Performance Imaging And The Return
On Investments In Employee Development:
Some Issues & Perspectives

Dr. Charles R. Crowell
University of Notre Dame


The value of Performance Imaging can be best understood within the context of the real costs of employee development to an organization. Suppose, for example, that an organization needs to improve its sales effectiveness in a region or subsidiary. This situation is not unlike that of a patient who has a need to improve as a result of being afflicted with some illness or disease entity. Presumably, there is a treatment for the patient (and the sales force) that will be maximally effective in producing the desired improvement. But, what treatment should be used? And, what are the consequences of selecting the wrong treatment?

Unfortunately, prescriptions for sales force development are often made by hunch and by guess. This means that, just as often as not, the treatment will either be unnecessary or less than fully effective. Consider, for example, the familiar prescription for many sales- force woes, a three-day training program. Logically, there are at least three possible outcomes of such a program. It may turn out to be: (a) Completely unnecessary and irrelevant to real needs of the sales force for improvement; (b) Mostly unnecessary but containing some useful elements; or (c) Highly relevant in meeting critical needs for improvement. Each of these scenarios has differing financial consequences for the organization. To explore these consequences, it is necessary to calculate how much a company invests in such a training program. The following illustrative calculations are based on intentionally conservative assumptions that are likely to underestimate the reality of most actual circumstances.


Assumptions Relevant To Establishing The Cost Of Training
1. Salesforce size in region/subsidiary 20
2. Average annual salesperson salary+benefits $42,000
3. Number of annual workdays 230
4. Daily salesperson salary+benefits (2)/(3) $183
5. Current annual revenues of region/subsidiary $5,000,000
6. Daily revenue per salesperson (5)/[(1)X(3)] $1,087
7. Potential annual revenues of region/subsidiary $7,500,000
8. Length of training program in days 3
9. Number of trainers present 1
10. Participants per diem expenses $150
11. Cost of training program development $60,000
12. Life of training program in training days 300
13. Amortized daily training development cost (11)/(12) $200


The total expenditure for a three-day training program is computed by determining the aggregate three-day costs for salesforce (and trainer) salary and benefits, participant expenses, lost revenues, and amortized training program development costs. With the above assumptions, the breakdown for this total cost is shown below.


Cost Breakdown
Aggregate 3-day salary+benefits: 21 * 3 * $183 = $11,504
Total participant expenses: 21 * 3 * $150 = $9,450
Total lost revenues: 20 * 3 * $1087 = $65,217
Three-day amortized development costs: 3 * $200 = $600
TOTAL TRAINING PROGRAM COSTS = $86,771


Obviously, the total cost of even a three-day training program represents a sizable investment in sales force development. The return on this investment will be based primarily on two factors: (1) the size of the potential increase in revenues that the subsidiary or regional market will bear if the salesforce becomes more effective; and (2) the percentage of that increase that will be realized by having the new skills and abilities provided by the training program. For purposes of our illustration, it has been assumed that the market will presently support another 2.5 million dollars in revenues in this region or subsidiary, if the sales force were to become maximally effective. That leaves in question the percentage of this potential increase that actually will be obtained as a result of the training.

Our experience indicates that many factors will affect the size of this percentage including the capability of the training program to actually produce the intended skills, the company's success in being able to implement appropriate follow-up activities to nurture the new abilities, and the relevance of the new skills to the existing developmental needs of the salesforce. Assuming that the training and follow-up procedures are fully effective, we are left with the issue of training relevancy.

The principal advantage of Performance Imaging to an organization is that it virtually guarantees that training and development activities, if indicated, will fall into the category of being "highly relevant." This means that, with Performance Imaging, an organization can either avoid costly training that is not needed, or make sure that necessary training is directly relevant to performance improvement needs. The following table shows the financial implications of four scenarios, two with and two without the benefit of prior Performance Imaging. In the two cases without Performance Imaging (Columns 1 and 2), training was prescribed by the company on the basis of guesswork and hunches. In one of these cases, the training turned out to be completely unnecessary, while in the other it happened to be partially relevant. For the cases with prior Performance Imaging (Columns 3 and 4), one involved highly relevant training because developmental needs had been clearly identified. In the other, training was avoided altogether because, based on established needs, it was found not to be indicated.


Several additional assumptions are required for purposes of the following calculations. One is that Performance Imaging was conducted at maximum cost ($80,000). The other is based on our experience which indicates that highly-relevant training results in at least a tenfold increase in employee effectiveness on the job, compared to the more common training scenarios depicted in the first two columns. In the following table, this increase is reflected in a larger percentage of the 2.5 million dollar potential that is likely to be realized as a result of the training experience (gross revenue gain). Net revenue gain is computed as the gross revenue gain minus development costs. Numbers in parentheses represent losses to the organization. Return on investment is net gain divided by total cost, expressed as a percentage.


Cost Breakdown
WITHOUT
PERFORMANCE IMAGING		 WITH
PERFORMANCE IMAGING
Irrelevant
Training		 Partially Relevant
Training		 Highly Relevant
Training		 Training Not
Indicated
Cost of 3-day training program $86,771 $86,771 $86,771 $0
Cost of Performance Imaging $0 $0 $80,000 $80,000
% Potential revenues realized 0 1 10 N/A
Gross revenue gain $0 $25,000 $250,000 $146,771
Net revenue gain ($86,771) ($61,771) $83,229 $66,771
Return on investment -100% -71% 50% 83%

Note that the gross revenue gain shown in Column 4 above is based on avoidance of
training development ($60,000) and implementation ($86,733) costs.

The preceding example, based on some fairly conservative assumptions, shows that training is likely to be a losing proposition for organizations (Columns 1 and 2) unless it is highly relevant to the developmental needs of participants (Column 3). Performance Imaging is a powerful tool to achieve such relevancy. Even at maximum cost, the use of this tool can help to insure the profitability of training and development activities. Moreover, Performance Imaging can contribute to cost avoidance (Column 4) by providing a means to determine when specific developmental activities are or are not indicated. We have accomplished these goals in over 40 implementations of Performance Imaging to date, world-wide.



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