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The DuPont ROI Model

A History Lesson in Return on Investment

  Fred Nickols 2012

 

As someone who for many years made his living as a "trainer," I very much appreciate the pressure trainers are under to demonstrate the value of training.   I even devised a methodology for finding the bottom line payoff of training called "Measurement-Based Analysis" and published an article about it in ASTD's Training & Development -- way back in 1979.   So, when trainers and their gurus start talking about the ROI of training, I understand their need for being able to demonstrate a return.  However, I know that many trainers, line managers and even some financial professionals do not fully appreciate the complexities of return on investment (ROI), especially as outlined in the Finance & Accounting Handbook.  Nor are many of them familiar with the origins of ROI, namely, the Du Pont formula, created in the early 20th century at the Du Pont powder company in Wilmington, Delaware.  So, I thought I'd lay it out where all could see and ponder it.

 

Dupont ROI Model

 

The diagram above shows how ROI was calculated when that ratio was first created back in the early 1900s.  As anyone can see, it is far more complex than many currently touted calculations.  What it also illustrates is that, originally, ROI was a measure of return on the total investment in the entire business, not the ROI of a project or a product or a training course or any other isolated aspect of a business.

Source

Relevance Lost: The Rise and Fall of Management Accounting (1987, 1991), by H. Thomas Johnson and Robert S. Kaplan.  Harvard Business School Press: Boston.

 

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