Cost-Benefit Analysis to decide whether to go ahead with a decision. Cost-Benefit Analysis is a quick and simple technique that you can use for non-critical financial decisions. A Cost Benefit Analysis (CBA) is a uniform methodology to assist agencies in analyzing and documenting potential costs for contracting out services compared to providing the same service if state employees were used. It is very important to evaluate the benefits of the training and be able to put that in terms of numbers. Training comes at a cost and therefore any organisation would be interested in knowing the return on investment (ROI).
Organisations use different methods to assess the benefits of training in terms of numbers i.e. the profits. Some of the frequently used methods are ROI.
It is very important to evaluate the benefits of the training and be able to put that in terms of numbers. Training comes at a cost and therefore any organisation would be interested in knowing the return on investment (ROI).
From India, Indore
183Organisations use different methods to assess the benefits of training in terms of numbers i.e. the profits. Some of the frequently used methods are ROI.
It is very important to evaluate the benefits of the training and be able to put that in terms of numbers. Training comes at a cost and therefore any organisation would be interested in knowing the return on investment (ROI).
From India, Indore
Organisations use different methods to assess the benefits of training in terms of numbers i.e. the profits. Some of the frequently used methods are ROI and Utility analysis. There are many costs that are associated with the training apart from the direct and apparent costs. These costs can be described under two headings:
1. There are costs incurred towards the training needs analysis, compensation of the training program designers, procurement of training material and various media like the computers, handouts, props, gifts and prizes, audio visuals etc.
2. Then there is another category is costs incidental to the training session itself such as trainers fee / salary, facility costs / rental etc.
3. Finally there are costs involved is losing a man day of work (for those who are sent for training), travelling, boarding and lodging and training material that cannot be reused in some other training program.
From India, Indore
1. There are costs incurred towards the training needs analysis, compensation of the training program designers, procurement of training material and various media like the computers, handouts, props, gifts and prizes, audio visuals etc.
2. Then there is another category is costs incidental to the training session itself such as trainers fee / salary, facility costs / rental etc.
3. Finally there are costs involved is losing a man day of work (for those who are sent for training), travelling, boarding and lodging and training material that cannot be reused in some other training program.
From India, Indore
The model that is used to estimate the benefits of the training program are as under.
The Return on Investment Model (ROI)
Organisations spend huge amount of money on employee development, it is therefore very important to ascertain the benefits of training. Different studies were conducted to evaluate the effectiveness of training programs. In one of the studies it was found out that sales and technical trainings gave better ROI compared to managerial training programs. Ford, for example, evaluates all the training programs against the profitability in a given product line. The basic formula for calculating the ROI for training is as:
ROI (in percent) = Program benefits / Costs × 100
The analysis component defines the cost of the investment required to achieve a potential cash flow benefit. Actual calculations are prepared using standard accounting methods. But unlike some calculations, say those for money market, interest bearing securities, training cost benefit calculations are not always based on fixed rates of return. For this reason they are often imprecise. Training cost benefit analysis, in short, is not an exact science. It can however, provide an investment perspective based on current training needs and long-term productivity expectations. Ultimately they allow the investor an opportunity to make an informed investment decision on a particular training purchase
From India, Indore
The Return on Investment Model (ROI)
Organisations spend huge amount of money on employee development, it is therefore very important to ascertain the benefits of training. Different studies were conducted to evaluate the effectiveness of training programs. In one of the studies it was found out that sales and technical trainings gave better ROI compared to managerial training programs. Ford, for example, evaluates all the training programs against the profitability in a given product line. The basic formula for calculating the ROI for training is as:
ROI (in percent) = Program benefits / Costs × 100
The analysis component defines the cost of the investment required to achieve a potential cash flow benefit. Actual calculations are prepared using standard accounting methods. But unlike some calculations, say those for money market, interest bearing securities, training cost benefit calculations are not always based on fixed rates of return. For this reason they are often imprecise. Training cost benefit analysis, in short, is not an exact science. It can however, provide an investment perspective based on current training needs and long-term productivity expectations. Ultimately they allow the investor an opportunity to make an informed investment decision on a particular training purchase
From India, Indore
Benefit Types
The first benefit is cost-motivated, where the result of a training experience cuts costs. Training staff to operate a computerized accounting system, for example, could reduce the time required to prepare financial reports. This time savings, expressed at an equivalent salary rate, is reallocated to maximize staff productivity by paying wages that generate greater outputs. The staff could then prepare demand financial reports and use the saved time to manage accounts receivables. An ability to manage accounts receivables, in turn serves to reduce credit carrying costs.
Revenue-motivated training, the second type, results in an increase of revenues. The above example touches on a revenue motivation. By reducing accounts receivables, client collection periods are shortened, which improves the cash position and allows investment or debt servicing.
Other revenue motivations reflect entrepreneurial ventures where an add-on service is designed to generate new revenues. A firm introducing desktop publishing services, for example, may require training on their computer systems before a quality product can be delivered. Various training environments often overlap to meet cost savings and revenue generation expectations. Both address performance discrepancies but realize the benefits in different manners. These benefits, added together, reflect a net performance improvement. Computer-related training, as we have seen, can look to reduce time spent performing manual functions (costs) and redirect this time to produce new goods or services (revenues).
From India, Indore
The first benefit is cost-motivated, where the result of a training experience cuts costs. Training staff to operate a computerized accounting system, for example, could reduce the time required to prepare financial reports. This time savings, expressed at an equivalent salary rate, is reallocated to maximize staff productivity by paying wages that generate greater outputs. The staff could then prepare demand financial reports and use the saved time to manage accounts receivables. An ability to manage accounts receivables, in turn serves to reduce credit carrying costs.
