A four year study by the American Society of Training & Development showed that companies who invested $1500 per employee in training enjoyed 24% higher gross profit margins than those who spent just $125.
Accenture calculated that the annual per person net benefit of its learning programmes was £25,324 with an ROI of 353%.
Sun Microsystems used e-learning and knowledge management to bring new salespeople up to speed in 6 months instead of 15. That’s 9 more months of on-target earnings.
IBM provided five times as much training with e-learning at one-third the cost in its management development programme.
Chevron built a learning organisation to share and manage knowledge company-wide which was a key factor in reducing operating costs by more than $2 billion a year.
What is ROI?
If organisations, particularly businesses, spend money on something then management, particularly the finance people, want to see a measurable return on that outlay. It’s like investing your own money – you want to get more back than you put in!
Mathematically, you can calculate ROI as follows:
(Benefit – Cost)/Cost x 100 = ROI (%)
Say the benefits from training amount to £50,000. The cost of the training is £20,000. The ROI is:
(50000 – 20000)/20000 x 100 = 150% (A bit better than your bank will give you!)
Now forests have been cut down to produce reports and reputations built and burnt on the altar of ROI. How do you accurately determine the apparently simple concepts of ‘benefits’ and ‘cost’?
If you need to make a business case for e-learning or blended learning you need to know these concepts and try and come up with some hard numbers, otherwise the accountants will tear you to pieces when you ask for budget!
Anyone can argue about how your numbers were arrived at, or any assumptions you made, but the fact is a well-argued business case is a heck of a lot more likely to succeed than no case at all.
Savings (Show Me The Money 1!)
Let’s look at a comparison of traditional classroom training with e-learning.
You have twenty people on a two day course in a training room. Their opportunity cost, (wages, cost of temporary replacements, loss of productivity), is £200 per day. The e-learning course can be completed in one day due to reduced learning and no travelling times.
The cost of producing the classroom training materials is £2000 say. The cost of producing the e-learning course is £3000. Let’s not hide this – if you want multimedia it can cost more than paper, PowerPoint or overhead slides! Assume other costs as in the table below:
The saving from e-learning is £6800, nearly half. The next time you run the course the development costs are paid for and the saving is £7800.
Now over two thirds of adults in the UK already have access to a PC at home. What if you used some of the savings to give an incentive to your people to train in their own time.....?
Savings (Show Me The Money 2!)
You have fifty people from a national sales team on a five day classroom training course. Their opportunity costs are £1000 per day. The e-learning course can be completed in three days:
And if you’re a multi-national company with 1000 employees around the globe needing a specific training course.....?
Where’s The Benefit Gone?
These examples only look at theoretical savings. Real benefits come from productivity improvements, increased revenues, actual cost savings or other additions to the bottom line such as increased repeat business from satisfied customers. This is where it gets tricky! How do you measure these?
Ideally you could measure and benchmark improvements in performance internally, or externally by comparison with other organisations. But if you don’t have these numbers then a little research might turn up some interesting results.
The examples on the right report real cost benefits.....
Some costs and benefits may be a little less obvious:
A Louis Harris poll found that amongst employees whose organisations offered “poor” or “no” training, 41% planned to leave within a year. Of those that offered “excellent” training, only 12% said they planned to leave. (How much are your recruitment and retraining costs)?
A survey by the National Association of Colleges and Employers showed that the opportunity for training was one of the top three things that people considered when deciding where to work. (The others were remuneration and opportunities for promotion).
In the knowledge economy and service businesses how many times do you hear managers or stakeholders exclaim that “our people are our greatest asset”, or “round here the assets wear shoes”! But are these statements backed up with investment in these assets, or is training still seen as an expense?
Concerns about cost and lack of management support are often quoted as reasons why organisations haven’t bought into e-learning. The real question is can you afford not to?
If you need help with your business case for training, or your e-learning programme, click here to contact kwango now.