By Justin Ferriman, Learning and Collaboration Consultant, Accenture
One of the biggest challenges facing training professionals today is demonstrating the return on investment (ROI) of e-learning programs. Too often, e-learning initiatives are tabled because the potential positive impact is not thoroughly explained to leadership. I have found that the most effective way to demonstrate the economies of scale of a robust e-learning program is to present leadership with a dollar figure overview between the two options (conventional class vs. e-learning). This overview does not need to be extensive, but it needs to include hard figure estimates based on the organization’s historical financial data. Including this level of detail is beneficial as it ensures that the discussion revolves around the bottom line for the company—a language easily understood by the company’s decision-makers.
In comparing a conventional class versus e-learning training model, you should prepare four factors for leadership:
- Logistic Costs
- Development Costs
- Opportunity Costs
- Revision Costs
Logistical costs include any expenditure incurred by the company before the training has taken place. Most people realize that e-learning programs cost less from a logistical standpoint, but seeing hard numbers in this area makes it more tangible. Some indicators to include for logistical costs include:
- Average number of participants per class
- Average travel cost per participant
- Materials cost per participant
- Trainer cost per day (if hiring outside of company, include housing, meals, and travel)
- Length of class (in days, including travel)
- Number of classes per year
- Per diem (housing, meals, travel)
Obtaining figures for some of these areas likely will be easier than others. For the more difficult ones, make your best educated guess as to the value, and then make sure to document how you arrived at that number in case you are asked at a later point in time.
Development costs are slightly different depending on the type of training. For a conventional class training session, development costs include the trainer cost to develop the class (if hiring an outside vendor), and the cost to develop the materials. If an internal resource is going to develop the class, then multiply his or her hourly rate across the number of hours needed for course development. As a rule of thumb, it generally takes 72 hours of development for each hour of live training delivery. Adjust this value as you see fit based on the developer’s experience.
For e-learning development, you should compare the cost for hiring a vendor to develop the training against the cost for an internal resource (using the same hourly rate multiplied by the number of hours formula). While development time can vary depending on the individual, I have found that a good conservative estimate is 99 hours of development for each hour of e-learning delivery. This figure includes the time it takes to come up to speed with the content and to administer the various review cycles.
The opportunity cost depends on the audience that is participating in the training. For example, let’s say the training is for sales representatives at an insurance company. In this case, you need to determine the average sales per sales rep multiplied by the number of reps in class and the number of class days (do not include travel time in this calculation). Another example is a training seminar for customer service representatives. The more customer service reps participating in training, the fewer reps there will be working customer cases. This results in increased waiting time for callers, which, in turn, leads to higher customer dissatisfaction and, thus, potentially an increase in lost customers. In this scenario, it is important to know the dollar value of a customer in order to appropriately determine the opportunity cost.
Your organization’s opportunity cost depends on how it earns a profit. Leadership is likely to scrutinize this section of your proposal the most, so make sure to do your due diligence before communicating the opportunity costs of conventional training versus e-learning.
Revision costs can be tricky to determine, and probably are the least supported of all the figures. This factor really comes down to training material maintenance. If the training is technology focused, then the revision costs could be high as technology continually evolves. On the other hand, compliance training would have a lower associated revision cost. For these costs, estimate a percent of the development cost against a timeframe in which the course will be delivered, such as number of years.
Additional costs to consider will depend on your organization’s industry, size, and general capabilities. By way of example, these costs could include the cost of purchasing and hosting a learning management system (LMS), hiring LMS administrators, and deployment costs.
Download the graphic below, which demonstrates a possible way to present conventional versus e-learning costs to organizational decision-makers. In this example, the ultimate goal is to demonstrate the potential savings (and, therefore, increased bottom line) for the company by choosing an e-learning solution.
Demonstrating tangible results is becoming increasingly more important for advocates of e-learning, and ROI is one way to help build the case. That said, it is important to not rely just on ROI. It can go a long way to do some research and identify other metrics relevant to your organization that effectively validate the use of e-learning—and keep in mind that training initiatives of any kind are quickly adopted when you can tie the learning objectives not just to bottom line but to overall corporate strategic objectives.
Justin Ferriman is a learning and collaboration consultant at Accenture. He works with Fortune 500 companies and state governments to establish training programs. He is also the project manager for the WordPress-based learning management system LearnDash. He can be reached at http://www.learndash.com/contact/