Investing in People: How to Quantify the Value of Competency Development

The Value of Competence
Investing in People: How to Quantify the Value of Competency Development

J. Ford Brett / Managing Director - PetroSkills / fbrett@petroskills.com

Abstract

For all the emphasis placed on competency development, training budgets are almost always the first cut during any kind of down turn. For competency management to become more than a Human Resource Management fad, it will have to demonstrate quantified financial return. This abstract outlines one approach to quantify the return on competency development investments.

It’s simple, but worth reiterating, that economic value is created when there is a positive net present value (NPV) of an investment’s cash flow stream. Keeping track of the net cash flow versus time is the only way to quantify the ultimate value of an investment – a positive NPV means an investment is a winner. The only way to know if a potential investment is likely to be a winner is by predicting, with some level of certainty, cash flow versus time. Investments in production facilities, exploration concessions, well re completions, new computer systems, etc. – in fact investments in any real business enterprise – are all normally subject to this kind of scrutiny. Of course the certainty and precision of these investment predictions vary, but they are still subject to the same form of analysis: understanding how business choices affect cash flow.

Investments in competency development should be subjected to a similar type of analysis or they cannot really be considered management. Without such scrutiny, such activities cannot be called competency management; instead, they would have to be called competency administration or maybe even competency art. Unless competency management efforts are specifically designed to add value to the organization, they will only succeed through luck.

The following key steps to Building a Competency Management Business Case are covered in the pages to follow:

Step 1 Estimate the Value of Competency in Key Job Roles

Step 2 Quantify As-Is Competency Development Cash Flow Profiles

Step 3 Quantify Value of Improved Competency Development

Step 4 Implement Program Targeted at Identifying and Closing Most
Valuable Competency Gaps


®

Building a Competency Management Business Case

Creating a business case for competency management is similar to creating a business case for anything – with one subtle difference. Creating a business case for a real estate investment, a factory, a concession, or a petroleum production facility requires an understanding of how physical assets are likely to impact cash flow. What will the plant cost? How much can it make? What will its production be worth? To make a sound decision about investments in competency management we need to understand how competency impacts cash flow. What will it cost to develop competency? How much better will we perform with skills? What will the improved performance be worth? Basically, to make a sound decision about investments in competency management, we need to build a business case that tests how managing competency development will add to the fundamental value-generating activities of your organization. Very briefly, the four steps below outline how to create a competency development business case.

Step 1 Estimate the Value of Competency in Key Job Roles
First, each of your organization’s value producing activities estimate the net annual value a competent employee adds to the process. Several different approaches can be used to develop this estimate. One way is to bound the value by quantifying the net cost of replacing the employee with a fully qualified technical consultant (e.g. Suppose for $1200/day you could hire a top grade reservoir engineering consultant. That would translate to a cost of about $300k/year. If the employee’s burdened cost was $120k the net value to the organization would be $180k/year). A second way is to look at the historical average value of value producing activities and then estimate the percentage of the value an employee contributes (on average) to each iteration of the activity. (e.g. One simplistic example that illustrates the technique: Suppose fully explored wells have an average risked value to the organization of $2M, and that developing a prospect requires 5 man-years of qualified geophysicists and geologists. The average value of a competent geoscientist is $400k/yr). In any event, to manage competency development you must first develop an understanding of the value of competent employees.

Step 2 Quantify As-Is Competency Development Cash Flow Profiles
Second, to quantify how each of these activities yields positive economic return to your organization, you will need to be able to plot the before improvement cash flow versus time for each core job role. Each role will have its own typical cash flow profile. The full-cycle economics would follow a similar pattern to the one shown in Figure 1.


Investment. Burdened salary while employee is “coming up to speed,” and the cost to hire, train, and mentor for the average employee.
Time to Positive Net Benefit. Time required before the average employee more than covers his cost to the organization.
Time to Mastery. Time before the average employee adds significant value to the organization.
Net Value of Competency. Total incremental value the average employee adds to the organization after being fully up to speed.

Step 3 Quantify Value of Improved Competency Development
Third, develop an understanding of how improving competency development could increase key activity value. Based on experience or reasoned estimates, quantify how improved competency development would likely reduce the investment, shorten cycle time, or produce higher return of key job roles. Answer the question: “If we focused our efforts on developing competency in a reliable way, how quickly could we bring employees up to speed? How much would it cost?” Calculate, with reasonable certainty, how knowledge management would improve each activity’s cash flow profile. Competency development investments should be evaluated using these same full-cycle economic criteria. Investment, time lag, and ultimate value should all be considered. For example, one should consider the impact that their competency development efforts will have on each of the following:

Investment. How will an up-to-date online product reduce the cost of new sales associate training?
Time Lag. How can explicit definition of competency speed development of the skills and behaviors that add value?
Positive Return. How will faster dissemination of the latest technology make wells more productive?

