Calculating training costs and benefits allows a manager to demonstrate the return on investment for an organization. It establishes what the company earns by developing its employees. While it’s easy to measure the costs of designing, developing and delivering training, it’s far more difficult to evaluate the effect of training on job performance. Linking training to improved quality, customer satisfaction or cost savings allows an organization to continue to allocate funding for learning and development. To calculate costs and benefits, implement a series of evaluation programs that ensure training initiatives will benefit the whole company.
Calculating the costs involves adding up the fees charged for designing, developing and conducting training sessions run by the company. Typical costs include the labor associated with assessing student needs, writing learning objectives, developing training materials and producing student guides. Other fees might include facilitator expenses, video or audio production, facilities and rental fees, and accounting for employees’ time away from their regular tasks.
Types of Benefits
Listing the potential savings generated involves identifying improved metrics, such as fewer errors, increased customer satisfaction, decreased safety violations, reduced employee turnover, increased revenue and overall improvement in productivity. Producing standardized training materials also contributes to reducing recruiting and new employee orientation expenses.
Benefits of Setting Performance Goals
Setting performance goals for employees who complete company training programs involves identifying the current level of performance -- for example, 100 products that fail inspection per month. Convert that into a financial value -- for example, 100 errors times one hour to fix each problem times $20 per hour for labor equals $2,000 per month. Forecast a reduction in that figure, perhaps to 50 failures per month.
Running training programs for selected individuals and determining a reasonable rate of improved performance allows a manager to calculate savings and identify changes in behavior and attitudes following training. Calculate the savings, for example, if you can cut the errors from 100 to 50 errors per month. If it takes one hour to fix each of those 50 problems, times $20 per hour for labor, that is equal to $1,000 per month. That’s a savings of $1,000. Identify when these savings will occur; for example, three months after the target group of employees completes training. Calculate the total anticipated savings by dividing the amount of savings by number of training participants to identify the savings per student.
Considerations for Comparing Costs
Comparing the cost of training to the savings generated helps justify the expenses. Typically, the benefits of training more than justify the training expenditure. Usually, the savings cost per participant exceeds the training cost per participant, especially when considered over time. Managers can also use the calculators provided by the Society of Human Resource Management to calculate other training metrics. Managers should calculate metrics that make sense for the business, such as “Organizational and Employee Development” metrics, including the amount spent on training per student per hour of training provided. Generating these metrics helps a manager calculate actual costs and realistic benefits, such as savings. Reasonable goals ensure training expectations communicated to stakeholders and executive leadership are achievable and tied to measurable business results.
Tara Duggan is a Project Management Professional (PMP) specializing in knowledge management and instructional design. For over 25 years she has developed quality training materials for a variety of products and services supporting such companies as Digital Equipment Corporation, Compaq and HP. Her freelance work is published on various websites.