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One method of determining whether training is financially feasible is to conduct a cost-benefit analysis. This analysis compares the cost of training and the benefits that result from it. This analysis helps a trainer determine whether training is the solution to a problem, what priorities the company should have in developing training programs, and whether any given program is beneficial to the company.
Although many complex formulas have been developed, cost-benefit analysis can be made relatively simple. There are three basic steps to a cost-benefit analysis:
1. Calculating costs
2. Calculating benefits
3. Comparing the results
There are many costs of training¡Xboth direct and indirect¡Xthat should be included in the cost calculation. The three primary costs involved in training are:
Personnel and labor costs. This includes the salaries, consulting fees, and wages (including lost production) involved in the design, development, and delivery of a training program.
Training materials. This includes the development and delivery of expendable training materials such as handouts, workbooks, flip charts, or food, and non-expendable training materials such as reusable slides, instructor manuals, and permanent transparencies.
Delivery costs. This includes the wages and salaries of both the trainer and the trainees, travel costs, equipment and facility rentals, meals, and site-tour fees.
The tangible benefits of training are:
Time. Training can save labor time by helping employees work more efficiently and effectively. To calculate the benefit, multiply the time saved by the full cost of the employees¡¦ wages and benefits.
Materials. Material costs can be reduced by improving quality control, inventory procedures, and materials handling procedures. To calculate the benefit, total the savings in materials cost at a monthly or annual basis.
Equipment. The company can avoid costs by eliminating equipment downtime or increase its revenue through improved productivity resulting from better use of equipment. To calculate this benefit, a trainer should determine the equipment value (divide the cost of the equipment by the number of hours it will be used), the improved productivity (multiply the hours of increased usage by the equipment value), and the downtime (use the same formula for improved productivity).
Reduced labor turnover. Replacing employees who retire, quit, or are fired are expensive¡Xespecially in a tight labor market. The cost of recruiting and training new people is about the same as the salary of the departing worker. Training that reduces turnover can claim the salary of each person ¡§saved¡¨ as a direct benefit.
Reduction of other personnel problems. While people problems can be difficult to attach a dollar value to, there are some valid calculations a trainer can make. First, he or she can identify the event (such as a strike, grievance, lawsuit, or accident), then identify the people involved in the event. Calculate the full cost of each employee by the day or hour. Determine the total personnel cost lost to the event by multiplying the number of personnel involved by their cost per day or hour by the number of days or hours involved.
It is more difficult to assign a dollar value to intangible benefits, but trainers should look for ways to recognize these benefits and include them in the analysis. Some intangible benefits might include customer satisfaction and goodwill; employee motivation, achievement, recognition, interest, responsibility, and advancement; potential value of the employee; payback to the profession; and decreased absenteeism, tardiness, alcoholism, drug abuse.
While a simple ratio of cost to benefit may answer the basic question of ¡§should this training be conducted?¡¨ most trainers must provide this justification to someone in management. |
