Cost-Benefit Analysis for Training

Not only is it essential to evaluate the benefits of the training program but also to know the same in terms of numbers. Since training comes at a high cost, organisations are more than interested in calculating the return on investment (ROI).

Organisations assess the benefits of the training program in different ways. ROI and Utility analysis is used more often than others. Apart from the direct and apparent costs, many other costs are associated with training programs. These can be expressed as:

  1. Money spent towards training needs analysis, compensation of the training program, designers, procurement of training material and media like handouts, computers, audiovisuals, props, gifts and prizes etc.
  2. Trainer’s fee / salary, facility costs / rental etc.
  3. Finally, there are costs involved in losing an employee’s day at work (the participants), travelling, boarding and lodging and training matter that cannot be used again in some other training program.
The various models that are used to evaluate the benefits of the training program are specified below:

The Return on Investment Model (ROI)
It is necessary to calculate the benefits of training since organisations spend a substantial amount on employee development. To assess the effectiveness of training programs, different studies were conducted to find appropriate methods. The basic formula for calculating the ROI for training is ROI (in percent) = Program benefits / Costs × 100

Utility Analysis
This is another commonly used method of determining the usefulness of a training program. Utility takes into account the duration up to which the training impacts the trainees, the level of importance of the training program, the importance of the profile or position that received the training and the cost incurred in conducting the training. Utility analysis determines the effectiveness of observing and analysing the behavioural changes of the trainee and the positive financial implications of the same. This model, however, is not very popular as the deductions made are mainly subjective.