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Calculating the ROI of Executive Coaching

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When discussing executive coaching and leadership development programs with Perth executives, a common question is, “What is our return on investment?” While it is impossible to guarantee any particular return on investment for everyone, because every situation is different, we found some research indicating that executive coaching does, indeed, provide a very good return on investment.

The study was done by MetrixGlobal in 2001, but remains the industry standard for computing the ROI on executive coaching. One hundred executives who had received executive coaching for six to twelve months were surveyed for numerous metrics that determine ROI, including tangible assets and financial growth, but also intangibles such as job satisfaction and reduced conflict in the workplace.

A few larger studies have been conducted since the MetrixGlobal study, but none of them approach the scope or the depth of the metrics in the survey. In addition, every subsequent study has reached the same conclusions as the MetrixGlobal study. Consequently, the MetrixGlobal study still stands as the definitive research on the subject to this day.

Due to the presence of both tangible and intangible factors, any study or attempt to calculate the ROI of executive coaching is subjective. However, by putting together a good working model that incorporates every major factor that would affect the numbers, the industry can make a very educated projection, and come very close to an accurate and definitive system of numbers.

It is very tempting on the part of many executives to assess the ROI on executive coaching the way one would assess leadership training programs for employees. However, executive coaching is taught on a more individual and in-depth basis than standard employee training programs. While some information from this kind of study would, indeed, be relevant, a hybrid approach, including both tangible and intangible gains, is necessary to provide an accurate picture of the benefits and ROI of executive coaching.

The first metric would be tangible results or immediate outcomes. For example, how much money did a company save through executive training? How much did the executive’s increased performance affect income and profits?

The next metric would be categorised as “intangible:” benefits to individuals and organisations. A lot of these benefits will not show up on the company ledger, but both executives and employees can be polled to extract this information. The data should include a survey of executives concerning improvement in the following areas: working relationships with immediate supervisors, peers, clients, and direct reports; teamwork; and job satisfaction.

Tangible business impacts constitute another relevant metric. These could include: quality, productivity, customer service, organisational strength, retention, reduced complaints, top line revenue, bottom line profitability, cost reductions, and reduced turnover. Intangible business impacts are also important. These could include: improved relationships with stakeholders, reports, peers, and clients; improved job satisfaction; improved teamwork; and reduced conflict.

For example, the Fortune Magazine study showed that a majority of respondents reported following benefits: better bottom line results, improved individual performance, and client service. The executives also reported improved development of those projected to gain promotions within the company, including: improved skills, more self-empowerment, increased sense of confidence, improved relationships with peers, retention, and achievement of goals within the workplace.

So, how do you calculate the monetised ROI of executive coaching? Here is a working model that has been used by many with good results. First, estimate how much, in monetary terms, the company gained by resolving whatever problem the coaching was designed to remedy. This could include producing change within the company, grooming a future executive on the “fast track,” or improving the performance of the chief executive.

Factors to consider could include: reduction in turnover cost, increased productivity, time saved by more efficient operation, better quality, the lifetime value of a future executive who benefited from the training, or positive impact company morale.

After obtaining a total from the above of metrics, estimate the percentage of improvement that was attained as a direct result of executive coaching. Then, multiply the total value by the percentage to determine the immediate value.

Next, figure out how much the executive coaching cost and subtract it from the immediate value. This will provide you with the net ROI. To obtain the percentage, divide the net ROI by the cost of coaching.

In a Fortune Magazine study, the average executive reported monetary gains equalling six times the amount paid for coaching. Using the above calculations, that worked out to a 500% return on investment. Other, smaller studies have yielded similar results, usually between 500% and 600% ROI.

We acknowledge that the studies contain a subjective element, but the studies all agree that executive coaching produces a healthy ROI.

Ron Cacioppe

Ron Cacioppe is the Managing Director of Integral Development and holds a BSc, an MBA and a PhD. He has taught in the Graduate School of Management at Macquarie University, Curtin University and the University of Western Australia.

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