Figure 2 shows an example of a baseline and improved cash flow profile, and how modest improvements in the way competencies are developed can more than triple the Discounted Rate of Return on Investment of training a new hire.

The examples shown in Figures 1 and 2 are meant to be a representative case. Of course, real situations will be unique for each company and job role. In an attempt to scope the sensitivity of the various factors, Figure 3 presents a ‘spider plot’ of the change in NPV as the key factors change.

The spider plot shown in Figure 3 is specifically for the base case from Figure 2. But the main point in this, and most other examples, is that while the cost of development is an important factor, the ultimate value of the development (e.g. the quality of the training) and the time to competency are even more important factors.

Step 4
Implement program targeted at identifying and closing most valuable competency gaps
With an understanding of current economics, and reasoned estimates of how better competency development could improve the value of core value-producing processes, it is possible to create estimates of the value of improved competency development. If the analysis in Step 3 shows that the value of full competency is most important, then ensure that you’ve completely defined the set of competencies that deliver that value, and implement a competency management approach to develop those specific skills. If the analysis shows time to competency is most important, then develop an approach to identify and close competency gaps in the least number of calendar days. The point is the analysis approach suggested in steps 1 to 3 above can help focus your efforts on those activities that will truly add value.

These steps described above will let you value competency management activities.



F I G U R E 4 : Screen print of the PetroSkills Competency Analysis Tool
One competency management approach involves using an individual skills inventory to identify needs. The PetroSkills Competency Analysis Tool (CAT) shown in Figure 4 is a software application that makes this easy. The user-friendly CAT facilitates the process of identifying and analyzing skill gaps, and assists the user in developing a plan for filling those gaps. For more information, contact training@petroskills.com.
The Industry Benchmark

DELIVERING KNOWLEDGE.
DEVELOPING COMPETENCE.

800-821-5933, 918-828-2500

The power behind PetroSkills is the alliance itself.

PetroSkills was created in 2001 when BP, Shell and OGCI aligned their training experience and resources for the purpose of offering important, non-unique training. Since then the alliance has grown with the addition of Halliburton, Saudi Aramco, Occidental, ConocoPhillips, Chevron, Repsol YPF, Marathon, ENI Exploration & Production, TTG Systems, John M. Campbell, and University of Trinidad and Tobago as members, and has broadened the alliance into a worldwide energy industry benchmark for technical skills training.

Member company subject matter experts direct and maintain detailed competency maps for each petroleum discipline, resulting in an operator’s ‘shared viewpoint’ of the skills required to perform at different levels within each field. PetroSkills’ training courses and work experiences are then developed to deliver the competencies outlined on these maps, and are continually improved and renewed to stay current with industry trends, technology and demands. The alliance enhances this value by making the training available on a more convenient and frequent basis across the globe.

Competency Based.

PetroSkills is a unique competency-based training program - not just a collection of courses. Course content is based on detailed skill and competency maps developed with our member companies. Each discipline is detailed through these competency skill maps to ensure that professionals receive the skills they need at their individual level and put them on the right track for advancement. Another feature of the competency maps is that they are available. To individuals and companies via a web-based Competency Analysis Tool (CAT). The CAT allows professionals to track their development, determine what skills they need, and create a customized plan to fill those learning gaps.

Practical. Real-World. Business-Relevant.

Practicality sets us apart. This competency-focused learning delivers the skills needed to be successfully linked to the technology needs of operating companies and industry professionals. Our goal is that after attending a PetroSkills course, the professionals return to their workplace and immediately apply the skills learned to create value.

Quality Courses. Quality Instructors.

PetroSkills' coursework is reviewed and strengthened by each of its partner companies. The member curriculum advisors and the PetroSkills Board must approve the course, ensuring practical, up-to-date relevant training. The same is true for the instructors that teach the courses - they must be approved by the PetroSkills Board and member curriculum advisors.

Convenient and Frequent.

Convenient and frequent delivery is a key part of the PetroSkills philosophy. By presenting courses near to the client on a shared basis, we keep travel and other costs as low as possible - while still delivering an industry directed and quality assured program worldwide. In addition to teaching hundreds of sessions in dozens of cities each year, PetroSkills will bring any of its courses to you on an in-house basis worldwide.

For more information, contact training@petroskills.com.
Mapping the Future.

