Leadership development initiatives should always have an ROI. There is a formula to measure the ROI of leadership development programs, and there are specific steps you can take that will make measuring results significantly easier.
It all revolves around building an effective measurement plan that provides the roadmap for what data you will collect to measure the success of your initiative.
And it’s something you should think through at the beginning of an initiative/program.
The measurement plan has 3 primary components.
Step 1: Get clear on the “why” and what success looks like
Why is your organization willing to spend money on the program you’re trying to measure? Ask the sponsor or ask yourself, “Why is the organization willing to spend money on this?”
The answer could be something high level, like, “We are falling behind the competition.”
Tied directly to the “why” is, “What results does our organization want out of the initiative?”
To understand this, ask questions like:
- What are we trying to achieve?
- What needs to happen for the issue/problem to be solved?
- If this development is successful, what will be different?
In defining success, get more specific here than the high-level answer, for example:
Why – High Level: We are falling behind the competition.
What – Results: Speed up time-to-market for new products.
Having a thorough understanding of exactly what success looks like will help you pinpoint what you need to measure and track.
Step 2: Agree on the metrics you should use
Now that you know your “why” and what success looks like, it’s time to choose the best ways to show evidence of success.
What can you use to measure the success you have defined? Sometimes it may seem obvious, for example, if you are falling behind the competition, you may look at improving your ranking against competitors.
Ranking against competitors is the ultimate outcome, which may take years to see.
You will likely want to also define, “How do you know you are making progress toward that outcome?”
In this example, if we are lagging behind our competitors because it is taking us too long to get new products to market, you will want to measure the improvement in the cycle time for new product development and introduction.
An improvement in that measure would precede an increase in rank against your competitors.
Step 3: Gather data and Calculate the ROI
Once your metrics are nailed down, you need to gather the data. What sources or methods are at your disposal for acquiring those metrics?
Perhaps another department is already collecting the data, or maybe you will need to help create the process for collecting those metrics.
In the example of improving the cycle time for new product development and introduction, it is likely that marketing or product development would have cycle time metrics.
In another example, if your initiative’s goal is to strengthen the leadership pipeline, you could choose to measure the percent of “ready now” successors from designated times before and after the initiative.
Do what it takes to collect the necessary data, even if it means reaching out to other departments or spending time googling industry averages. Gather as much quality data as you possibly can.
Finally, you will need to put math to work for you and calculate ROI, using the following formula:
ROI = (Benefits Achieved – Leadership Development Cost) / Leadership Development Cost x 100%
Start by calculating your “benefits achieved” or the money that’s been saved because of your initiative.
You will likely need to rely on research, assumptions, or the help of others in your organization. If you don’t already know what a reduction in cycle time is worth for your organization, go to the marketing department and see if they have that data.
If they don’t, do some research – go to industry sources, or simply type into your browser “value of reduction in cycle time.” One of these strategies will likely yield the type of information you need to convert your metrics to dollars.
Once you have a numeric “benefit achieved” number, subtract your leadership development cost from it.
Finally, divide that number by the leadership development cost and multiply by 100% to get your ROI percentage. You now have a quantitative number you can share!
A few final thoughts:
There is a formula for calculating ROI, and it is a straightforward mathematical formula.
The challenge can be getting the data to populate the formula.
- Don’t let the difficulty in getting the data prevent you from trying.
- Get what you can, and estimate or extrapolate if it’s reasonable.
- Always tie back to your measurement plan that identifies what success would look like.
- Cultivate relationships in the organization that can help you get the data you need.
- Choose a few critical initiatives to measure ROI — it will build your credibility.
Don’t wait to be asked…Position yourself for success by proactively sharing your success measures and resulting ROI.
To talk more about how we measure the ROI of leadership development, connect with us today!