How to calculate the costs and return of training
Martin-Christian Kent, executive director, People 1st
When conducting training, it’s important to know how much it is going to cost you.
Most organisations will have this information readily available - however, when carrying out a return on investment evaluation it’s important to consider all training costs, including indirect ones - for example, participants’ time.
This will ensure you have an accurate and credible view of the potential benefits of the programme in comparison to its cost.
Even if you aren’t conducting a full evaluation, accurate cost information can give you an idea of how much you're spending in comparison to similar organisations, and to stimulate discussion on how much you should be spending on training.
When calculating, it’s obviously important that you use accurate, reliable, and realistic figures so that any resulting costs are seen as credible. The key costs are:
- Planning - This covers any work involved in selecting the training programme, such as a training needs assessment or stakeholder analysis. This will include any staff time spent on conducting an assessment or external consultant fees.
- Programme development and design - This includes any time spent researching or designing the programme, the purchase of the training programme or supplies, or the use of consultants.
- Delivery - Any external instructor or facilitator costs would be included here. However, if an employee ran the training, make sure you calculate their time, including travel and subsistence. You also need to include the cost of training facilities and refreshments or supplies. The time employees spend out of work completing the training and any pre- or post-coursework should also be included.
Costs such as a training needs assessment, programme development and design, and acquisition should be pro-rated and divided across the expected shelf-life of the programme, not attributed fully to the ROI calculation.
Once you have calculated the cost, you need to compare this to the benefit.
Looking at business impact measures will calculate the monetary benefit of the programme. Some, such as increased turnover, may be readily available in a monetary format, while others will require conversion.
As discussed previously, this should only be done for credible measures. The change in the measure over a set period of time should be multiplied by the cost of each unit of change.
Take customer service training as an example. A complaint may have an estimated cost of £5,000 to your business. If there has been a reduction of 70 complaints in the year following the training (after isolation), the total benefit from the intervention = £5,000 x 70 = £350,000.
But what happens if you are unsure of how much a complaint costs the company? This figure can be calculated in a number of ways. Consider any direct costs, for example, gift vouchers that are sent to the person who made a complaint. Also consider staff time to deal with the complaint. Now look what the cost will be to repeat business and add all the costs together.
If there is no credible data available about the cost of each unit, it’s best not to convert this measure to a monetary value.
Once the total benefit has been calculated, this is then compared to the cost of the programme. This is usually done through a ROI calculation:
ROI = (net programme benefits/total programme costs) x 100%
The total ROI figure represents what the return is, over and above the costs of the programme. For example, a return of 25 percent means that the costs have been recovered and an additional 25 percent of the cost gained.
Alternatively, you could consider assessing the payback period of the intervention:
Payback period = total programme costs/annual savings
The resulting figure represents the number of years that it will take for the programme to ‘pay back’ the original investment.
Looking to calculate the ROI for your training, but pressed for time? Our experts can help. Our training evaluation service measures the impact of your training programmes on staff performance - helping you improve its effectiveness and show its return on investment. Find out more, or enquire now.