DELIVERING KNOWLEDGE.
DEVELOPING COMPETENCE.

800-821-5933, 918-828-2500

Competency-based training is the foundation of PetroSkills. In fact, the PetroSkills alliance, through its discipline-specific Competency Maps has become the industry benchmark. These maps document the technical skills required at specific levels of expertise.


Awareness:
Can describe area’s purpose(s) and key concepts; recognizes what can be routinely done

Basic Application:
Can recognize when to apply subject area skills in ‘normal’ situations; can apply subject area skills in normal situations with appropriate reference guides available; has actually done at least once

Skillful Application:
Is able to accomplish skill without help or reference to notes in normal situations; has done numerous times; recognizes abnormal situations/cases


Mastery:
Routinely handles difficult cases; analyzes abnormal cases; invents new techniques


This enables individuals and organizations to identify and manage the skills that both organizations and individuals require to be successful. The PetroSkills courses are designed to deliver these competencies as part of a coordinated training program.

For more information, or for Competency Map samples, contact training@petroskills.com.


www.petroskills.com
PetroSkills CAT (Competency Analysis Tool)




At the core of defining an individual’s overall competency level is the PetroSkills CAT application.

The Competency Analysis Tool integrates the PetroSkills Competency Maps, training, and work experiences, as well as any company-specific in-house courses into the application. Finally, the Oil and Gas Industry has a custom application that can track, manage, and report on employee learning while ensuring that technical personnel are competent by identifying organizational and discipline-specific competency gaps.






CAT empowers technical personnel to take ownership of their own career development and provides immediate visual feedback which will identify personal competency and knowledge gaps and help to guide professionals in selecting courses and learning programs which will close those gaps.

The CAT methodology allows professionals to create collections of “Core Competencies” for their organization. This ability enables supervisors to create custom positions within CAT that reflects the needed skill sets for job levels­­--either within their organization as a whole or within specific discipline areas such as Reservoir Engineering or Petrophysics. This ability helps technical personnel to quickly and easily see the skills that are critical for their overall competency level within their positions, to assess themselves on those skill descriptions, and to take courses/training to help fill the gaps in their development. CAT provides an objective assessment of individual knowledge and capability.

Employees can use CAT at anytime-to update their personal assessments, to view their personal development plans and to gain access to training resources. Supervisors can monitor their group’s competency quickly and can generate numerous reports which identify gaps by both individuals and group.





What will CAT do for your organization?


· Create tree structures that reflect your organizational structure and job disciplines.

· Customize the various E&P, Facilities and HSE maps to create outlines of needed competencies for specific Job Functions.

· Create and assign learning based on those specific Job Functions.

· Provide technical personnel with resources to help them advance their skill-set more quickly.

· Allow technical personnel to assess their knowledge levels by conducting self assessments.

· Provide technical personnel with a gap analysis report to identify key areas of strength and weakness.
· Set compliancy standards that can be easily monitored.

· Present employees with a summary of completed and incomplete skills.

· Allow technical personnel to create a ‘Professional Development Plan’ which helps them close the gap on their current level of competency.

· Help cut costs within training departments by identifying key courses that would make a greater overall impact on an individual.


PetroSkills CAT Enterprise Edition



CAT Enterprise will provide all the capabilities contained in CAT, and as an effective human resources management tool, the application reports on critical gaps in technical personnel performance and capability in relation to the success measures and strategic intent of the company. CAT Enterprise provides an objective assessment of individual or group knowledge and capability.

CAT Enterprise is designed to assist management to more easily extract rollup or summary reports which more accurately reflect the training needs of the organization on a global scale. There is also functionality built in for ‘Talent Management’ which enables management to “zero-in” on specific disciplines or jobs. This capability maximizes the company’s valuable human resources and prevents loss revenue and time caused by poor assignment of available, skilled, trained, and experienced personnel that might not be properly identified for
critical projects; that is, it ensures that the organization has the right people, in the right places, at the right time. This software also enables the company to view data on geographical areas*. Built into CAT Enterprise is the framework to allow reports to be scheduled and delivered via corporate email to users, supervisors or management; this feature minimizes the need to train key decision-makers on the inner workings of the system,
while empowering them with the up-to-date data required to make informed decisions and to complete critical planning.


For more information about PetroSkills Competency Analysis Tool and CAT Enterprise, email us at cat@petroskills.com.
The Value of Competence.
Investing in People: How to Quantify the Value of Competency Development

J. Ford Brett / Managing Director - PetroSkills / fbrett@petroskills.com

Abstract

For all the emphasis placed on competency development, training budgets are almost always the first cut during any kind of down turn. For competency management to become more than a Human Resource Management fad, it will have to demonstrate quantified financial return. This abstract outlines one approach to quantify the return on competency development investments.

