Measuring the ROI of Management Development: An Application of the Stochastic Rewards Valuation Model

Abstract

There is growing recognition that the core economic resources of the current era are human and intellectual capital, rather than physical assets such as inventories, plant, and equipment. Given the increasing importance of human capital and intellectual property as determinants of economic success at both the macroeconomic and enterprise levels, it is clear that the nature of investments made by firms need to shift to reflect the new economic realities. Specifically, if human capital is a key determinant of organizational success, then investments in training and development of people also become critical. In turn, there is a need to develop concepts and tools for monitoring and evaluating management development programs in terms of their impact, results, and value or return on investment. The specific objective of this article is to draw upon the concepts and measurement approaches of the field that has come to be known as “human resource accounting” and show how they, specifically the stochastic rewards valuation model, can be used as tools for the measurement of the value of investments in training programs designed to increase the value of human capital.

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