Revenue-motivated training, the second type, results in an increase of revenues. The above example touches on a revenue motivation. By reducing accounts receivables, client collection periods are shortened, which improves the cash position and allows investment or debt servicing.
Other revenue motivations reflect entrepreneurial ventures where an add-on service is designed to generate new revenues. A firm introducing desktop publishing services, for example, may require training on their computer systems before a quality product can be delivered. Various training environments often overlap to meet cost savings and revenue generation expectations. Both address performance discrepancies but realize the benefits in different manners. These benefits, added together, reflect a net performance improvement. Computer-related training, as we have seen, can look to reduce time spent performing manual functions (costs) and redirect this time to produce new goods or services (revenues).
From India, Indore
Solution Types
The first solution type, hard training, is applied. It involves mental or physical activities and produces direct, easily measured results. An individual, for example, who learns to drive a car in a forty-hour course, including classroom and practical training, is usually able to turn the car on, put it in gear, accelerate and stop immediately after the course is completed. The degree to which they are able to do this is easily measured through observation.
The second solution type, soft training, is conceptual, cognitive and results in a potential for action. This type is more difficult to measure since the results are not always immediate. If, for example, a sales person takes motivational sales training, they may be motivated at the end of the course to set a personal goal of doubling their sales in the next year. The achievement of that goal will not be evident immediately after the course is completed. Also, with time, the trainee may become disillusioned, perhaps because of declining sales due to market conditions or poor office relations. The return on the original training investment, in this case, depreciates with time, perhaps to the point where training requires repeating. This condition creates the greatest anxiety with training investors and constitutes a greater risk.
From India, Indore
The first solution type, hard training, is applied. It involves mental or physical activities and produces direct, easily measured results. An individual, for example, who learns to drive a car in a forty-hour course, including classroom and practical training, is usually able to turn the car on, put it in gear, accelerate and stop immediately after the course is completed. The degree to which they are able to do this is easily measured through observation.
The second solution type, soft training, is conceptual, cognitive and results in a potential for action. This type is more difficult to measure since the results are not always immediate. If, for example, a sales person takes motivational sales training, they may be motivated at the end of the course to set a personal goal of doubling their sales in the next year. The achievement of that goal will not be evident immediately after the course is completed. Also, with time, the trainee may become disillusioned, perhaps because of declining sales due to market conditions or poor office relations. The return on the original training investment, in this case, depreciates with time, perhaps to the point where training requires repeating. This condition creates the greatest anxiety with training investors and constitutes a greater risk.
From India, Indore
Utility Analysis
This is another way of reflecting upon the usefulness of a training program. Utility itself is a function of the duration up to which the training leaves an impact upon the trainee, the relative importance of the training program, the importance of the position or profile that received training and the cost of conducting the training. For example leadership programs conducted for top and middle management tend to be high on value where as sales training programs for the front line sales staff tends to be low on value scale.
Utility analysis basically derives the effectiveness from analysing the change in the behaviour of the trainee and the positive financial implications of the same. This model is not very famous because the deductions made are essentially subjective in nature.
From India, Indore
This is another way of reflecting upon the usefulness of a training program. Utility itself is a function of the duration up to which the training leaves an impact upon the trainee, the relative importance of the training program, the importance of the position or profile that received training and the cost of conducting the training. For example leadership programs conducted for top and middle management tend to be high on value where as sales training programs for the front line sales staff tends to be low on value scale.
Utility analysis basically derives the effectiveness from analysing the change in the behaviour of the trainee and the positive financial implications of the same. This model is not very famous because the deductions made are essentially subjective in nature.
From India, Indore
Dear Mr. Akhilesh Dubey,
Thanks for sharing.
Everyone is after calculating ROI on Training. Training employees is a part of OD. No organisation can expect their employees to do wonder without getting TRAINED, MOTIVATED, MENTORED, COACHED, COUNSELLED and may be more. There are many skills to be measured / noted / compared within Trainees, post training not just limiting to calculating enhancement in revenue generation. Its not an easy task to measure these skills as it purely depends upon the EMPLOYEE MOTIVATIONAL FACTORS - INTERNAL & EXTERNAL associated with PERFORMANCE STANDARDS. At times, employees are reluctant to perform even if they had updated their knowledge and capable of delivering their best of the best.
Every training needs MOTIVATION as a CATALYST else it is not an easy task to see employees reflecting whatever they had learnt during the training session.
Keep sharing your knowledge and lets learn more and more.
With profound regards
From India, Chennai
Thanks for sharing.
Everyone is after calculating ROI on Training. Training employees is a part of OD. No organisation can expect their employees to do wonder without getting TRAINED, MOTIVATED, MENTORED, COACHED, COUNSELLED and may be more. There are many skills to be measured / noted / compared within Trainees, post training not just limiting to calculating enhancement in revenue generation. Its not an easy task to measure these skills as it purely depends upon the EMPLOYEE MOTIVATIONAL FACTORS - INTERNAL & EXTERNAL associated with PERFORMANCE STANDARDS. At times, employees are reluctant to perform even if they had updated their knowledge and capable of delivering their best of the best.
Every training needs MOTIVATION as a CATALYST else it is not an easy task to see employees reflecting whatever they had learnt during the training session.
Keep sharing your knowledge and lets learn more and more.
With profound regards
From India, Chennai
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