It’s simple, but worth reiterating, that economic value is created when there is a positive net present value (NPV) of an investment’s cash flow stream. Keeping track of the net cash flow versus time is the only way to quantify the ultimate value of an investment – a positive NPV means an investment is a winner. The only way to know if a potential investment is likely to be a winner is by predicting, with some level of certainty, cash flow versus time. Investments in production facilities, exploration concessions, well re completions, new computer systems, etc. – in fact investments in any real business enterprise – are all normally subject to this kind of scrutiny. Of course the certainty and precision of these investment predictions vary, but they are still subject to the same form of analysis: understanding how business choices affect cash flow.

Investments in competency development should be subjected to a similar type of analysis or they cannot really be considered management. Without such scrutiny, such activities cannot be called competency management; instead, they would have to be called competency administration or maybe even competency art. Unless competency management efforts are specifically designed to add value to the organization, they will only succeed through luck.

The following key steps to Building a Competency Management Business Case are covered in the pages to follow:

Step 1 Estimate the Value of Competency in Key Job Roles

Step 2 Quantify As-Is Competency Development Cash Flow Profiles

Step 3 Quantify Value of Improved Competency Development

Step 4 Implement Program Targeted at Identifying and Closing Most
Valuable Competency Gaps


®

Building a Competency Management Business Case

Creating a business case for competency management is similar to creating a business case for anything – with one subtle difference. Creating a business case for a real estate investment, a factory, a concession, or a petroleum production facility requires an understanding of how physical assets are likely to impact cash flow. What will the plant cost? How much can it make? What will its production be worth? To make a sound decision about investments in competency management we need to understand how competency impacts cash flow. What will it cost to develop competency? How much better will we perform with skills? What will the improved performance be worth? Basically, to make a sound decision about investments in competency management, we need to build a business case that tests how managing competency development will add to the fundamental value-generating activities of your organization. Very briefly, the four steps below outline how to create a competency development business case.

Step 1 Estimate the Value of Competency in Key Job Roles
First, each of your organization’s value producing activities estimate the net annual value a competent employee adds to the process. Several different approaches can be used to develop this estimate. One way is to bound the value by quantifying the net cost of replacing the employee with a fully qualified technical consultant (e.g. Suppose for $1200/day you could hire a top grade reservoir engineering consultant. That would translate to a cost of about $300k/year. If the employee’s burdened cost was $120k the net value to the organization would be $180k/year). A second way is to look at the historical average value of value producing activities and then estimate the percentage of the value an employee contributes (on average) to each iteration of the activity. (e.g. One simplistic example that illustrates the technique: Suppose fully explored wells have an average risked value to the organization of $2M, and that developing a prospect requires 5 man-years of qualified geophysicists and geologists. The average value of a competent geoscientist is $400k/yr). In any event, to manage competency development you must first develop an understanding of the value of competent employees.

Step 2 Quantify As-Is Competency Development Cash Flow Profiles
Second, to quantify how each of these activities yields positive economic return to your organization, you will need to be able to plot the before improvement cash flow versus time for each core job role. Each role will have its own typical cash flow profile. The full-cycle economics would follow a similar pattern to the one shown in Figure 1.


Investment. Burdened salary while employee is “coming up to speed,” and the cost to hire, train, and mentor for the average employee.
Time to Positive Net Benefit. Time required before the average employee more than covers his cost to the organization.
Time to Mastery. Time before the average employee adds significant value to the organization.
Net Value of Competency. Total incremental value the average employee adds to the organization after being fully up to speed.

Step 3 Quantify Value of Improved Competency Development
Third, develop an understanding of how improving competency development could increase key activity value. Based on experience or reasoned estimates, quantify how improved competency development would likely reduce the investment, shorten cycle time, or produce higher return of key job roles. Answer the question: “If we focused our efforts on developing competency in a reliable way, how quickly could we bring employees up to speed? How much would it cost?” Calculate, with reasonable certainty, how knowledge management would improve each activity’s cash flow profile. Competency development investments should be evaluated using these same full-cycle economic criteria. Investment, time lag, and ultimate value should all be considered. For example, one should consider the impact that their competency development efforts will have on each of the following:

Investment. How will an up-to-date online product reduce the cost of new sales associate training?
Time Lag. How can explicit definition of competency speed development of the skills and behaviors that add value?
Positive Return. How will faster dissemination of the latest technology make wells more productive?

