ROI [2] - Cost Benefit Analysis - COSTS

Cost benefit analysis is very important in The Business of Training. Always think of yourself as a business person and then a training and development person. Whenever you are asked to do a training program (training intervention) that is expected to add value to the organization it is a good idea to do a cost-to-benefit analysis.

If you would like a 'fill-in-the-blanks', multi-currency, Microsoft Excel workbook with all of the cost and benefit calculations, including ROI, please send me an email request and I will forward one on to you. Put 'ROI Calculator' in email subject.

Cost Benefit Analysis is an important exercise for several reasons:

• You can compare different ways of carrying out the program
• It will help justify spending the money for the program
• The expected benefits can be developed and incorporated into the evaluation

Major areas to keep in mind for cost factors are:

• Labor
• Material
• Travel
• Lost Opportunity
• Vendors
• Marketing
• Delivery

When you are determining the program intervention costs there are several key areas to consider which can be broken down into a number of sub-categories and items.  If you are creating a simple job-aid the costs will be pretty stright forward.  However if you are in the training business that delivers high tech product training or industrial control systems the costs can become quite significant and often need to be planned well into the future to ensure the hardware/software systems are in place in the training centers when the actual course material is available for delivery. When you need to consider expensive capital equipment the cost management and allocation of costs to specific training deliveries needs close attention. 

COSTS	Fixed or one-time costs	Variable per intervention	Variable per participant
Program Development Costs	X
Materials	X	X	X
Equipment (Hardware)	X	X
Facilities		X
Off-Site Expenses (if applicable)		X	X
Salary	X	X	X
Lost Productivity (if applicable)			X

Each of these areas can be expanded to include the many details that must be considered whenever you develop a new program. The costs occur at different points in the overall program from inception to final training intervention and delivery. Some of the costs are fixed or only occur once during the cycle. Others are variable per program and type. Still other costs vary by participant. It is important to capture all costs and segregate them by type and when they occur.

Your individual situation will dictate the number of cost areas to consider and the detail required.  If we expand each of the line items in the table above we can get begin to see the true cost of a training program or intervention.  Keep in mind that cost-benefit analysis applies to any training delivery - CBT, WBT, Video, Classroom, Job Aids, Training Manual, etc.

The first of the cost groups is Program Development Costs and they are generally associated with one-time or start up costs.  These are costs that will be distributed over all delivery events.  They do not vary with the number of participants or per training event.

PROGRAM DEVELOPMENT COSTS	Fixed or one-time costs	Variable per intervention	Variable per participant
Needs analysis and research	X
Design Creation and design details	X
Writing, validating, revising	X
Production – one time set-up costs	X
Reproduction – base charges	X
Illustration, graphics design	X
Consultation fees (if required)	X

The second cost group is Material Costs.  Here you will see fixed costs, variable per program, and variable per participant.  Think about everything that you will need to actually deliver the program to each individual aside from facilities and delivery equipment.

MATERIAL COSTS	Fixed or one-time costs	Variable per intervention	Variable per participant
Per Trainer/Facilitator/Enabler/Coach DVD, CD, Software, Videotape, Film Overheads, Instructor Guide, etc.	X	X
Per Participant Handouts, Tests, Notebooks, Pencils, Pens, DVD’s, CD’s, etc.			X

The third cost group is Equipment Costs (Hardware/Systems/etc.).  Again this group may have all three types of costs dependent on your situation. Here is where significant costs can be incurred if you are in the technical product training business.  Training needs to continually "think out of the box" in terms of delivery.  What is the best, most cost effective, delivery of the training intervention. In today's technology connected world issuing an iPad to every participant may be the best option for short or long term training results.

EQUIPMENT (HARDWARE/SYSTEMS)	Fixed or one-time costs	Variable per intervention	Variable per participant
Video Unit	X	X
Computers	X	X	X
Flip Charts		X
iPads		X	X
Lab Simulation Systems	X	X
Overhead Projector	X	X
Training Models	X	X	X

The fourth cost group is Facility Costs.  These are the cost for the delivery location.  The location could be a classroom in your training center(s), an off-site facility (hotel, conference center, for-rent training center, etc.), or the cost of 'internet space' such as an on-line learning center.  You should only include the facility cost associated with the specific program requirements - in other words - its pro-rated share.

FACILITY COSTS	Fixed or one-time costs	Variable per intervention	Variable per participant
Classroom, Conference Room, etc.		X
Overhead Projector, Screen, Flips, etc.		X

The fifth cost group is Off-Site Expenses (if applicable).  These are costs associated with delivery at a remote location from your own facilities.  Some of these costs are included in the allocated costs per intervention at your own facility but must be accounted for separately at remote facilities.

OFF-SITE EXPENSES	Fixed or one-time costs	Variable per intervention	Variable per participant
Travel (air, car, bus, etc.)- Instructor		X
Travel (air, car, bus, etc.)- Participants			X
Hotel (overnights) – Instructor		X
Hotel (overnights) – Participants			X
Meals - Instructor		X
Meals - Participants			X
Breaks (food, drinks, misc.)			X
Shipping Materials		X	X

The sixth cost group is Salary.  These include all personnel costs including instructor, participants, and consultants.  Don't forget to include any other support costs from other personnel at remote facilities or set-up crews at your facility.

SALARY (LABOR) COSTS	Fixed or one-time costs	Variable per intervention	Variable per participant
Trainer/facilitator/coach/administrator		X
Participants (no. of hrs./hourly cost)			X
Consultant Fees		X
Outside Trainers		X
Support Staff (audio visual, admin, etc.)		X

The seventh and last cost group is Lost Productivity (if applicable). In many cases you will need to obtain the information from the production groups responsible for the training intervention need.  You need to look at those items that are directly attributable to the trainee's absence from work or that are incurred due to the 'learning curve' as the individual becomes fully knowledgeable in their new task.

LOST PRODUCTIVITY	Fixed or one-time costs	Variable per intervention	Variable per participant
Production rate losses			X
Material losses			X
Additional labor support cost			X
Additional labor hours for learning curve			X

After you have all of these groups accounted for then you can summarize the costs by by fixed and variable.  Then you can determine the total cost in each area and the overall cost of the program or intervention.  Now you know the true cost of the program and the requester (or you) can make a determination of the business impact.  Once you know the benefits of the program you can make an assessment of the value to the organization.

SUMMARY	Fixed or one-time costs	Variable per intervention	Variable per participant
(A) Total of all one-time “up-front” costs	X
(B) Total of all costs incurred each time intervention		X
(C) The sum of (B) times the number of  programs (interventions)		X
(D) The total of all costs incurred for each participant			X
(E) This sum (D) time the number of participants over the life of the program			X
(F) The Total Costs (sum of A, C, and E)	X	X	X

See also:
ROI - The Process
ROI - 1 - (Return on Investment) - The Calculation
ROI - 3 - Cost Benefit Analysis - BENEFITS
ROI - 4 - The Four Evaluation Levels (future)