Cost Benefit Analysis

Topics: Net present value, Mathematics, Investment Pages: 4 (697 words) Published: April 10, 2007
How do we conduct a cost-benefit analysis to determine return on investment for training programs? One of the most important aspects of training from an organizational standpoint is determining the costs and benefits that are involved with a training program. Since training should be considered an investment in the organization's human resources, it is expected to have a return which can be measured by productivity and efficiency substantial enough to justify the costs associated with the program as well as producing a visible benefit to the organization. Training directors and managers can select from a number of different methods for determining a training function's return on investment (ROI). One calculation method that can be used is shown below.

1. Calculate training return. The training evaluation should have produced some payoff measure, such as increased sales, the value of higher productivity, the costs savings of less equipment damage, and so on.

2. Figure training investment. This figure reflects the total costs of conducting training. Add together the following expenses:

• Program expenses. Include expenses for trainees' and trainers' travel, lodging, and food, as well as trainers' salaries and facility rental.

• Materials and equipment expenses. Factor in costs for materials, supplies, and equipment operations.

To figure total training investment, deduct from total expenses any offsetting factors:

• Program revenues. Pay backs from training might come from trainees' accumulation of frequent flyer coupons, or from resale or rental of training materials.

• Equipment revenues. Resale, rental, or reuse of training equipment for other purposes can offset the cost of purchasing the devices.

3. Subtract the training investment from the training return. This calculation yields a net (after expenses) training return.

4. Calculate R.O.I by dividing the net training return by the training investment. This final calculation...
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