How to prove training is an investment, not a cost – ROI

ThumbnailYou may have heard the wee story about the business owner who went to his training manager and said, “Bill, I need to cut costs. How much does it cost us to run staff training courses every year?” Bill replies, “Boss, I think you need to ask yourself what it will cost us if we don’t run training courses every year”!

Training that is designed to meet a business objective should be seen by the business as an investment, not a cost. However proving it can sometimes be a tad challenging.

Eric

Here’s a way to find out if the training you have delivered or received was worth the money invested. Try and work out how much time the training has saved.

Here’s an example. Last week I trained a (wonderful) group of people in Excel Advanced features – Pivot Tables, Advanced Filtering, Advanced Functions. The majority of the group worked for the company Accounts department. At the end of the training I asked the participants approximately how much time the new features they had learned would save them each day. The feedback consistently showed between 1 and 2 hours per day.

Taking this as an example let’s look at how we can work out if the training was worthwhile.

Using the Salary Guide for Accounting salaries posted on the Trade Me Jobs site let’s presume that the median pay for an accounts person is $45k per annum.

Broken down their cost to the company would look like this:

$45,000 / 52 weeks working for the company = $865.38 per week

$865.38 / 5 working days per week = $73.08 per day

$173.08 / 8 working hours per day = $21.63 per hour

Now let’s take the time saved (post training) at an average of 1 ½ hours per day and work out how much money this has saved the company:

Hourly rate of $21.63 * 1.5 = $32.45

$32.45 * 5 days per week = $162.26

$162.26 * 48 weeks = $7,788.46

An efficiency saving of $7,788.46 per year.

We now need to deduct what it cost the company to train this employee:

The approximate cost to put the employee on the course was $275.00

The training course ran for 8 hours. The cost to the coy in lost time that the employee would otherwise be spending on work is 8 * $21.63 per hour = $173.04

Add the two together and the cost of training to the company is $448.04

Therefore, savings less the cost of training = a total return on investment (ROI) of $7,340.42 for the individual employee. By the way, there were 8 people on the course. Even if the average amount of time saved was 1 hour a day it still shows a significant return for the company.

This is just a very basic example based on efficiency savings only. A well designed training program can increase production and profits, reduce staff turnover, improve quality and morale. All of these things more than pay you back for your initial training investment.