Return on Investment Analysis (ROI)

Return on Investment Analysis (ROI)

Return on investment refers to the benefits that an investor expects to gain through an investment. The financial ratio is calculated by dividing the net income by the investment’s capital cost. A high ratio shows a greater benefit. ROI ratio is important because it helps an investor determine whether a certain idea is worth investing in or otherwise. One can easily identify low-performing and high-performing investments (Noe, 2017). Return on investments can be calculated for the purchase of assets or investing in an organizational improvement such as training.

ROI analysis is the process of analyzing the expected returns. An analysis can be conducted in two ways, including a comparison of ROI between companies and periods and breaking down ROI into various aspects, and studying each. When comparing companies in the same industry, one can easily tell which is better. The main parts of ROI include sales or income, which is easily identified as the net profit. Total assets make up the second component of ROI. It is otherwise known as asset turnover (eFinanceManagement.com, 2022).

ROI in training and development can be described as a skill increment that can be measured, higher yearly revenue, or the number of employees who go through training. In training, ROI differs from one person or organization to another. The main elements that can be used to determine the training ROI include engagement, feedback, assessment, application, and business impact (Andriotis, 2017).

There are several types of training. For instance, training on soft skills, such as communication, and hard skills, such as building a table, can be measured differently. The engagement during soft skill learning is significant because it is assessed even in actual application. The ability to build a table according to specifications and design determines the hard skills’ ROI. Therefore, the HR department needs to assess the ROI of each training differently.

References

Andriotis, N. (2017). Return On Training Investment And How To Measure It. Retrieved from eLearning Industry: https://elearningindustry.com/how-measure-return-on-training-investment

eFinanceManagement.com. (2022). ROI Analysis – What It Is And Why It’s Important? Retrieved from eFinance Management: https://efinancemanagement.com/financial-analysis/roi-analysis

Noe, R. A. (2017). Employee training and development. New York: McGraw-Hill Education.

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Return on Investment Analysis

Provide a brief overview of why calculating ROI is strategically important and list common types of items and services that would be included in an ROI analysis. Next, discuss what items and services may differ in ROI calculations between different types of training. For instance, consider the differences between soft skills training, such as leadership development, and employees taking an Excel training program.