How do you define ROI on Coaching?

Our contemporary business environment, with the mantra of ‘do more with less’, naturally compels us to justify all costs to the business in terms of ROI.

The use of ROI to measure investments in tangible assets such as plant and equipment is probably still the most commonly used calculation in business metrics at an organisational level.

It’s therefore not surprising that ROI as a measure of effectiveness in coaching would become a benchmark for justification of expenditure on people development. If we can’t measure it, why are we doing it?

So we can take the position that we need to measure outcomes from a quantitative/analytical point of view, or take the broader approach and look at the qualitative or more subjective results of coaching intervention.

In the case of the former, in recent years some interesting work has been done on quantitative measurement, which on the surface seems to present a persuasive argument.

A survey undertaken in the USA (McGovern et al 2001), studied outcomes with 100 executives from 54 organisations and found an overall benefit of 5.45 times the initial investment, with some interesting sub-data:

  • tangible business impacts included: productivity +53%; quality +48%; organizational strength +48%
  • intangible business impacts included: improved relationships with reports +77%; improved relationships with stakeholders +71%; improved teamwork +67%;

Yet another study, (Anderson 2010) found coaching produced not dissimilar results:

  • Overall 689% return on investment
  • Top 3 competencies developed: leadership behaviour (82%); building teams (41%); and developing staff (36%)

The second approach, taken from a qualitative, broader but less specific point of view is whether financial ROI can in any case provide a fundamental or meaningful benchmark of coaching success – i.e., can the complex nature of human relationships be quantified and measured in a way that is metrically definable?

As has been pointed out in a previous study (Dagley 2006): “The issue with measurement is that many executive coaching outcomes are not related directly to financial gain at all but to a range of other intangible benefits such as leader satisfaction, building capability of senior staff or dealing with people problems.”

Again, a UK study, (Braddick, 2003) concluded that, “there is little point in trying to identify whether coaching and mentoring have a direct effect on bottom line performance when it is clear that they are indirect influences in the first place”.

Ultimately, it is probably more pragmatic to look at the ‘justifiable chain of effect’ that emerges through leadership and emotional intelligence behaviours resulting in increased employee engagement and organisational climate survey outcomes – indirect criteria that can be analytically defined and measured.

And finally, there is a third approach. Taken on an individual basis, the business case for a coaching assignment can be reviewed and scoped with tailored metrics applied. Why is the coaching necessary, what are the expected outcomes, and how do all parties agree success will be measured?

Consensus between coach, coachee and sponsor on agreed factors such as KPIs, 360° surveys, or even revenue criteria, can clarify expectations, shed light on the way forward and reveal tangible ROI at the end of the assignment.

Posted by Bob Pierce

See previously: Coaching for Change

BonnieSue Nevin

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