Surveys, studies, and direct experience with results from leadership training often reflects disappointment in the return on investment (ROI). Leadership training should have a very high ROI, and it would if the information that is presented were applied back at the plant. Training that is well designed and presented to attendees should enable them to return to the plant ready to apply what they’ve learned. This of course assumes the attendees were engaged: they paid attention, took notes, asked questions, etc.
Good leadership training courses provide knowledge and practical skills in a one- or two-day training event. These training events may cost between $200 and $1,200 per attendee. Time away from the job represents another related cost; say $40/hour x 8 or 16 hours, or $320 to $640. If the attendee needs to travel to get to the training location you can put another $150 to $1,500 on top of the cost of the training.
Managers should expect at least a four to one payback in terms of benefits versus the cost of training, and the benefits should be obtained in less than one year. This means that at $670-3,340 total cost, the manager should expect between $2,680-13,360 in value, and more in subsequent years.
There are three categories of improvements that should be considered: (1) productivity of the people who work under the trainee, (2) reduced turnover (i.e., employees that leave), and (3) the quantity and severity of grievances within the organization. There should also be a detectable improvement in job or workplace satisfaction surveys as further evidence of improvement.
For example let's assume that a supervisor who attends leadership training has eight direct reports. If the leader can improve productivity, then you can calculate the value. Loaded labor rates for hourly employees are commonly between $35-65/hour, so we’ll assume $40/hour for this exercise. Improving productivity by ten percent (getting 10% more work done per full time equivalent persons) allows us to calculate an improvement value of $57,600/year (8 FTE x 1,800 hours/year x 0.10 x $40/hour), which works out to a productivity benefit:cost ratio of over 4.3.
Continuing the example, turnover of hourly employees costs at least 25% of the turning position’s annual loaded rate, which includes costs such as training time, time to become proficient, and administrative costs to hire. Let’s say our eight-person shop had 15% average annual turnover. By improving the leadership quality, employee morale increases and the turnover rate drops (assume a 5% net change). This improvement is worth $7,200/year (8*(0.15 – 0.10)FTE x $40/hour-FTE x 1,800 hours/year x 0.25), adding about another 0.5 benefit to cost improvement, for a benefit:cost ratio of 4.8.
Finally, grievances are a bit harder to quantify. Consider that each grievance results in lower productivity for the person(s) filing the grievance, their supervisor, manager, Human Resources staff, maybe a company attorney, and perhaps peers that are affected by the distraction or disruption. I think it would be fair to say that a single grievance can cost over $10,000 in total cost. Assuming one grievance is avoided, you’ve achieved another 0.7 benefit to cost improvement, for a total benefit:cost ratio of 5.5.
Subsequent annual benefits will be even greater as the cost of training is spread across more years of improved leadership.
Leadership training benefits can be tied to an increase in accountability. Every organization has guidance: policies, processes and procedures. But only organizations that remove barriers to leadership best practices will be able to achieve success.
Common barriers that attendees encounter at the plant make the benefits harder to achieve. First, there will be strong forces that pressure the leader to stay in line with the plant culture; a person that tries to make changes while holding others accountable may not be popular. Second, the leaders will have studied leadership in the relative calm of the training environment, and will be immediately met with the daily turmoil that is common in many plants, and can struggle to find time to focus on application of leadership techniques.
When senior managers don’t actively support and encourage leadership best practices, the recently trained leader will be unable to generate training ROI. In order achieve benefits, senior managers must recognize and support implementation of best practices. They must openly support and encourage strong leadership. Commit to the leadership improvements, support, and measure progress. Managers shouldn’t blame the training or the trainee if they have not done their part in driving ROI from leadership training.