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Assessing the ROI of trainingpixel.gif (807 bytes)

pixel.gif (807 bytes) Forecasting and measuring costs
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Design and development costs
The first category of cost to be considered is the design and development of the training programme, whether this comprises classroom events, self-study materials, simple coaching sessions or some combination. You will need to consider:
  • internal days of design and development
  • costs of external designers and developers
  • other direct design and development costs (purchase of copyrights, travel, expenses, etc.)
  • outright purchase of off-the-shelf materials

Promotional costs
Most organisations devote effort to promoting their training programmes. This second category takes promotional costs into account:

  • internal days of promotional activity
  • costs of external agencies
  • other direct costs of promotion (posters, brochures, etc.)

Administration costs
An allowance must be made for the time taken by the training department in administrating the training programme. This will typically be a factor of the number of students:

  • hours of administration required per student
  • direct administration costs per student (joining materials, registration fees, etc.)

Faculty costs
The next category of costs relates to the delivery of the training, whether this is mediated by faculty (tutors, instructors, coaches, etc.) or is self-administered (workbooks, CBT, online training, etc.). Let’s start with the information needed to calculate faculty costs:

  • the number of students who will be going through the programme
  • hours of group training (whether classroom-based or delivered in real time, online)
  • hours of one-to-one training (typically face-to-face, but could conceivably be conducted by telephone, video conferencing link or in real-time, online)
  • hours of self-study training
  • additional faculty hours (preparation time, the time needed to review or mark submitted work or the time needed to correspond by email or bulletin boards with online students)
  • faculty expenses (travel, accommodation, subsistence, etc.).

Materials
Then there's the cost of materials:

  • cost per student of training materials (books, manuals, consumables, etc.)
  • license cost per student for use off-the-shelf materials

Facilities
You will also need to allow for the cost of your training facilities, whether these are internal or external. Make sure to include the rental or notional internal cost of the following:

  • training rooms
  • open learning / self-study rooms
  • equipment used

Student costs
Probably the most significant delivery cost relates to the students themselves. It is only necessary to charge a student’s cost against the programme if training is undertaken in time that would otherwise be productive and paid for, so you only need to estimate the amount of travel and training that is undertaken in productive work time, i.e. not in slack time, breaks or outside work hours.

When an employee goes through a training programme in work time, the organisation is not only having to pay that person’s payroll costs, they are also losing the opportunity for that person to add value to the organisation. When a salesperson is on a course, they are not bringing in new business. Similarly, a production line worker is not creating products, a researcher is not developing new ideas and an accountant is not finding ways to save money.

If an employee can be easily replaced while they are undergoing training, then there is no lost opportunity – the cost is simply the employee’s payroll costs. In many cases, however, it is simply not practical to obtain a suitable replacement, so the output that the employee would have generated in the time that they are receiving training will be lost. In this case, the true cost of the employee being trained is the lost opportunity – the 'opportunity cost'. The calculation of opportunity costs goes beyond the scope of this article, but, suffice to say, they are greater than an employee's payroll costs and need to be considered in any serious evaluation of costs.

Finally, don't forget to include any direct student expenses - travel, accommodation and subsistence.

Evaluation costs
You also need to make an allowance for the time spent evaluating the training, whether this is an ROI analysis or some other method.

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                                                     Fastrak Consulting Ltd, 1999. All rights reserved.                                   Last revised 4/2/99.