“One rap on HR professionals is that they aren’t particularly business savvy or focused enough on the strategic elements of managing a company.”
That’s how John Hollon begins his post, “Ten Tips to Help Prove the ROI of Your Training Program.” The tips in his article are good ones. And if you’re in HR and you want to be taken seriously in business, you need to understand the way that a business works. Start with the basic accounting equation.
Profit = Revenue – Expenses
If you want to have an impact on Profit, you can either increase Revenue or decrease Expenses. If you can demonstrate that your training or anything does either, you’re on the way to justifying it. You’ll need to dress your explanation up with some numbers, but you’re on the way.
Profit is good. Businesses need profit to survive and thrive. Some training will have a demonstrable affect on profit because the result is either increased revenue or decreased expenses.
But profit is only one part of business impact. Here’s my equation for Impact.
Impact = Profit + X
X stands for the things that you can’t measure in dollars and cents. They don’t come with decimal points. For an example, let’s consider classroom training.
One result of good classroom training is an increased skill that results in improved performance. Demonstrating the financial impact should be math, not magic. Other results need other methods to describe their impact.
In most companies, especially large companies, training does two things that are impossible to measure. Training is the carrier of culture. Training is the place where connections are made. You can’t measure those outcomes, but you should be able to describe their impact, because their impact influences the organization for years.
Being business-savvy means understanding and being able to explain the impact that what you do has on the business. You can measure some impact in dollars and cents, but some of the most important require a different kind of assessment.
