While HR executives intuitively know that leadership development programs have a positive impact on the bottom line, they are often called upon to prove the return on investment (ROI). Measuring the effectiveness of a development intervention is a challenge because the objective measurement of behavior change is not as easy as counting the number of units produced on a production line. It’s also challenging because, unlike financial results, changes in skills and behaviors are learned and their command demonstrated over time rather than weekly or monthly.
At Sloan Group International we have developed a unique Impact Manager App for clients that measures progress towards goals, development priorities, satisfaction, behavior change, and skills development as well as ROI. As leaders in measuring and monitoring the implementation and effectiveness of leadership enhancement programs, we have rich data from many years in the field.
We were called in to run a leadership development program for a sales organization that was battling staff attrition. The results of the program were very positive:
- 100% of coachees reported meeting their individual coaching goals, many of which were tied to revenue
- 82% of coachees reported that they were better able to manage work burnout as a result of coaching.
- 94% of coachees reported that their coaching experience helped them to become a better leader or manager
- 82% of participants were able to identify a potential successor by the end of the program
- 94% of coachees responded that the organization was more attractive to prospective employees because of the program
We also wanted to measure ROI for the client. To value the effectiveness of a coaching intervention, the Cost of Investment element of the calculation is the executive coach fees plus time taken from work for the coaching.
To calculate program gains we looked at the cost of replacing top sales talent (attrition costs) against the % of executives retained during the course of the coaching program, based on specific coaching conversations reported to the program management team. When we look at these gains, it is important we be specific about the coachees at risk, the salary range, and the cost to replace them. An extremely conservative estimate to replace a top salesperson is calculated at 2x Total Cash Compensation (TCC). Industry standard would be to calculate replacement of a top salesperson at 3x to 7x TCC.
The number of executives leaving these levels of the organization prior to the coaching program was 45%. In the year we implemented the program, 98% of coachees were retained as only one coachee left, and that person had been planning on leaving prior to the program’s inception. In the following year, only one participant in the program left. We suspect that more will exit in the next year, so to be very conservative we reduced the final ROI calculation by 50%, still showing a significant rate of return based on retention rates alone.
Using the standard ROI calculation (ROI = net gain or loss from the investment ÷ cost of investment x 100), our highly conservative calculation was an ROI of 960% over and above the significant intangible benefits in stress management, goal attainment, work satisfaction, and leadership development.
The benefits of leadership development programs, when designed and implemented correctly, far outweigh the costs.
If you would like to implement ROI measurements on leadership development in your organization, please contact us here: