How to Determine Training Return on Investment (ROI) in a Manufacturing Environment

There are many models to follow when determining training return on investment (ROI) in a manufacturing facility. Very often, you can look at your business performance indicators before and after training to determine if training was a success.

ROI Answers Two Key Questions

  1. How many total dollars did I gain as a result of the training?
  2. For every dollar I invested in training how many dollars did I get in return?

Key Factors in Determining Training ROI in a Manufacturing Environment

  • ROI should be measured before and after training to determine the true effect of training.
  • Track and measure data that is important to your organization and its goals.
  • Productivity is often measured, but there are others areas that should be considered.

A Simple Way to Quickly Determine ROI in a Manufacturing Environment

This study involves a manufacturing supervisor who completed The Leadership Journey.  He was the only supervisor in his plant. He managed 14 production employees.

  • He completed the curriculum over a twelve month period.
  • The cost to train him was $595.

Determine what happened to his team’s productivity level.

  • His team’s productivity increased by 26% from the previous year, after he completed the training program.
  • In previous years, the highest productivity increase the team ever achieved was 3%.
If the value of the productivity increase is higher than $595, you can make an accurate assumption that the training paid for itself. In this simple study training with The Leadership Journey resulted in a 23% increase in productivity.

How to Determine ROI in a Manufacturing Environment – A More Complex Example

This next example involves one manufacturing supervisor who completed The Leadership Journey over a period of 12 months. He had twelve subordinates. This supervisor was not a strong leader. If he did not improve the performance of his team, and his ability to lead his team, he was going to be fired. He was one of eleven supervisors who participated in the training.

  • The cost of this supervisor’s training was $495.

Step 1. Gather pre and post training productivity figures from the supervisor’s team of twelve workers.

  • Productivity before training = 1000 units month (does not include defective units)
  • Productivity after training = 1050 units month (does not include defective units)

Step 2. Calculate the increase in yearly units.

(1050-1000) x 12 months = 600 units year

Step 3. Get the previous two year’s productivity improvements.

In the previous two years, the average increase was 7 additional units a month (84 units a year.)

Step 4. Subtract the previous year’s increase before training from the new increase after training.

600 units – 84 units = 516 units

>>The yearly increase attributed to this supervisor’s training is 516 units.<<

The key to factoring past performance is to get a system that works and stick with it. It must be consistent between teams and over time.

Step 5. Find the bottom-line dollar value of each unit.

For this client, the bottom-line dollar value of each unit was $87.

Step 6. Calculate the dollar value of the increase.

516 units × $87 = $44,892 year

Step 7. Figure out the benefit to cost ratio.

Total Dollar Value of Benefits / Cost of Training = Benefit to Cost Ratio

$44,892 / $495 = $90

For every dollar invested, $90 of benefits was returned from this supervisor.

Step 8. Calculate the net dollar value of benefits

$44,892 – $495 = $44,712

ROI for this supervisor was $44,397.

Step 9. Repeat the previous steps for each supervisor that participated in the training program.

Combine their totals. In this study, the company trained 11 supervisors with The Leadership Journey.

For every dollar they invested, $46 of benefits was returned from each supervisor.

Their total ROI was $250,470 from eleven supervisors participating in The Leadership Journey.


Improve the Performance of Your Supervisors and their Teams

Your organization can achieve similar benefits when it uses The Leadership Journey to train its supervisors and managers. Learn more about the program and the results your organization can expect to receive.

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