Measuring the ROI of Soft Skills

November 12, 2020

Measuring the ROI of Soft Skills

In today’s pandemic, HR faces both an opportunity and a challenge when it comes to investing in workers’ soft skills. The way to capitalize on the former and overcome the latter lies in accurately measuring their benefits for a company. 

COVID-19’s fallout has made soft skills an even more valuable commodity. Vast layoffs, personal suffering, severe downsizings and continued economic uncertainty have reinforced the need for leaders who possess top-notch soft skills such as resilience, compassion and agility. Leaders with such traits stand a much better chance of navigating their organizations and people through this crisis. Employees, too, must be resilient, empathetic and even better listeners and collaborators. It is a brave new world.

Given the benefits, HR executives want to ensure their workers—managers especially—have these vital skills. But when it comes to investing in programs that help their employees develop such attributes, HR departments still face substantial hurdles, including financial ones. If their budget hasn’t been cut, it’s almost certainly under greater scrutiny. And at a time of budgetary pressures, any investment in employee development will need to show a clear return on investment (ROI). 

But how do you measure and show a soft skills ROI? Here is a five-step process.

1. Start with Why 

When determining the “why,” talent development professionals should keep a hard truth in mind: most soft skills programs do not connect to the business. Instead, they are often based on something that participants need to know or do. But is that the goal of the company’s executives? Research shows that they want to see the business connection of learning, and sometimes the ROI.  

So, be sure to start where you want to finish. If you want to finish with impact, that is where you should begin. Regrettably, we have seen company after company invest in skills like agility or empathy with little knowledge of their tangible impacts. 

For example, consider a recent instance involving a colleague who is a talent development professional. His funder was asking for the impact and ROI of a new agile management program being implemented. When asked about the rationale for the program, our colleague simply explained that “management wants us to know the six skills of agile management.” But having the skills in place is only behavior. Most funders, after all, want more than that. They desire impact and ROI, so plan for it rather than waiting for them to ask. 

Part of the “why” step is ensuring that the soft skills program is indeed the right solution, because sometimes it may not be. It happens. Ensuring the solution drives the business measure—a critical role for the gatekeepers of new programs—may just involve a performance discussion. In some situations, an analysis may be needed that involves interviews, focus groups, examining organizational records or using diagnostic tools. 

2. Expect Success: Plan for the Results

The next step entails defining the desired outcomes and business impacts and, when implementing a new solution, developing objectives. Objectives are set at each level of outcome: Reaction (i.e., how participants and others react to the program); Learning; Application; Impact; and ROI (if the ROI calculation is planned). 

The multiple stakeholders who will receive the objectives are often the designers, developers, facilitators, participants’ managers and even the participants themselves. They should be challenged to design the program to achieve these goals. All should be aimed at not only learning, but also using these skills and their subsequent impact. 

Engagement is key because failing to engage stakeholders can doom the process. When the expectations are explained properly, stakeholders, including participants, will usually step up to their responsibilities and take the journey to impact and ROI. 

3. Collect Data

Most talent development professionals are familiar with collecting data, though few have tackled it beyond the classroom and keyboard for a soft skills program. To produce solid ROI figures, they will have to go further. How can this next-level data be collected? 

When it comes to application (behavior change), the data collection methods to use may include observation, focus groups, interviews, performance reviews, customer feedback and surveys of both the individual and stakeholders. For example, as part of a leadership development program for new supervisors, capture data via 360-degree feedback either from interviews or a survey, as well as more formal performance data.

As it relates to impact, data sources can include key business metrics such as productivity levels, customer satisfaction scores, error rates and the number of workplace accidents. As such, a teambuilding program may improve productivity, reduce errors, improve absenteeism rates, reduce employee turnover or raise employee engagement levels. The impact would be determined after other influences or factors are sorted out in the next step. Certainly, the bigger goal is to positively impact the actual performance of employees who have mastered soft skills against business goals.

4. Analyze the Data

This is probably the most important step from the perspective of executives, given their focus on impact and ROI. With impact data collected, the first step is to isolate the effects of the soft skills program from other influences. There are many ways to do this, but expert estimates adjusted for error works most consistently. 

Next, the impact data should be converted to money to quantify the program’s monetary benefits. The good news is that most important measures have already been converted to money; it is just a matter of locating them. Examples include output (e.g., sales, new accounts); quality (e.g., failure rates, incidents); time (e.g., cycle time, time to proficiency, response time); and cost (already converted to money in the system). 

As part of this step, leave impact measures that cannot be converted within a reasonable amount of time as intangibles. Examples include teamwork, customer satisfaction, emotional intelligence, trust and happiness. Intangibles are still important; the key is to make sure they connect to the program. 

With the monetary benefits totaled, capture all the costs of the soft skills program, direct and indirect. With monetary benefits and costs, it is possible to calculate the benefit-cost ratio (BCR) and the ROI:

BCR = Program Benefits / Program Costs

ROI (%) = (Program Benefits – Program Costs) / Program Costs X 100

5. Communicate and Use the Data to Optimize the ROI

The final step is to communicate the results to the proper audiences, with the program’s sponsors—most often executives—at the top of the list. Also, use the data to improve the programs, essentially optimizing their ROI. That, in turn, improves the case for continuing to fund them. Because many executives see soft skills as a cost and not an investment, this type of analysis shows them the opposite: that soft skills are indeed an investment, calculated the same way a CFO would calculate the ROI for a building or other investment. 

This approach to measuring the impact of soft skills investment would apply at any time. It is, however, especially salient given the vast fallout from COVID-19. Both budgetary challenges and interpersonal work conditions will continue to underscore the importance of soft skills. Now, HR has the tools to make that case with the kind of hard numbers that executives appreciate.

The Authors: 

Jack J. Phillips, Ph.D., is Chairman of the ROI Institute. 

Patti Phillips is President and CEO of the ROI Institute. 

Rebecca Ray, Ph.D., is the Executive Vice President of Human Capital at The Conference Board. 

They are the authors of Proving the Value of Soft Skills: Measuring Impact and Calculating ROI.