without estimating the costs. Very often a
* number of trainees
Year salary: 40,000 euro; the SDy is 16,000 euro (using the 40% estimation
rule)
∆ Utility = (d * SDy) * (N * t) – C
From these findings we can also calculate the Return on Investment (ROI).
Of course we must make certain assumptions, basically in the same way as the
marketing manager of Belden was making assumptions about the benefits of “his”
marketing investments.
So in summary what are the main assumptions to be made in our utility formula in case
Estimate the time the training has an effect . Some training programs (e.g.
short time frame of impact. Learning new skills like e.g. selection interview
training usually has a longer effect. An often used assumption is a time frame
of one year.
Estimate the effect size of the training. Depending on the nature of the training
there are good estimates in the literature (e.g. Arthur et al, 2003) about effect
size. Remember that the average effect size is approximately 0,5 SD.
Estimate the euro value of Performance Change. As indicated you can use
make use of the 40%-rule in case of “low complexity jobs”. With more complex
human capital are necessary to contribute to the bottom line of the organization. Utility