Today's Tip
ROI
Before or After?
 DSA
thanks Ray Halagera, President and COO, Career Systems, Intl., who started
us thinking about Pro Forma ROI and came up with this handy tool.
Decision
makers prefer Pro Forma ROI.
The dictionary defines Pro Forma as:
“Provided
in advance so as to prescribe form or describe items.”
Decision makers increasingly want to know what the return will be BEFORE they
invest in learning and/or performance initiatives. After the fact is
too late in the eyes of decision makers. In short, you need to make
the business case for learning and performance initiatives or lose out to
others in your
organizations that are accustomed to making a business case for their projects.
For example, learning and performance interventions often lose out to IT
solutions, just because the IT department is able to present a strong business
case for their solution.
To build the business case for learning and performance interventions, you
need to gather data for the business case by conducting a Pro Forma
ROI.
This can help you and your decision makers decide on the most cost-beneficial
solution to the business need.
Lets define Pro Forma ROI. I’ll give you the formula and then define
each part starting with identifying the quantifiable benefits of an intervention.
Benefits are the estimated increased revenue or decreased costs attributable
to the proposed learning or performance initiative.
Costs are the estimated ongoing costs associated with maintaining the stream
of benefits attributable to the training or performance initiative.
Investment is the estimated investment needed to do the proposed learning
or development initiative.
Got it? Not quite? OK,
let's try it again. Pro Forma ROI is the expected sum of the annual benefits
minus the ANNUAL cost OVER the life
of the intervention (in some cases this may be one year; in others it may
be 3-5 years or longer).
This number is divided by the investment. The answer is then taken times
one hundred to get a percent. To help you in calculating Pro Forma ROI,
we have created an Excel
spreadsheet calculator, which includes an example of a
training intervention.
The next TIPS column
will include a description of the Pro Forma ROI process and provide sample
checklists on common learning and performance intervention
benefits, costs, and investments, so be sure to watch for that.
Conducting a Pro Forma ROI is a first step to building the business case
for learning and performance interventions.
Building a business case
for your recommended interventions will increase your credibility with
decision makers on the business side
of your company–and
for good reason. You will be providing the information to make good
decisions about alternative learning and performance interventions.
Until next time,
Darryl
Article © 2006 Darryl
L. Sink & Associates, Inc.
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Vol.
2, No. 2 January 24, 2006 