Figure 2 shows an example of a baseline and improved cash flow profile, and how modest improvements in the way competencies are developed can more than triple the Discounted Rate of Return on Investment of training a new hire.

The examples shown in Figures 1 and 2 are meant to be a representative case. Of course, real situations will be unique for each company and job role. In an attempt to scope the sensitivity of the various factors, Figure 3 presents a ‘spider plot’ of the change in NPV as the key factors change.

The spider plot shown in Figure 3 is specifically for the base case from Figure 2. But the main point in this, and most other examples, is that while the cost of development is an important factor, the ultimate value of the development (e.g. the quality of the training) and the time to competency are even more important factors.

Step 4
Implement program targeted at identifying and closing most valuable competency gaps
With an understanding of current economics, and reasoned estimates of how better competency development could improve the value of core value-producing processes, it is possible to create estimates of the value of improved competency development. If the analysis in Step 3 shows that the value of full competency is most important, then ensure that you’ve completely defined the set of competencies that deliver that value, and implement a competency management approach to develop those specific skills. If the analysis shows time to competency is most important, then develop an approach to identify and close competency gaps in the least number of calendar days. The point is the analysis approach suggested in steps 1 to 3 above can help focus your efforts on those activities that will truly add value.

These steps described above will let you value competency management activities.



F I G U R E 4 : Screen print of the PetroSkills Competency Analysis Tool
One competency management approach involves using an individual skills inventory to identify needs. The PetroSkills Competency Analysis Tool (CAT) shown in Figure 4 is a software application that makes this easy. The user-friendly CAT facilitates the process of identifying and analyzing skill gaps, and assists the user in developing a plan for filling those gaps. For more information, contact training@petroskills.com.
Building for Achievement.

DELIVERING KNOWLEDGE. DEVELOPING COMPETENCE.
800-821-5933, 918-828-2500

A competency-based training plan designed for progressive skill development ensures that maximum value is gained from the training program.

The PetroSkills Course Progression Matrix delivers focused learning for petroleum disciplines. The matrix is designed to provide a systematic foundation for professional development programs. Each of these matrices shows how courses relate to each other and provides an easy way to select the right course or construct a logical sequence of courses.

Vertically, each matrix is divided according to mastery level, beginning with basic awareness and progressing through to specialized and advanced topics. Horizontally, each matrix is subdivided into the “Home Discipline” with “Sister Discipline” courses recommended as part of well-rounded professional development. This matrix format allows individuals to customize a career map with coursework that specifically relates to present or future job requirements. Likewise, managers can use the matrices to develop training plans for their team.

For more information, or to view Course Profession Matrices, contact training@petroskills.com



www.petroskills.com
Competency-based training is the foundation of PetroSkills. In fact, the PetroSkills alliance, through its discipline-specific competency maps has become the industry benchmark.
The PetroSkills training alliance leverages the experience and expertise of its member companies to develop detailed COMPETENCY MAPS for most E&P and many Facilities disciplines. Under the direction of an industry board, operational experts serve as curriculum advisors to define the technical skills required at specific levels of expertise. The result is a common, agreed-to set of competency maps that form the framework for all PetroSkills courses. Furthermore, this competency framework is continually improved and renewed, keeping current with industry trends, technology and demands.
With these competency maps, individuals and organizations can identify and manage the skills that they require to be successful. The PetroSkills courses are designed to deliver these competencies as part of a coordinated training program.
Available Competency Maps:
FACILITIES Civil / Structural Floating Systems Offshore Systems Onshore Infrastructure Electrical & Instrumentation Electrical Engineering Instrument & Control Mechanical Corrosion Materials Non-Rotating Equipment Rotating Equipment Operations Facilities Operations Maintenance Management Procurement / Supply Chain Management Process Technology General Exploration & Production Utilities Refining Transportation Pipelines Subsea Systems Terminals
E&P Geology Geophysics Petrophysics Production & Completions Engineering Reservoir Engineering Well Construction / Drilling Petroleum Business Project Management
HSE HSE Management HSE Health Professional HSE Safety Professional HSE Environmental Professional

How the PetroSkills Competency Maps are used:
Individuals: assess where they are in their professional development and to design a plan to develop the competencies they need
Companies: identify competency gaps in their organization and develop a plan to fill those gaps
Curriculum Advisors / Directors: define course objectives, content and quality assurance
PetroSkills Members: provide the basis for formal quality assurance and for continual improvement and renewal of the program
For more information about PetroSkills Competency Maps, contact us at training@petroskills.com or click here to request an online demonstration.