Martec’s Approach to Return on Investment Analysis

Increasingly L&D Departments are pressured to develop a business case assessment of the financial return for a given investment in training or upskilling.  This page describes Martec International’s approach to doing this.  Our clients can use this model and methodology to provide their leadership with the necessary business case.

The key components of our approach are:

• To assess the quantifiable business benefits of the the impact of an L&D project on those parts of the business that generate the sales and gross margin, and create net reductions in expense costs, reduce the inventory carrying cost and improve free cash flow.
• A percentage of training projects occur when major IT investments are made, and our approach can incorporate elements of any capital investment project  alongside its L&D contribution.
• We build our assessment using a bottom up approach tied to individual key performance indicators, such as comp store sales growth, achieved gross margin,  and increased inventory turns to enable implementation tracking at a level that allows detailed identification of elements of the business case that are not working, so they can be remediated, if necessary.
• Our model presents results using the internationally recognised profit and loss statement, a partial balance sheet and a net cash flow statement, together with an internal rate of return (IRR).  Chief financial officers immediately feel comfortable with an information format they see regularly.
• We also include a simulation capability, so that different scenarios can be evaluated.  Running simulations preserves the original input data to avoid repeatedly having to re-enter it to the model, and alternatives can be evaluated in seconds.
• The initial ROI analysis is based on forward projections of benefits created using past experience.  Consequently, they can include a margin or error.  Among other things, the simulation capability can be used to see by how far these projections can be missed and still show a positive benefit.

We start the process of populating the model with a summary level P&L  account from the last year before implementation commences.