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Calculating the True Cost of Corporate Learning

Chris F. Willis, CEO, Media 1

Performing a simple, rapid cost/benefit analysis may help you justify funding your next learning project.

In the late ‘90s, when eLearning really began to gain a foothold as a corporate training medium, it was relatively simple to justify the cost of developing an online learning program. Savings were typically calculated using a cost avoidance strategy, assuming that the course would otherwise be presented as instructor-led training, with all associated costs of learner travel, time away from the office, facilitator and training facility fees, and other tangible costs based on the logistics of staging face-to-face, classroom delivery. Using such a formula, training departments could easily show enormous cost reductions in developing self-paced training for CD or web delivery, especially for a sizable, dispersed audience.

Fast forward to 2007, and cost-justifying development and delivery of a new eLearning program isn’t so simple an exercise as calculating how to avoid physically filling seats. Learning technology has matured to the point that classroom training is no longer an assumed fact of life. Today’s training organizations have a widely assorted box of tricks available for developing custom learning interventions beyond classroom or even online learning. Solutions include an extensive array of collaborative information sharing, online reference, and “self-serve” performance support tools that allow learners to meet their own just-in-time training needs.

So, how does today’s savvy training organization cost-justify developing a new learning intervention? There are some fine books on calculating Return on Investment (ROI) for eLearning that cover the subject at great length, including formulas for multiple ways to perform and present a detailed cost/benefit analysis (check out the books by Patricia Pulliam Phillips and Jack J. Phillips). There is no substitute for an extensive analysis of this type when faced with a mission-critical, high ticket, enterprise project. A general rule of thumb is that the larger the project and higher its development cost, the farther up the management chain it will have to travel for approval - and the closer you get to the top, the more the focus will be on hard numbers.

But there are also a few “off the cuff” considerations you can think through and document rapidly to support your decision to move forward with a smaller, tight-deadline project to fill an immediate learning need. The remainder of this article will guide you through some of these considerations; focus on those for which you have ready information and that make the most sense for your particular project. You may wish to refer to the attached Rapid Cost Justification Worksheet to guide you as you consider the following points.

Just Because You Can

It may seem obvious, but the first question to ask yourself is whether you are matching the most appropriate and cost-effective solution with your unique business problem. In the world of corporate training, it can be easy to fall into a routine of developing one course after another to meet prescribed goals. Have you been tasked with creating a new program – or revamping an old one – simply because the organization “has always done it that way?” Or, is the company trying to solve a complex business issue by simply “throwing” a training course at it? Try to approach each new project with eyes open to all possibilities, including that perhaps rather than cost-justifying a new course, you should explore whether you should even be attempting to do the project at all.

First identify the true business problem(s) you are trying to solve. Look for the factors that are directing you to create a training intervention in the first place. Is it really a lack of knowledge or skills that is causing the problem? Is instruction necessary? If not, maybe an online or portable reference tool would offer a better use of your time and resources (and return on your company’s investment) than any type of online or classroom learning solution. Or perhaps there is an issue within the company culture that is calling for a literal “attitudinal adjustment.” In that case, if you can convince corporate stakeholders that the problem is worth addressing, you may be able to cost-justify the overhead of face-to-face learning. Most likely, no one approach will provide a quick and easy solution to a complex organizational problem, so the real issue is where you can do the most immediate good for the most reasonable investment.
Dig down deep into your instructional design roots, and ask yourself:

• How will this program help our business organization succeed? Make sure your learning objectives are clearly tied to real business goals that matter; that is, they have a high level of visibility and support within your organization.
• What will be different when we do it right? What are the gaps we are filling; behaviors we are shaping; organizational changes we are enabling?
• How will we measure our success? How will we prove that our program made a positive impact on the business, to ensure our mutual success, and earn support to build on that success in future programs? Consider both the approach and the standards you are establishing.

Having ready answers to these questions will help you convince stakeholders to get on board with your project.

The Many Faces of Cost

Now that you know where you want to go and have some idea of the best way to get there, put together a rough estimate for the cost of completing the project deliverables. Try to find some historical data within your organization for costing projects of a similar size and scope. If you plan to outsource the project, ask a trusted vendor for a rough estimate based on similar projects they have done; a budget range is fine at this point. Be sure to also ask them for creative input on different ways they have approached similar problems. Depending on your relationship, your vendor may be willing to work closely with you to help you cost-justify a new project if there is a good chance that you both will earn the opportunity to work on it together.

Armed with a target budget, you can begin putting together a quick cost justification for moving forward with project development. You will want to consider both cost savings, as well as cost avoidance.

From a savings standpoint, although you can’t just assume that replacing classroom with online learning is a given, showing a cost savings by taking a fresh approach can still be a valid consideration. Look for a new, creative solution that you can show would save money over development of previous, similar projects. For example, in certain cases an online reference may be a more appropriate and effective solution - and less costly to develop - than a self-paced web-based training course or full virtual classroom experience with slides and student workbooks. Can you save materials and distribution costs by creating podcasts or materials that the learner can review online and print as necessary?

• Perhaps you can find a way to re-purpose existing resources or materials from other areas within your organization to reduce your training content development costs. Or, turn it around and see if you can show how your training resources can be repurposed for other areas of your organization, such as for channel partners or consumers, saving future development or support costs in those areas.

And What if We Don’t?
The flip side of cost savings is cost avoidance. A good way to uncover avoidance justification is to consider the cost of doing nothing. So what if you do not move forward with your project at all? What gaps will not be filled; what goals may not be met – and what might that cost the organization?

Real problems can be measured in real dollars. If a problem isn’t costing your company money, how big a problem is it, really? Lost sales, rework, retail shrink, and technical support are areas that often have obvious dollar figures attached.

One more thought; when calculating development costs, be sure to consider indirect or “hidden” costs that might otherwise blindside you when presenting your program to stakeholders. For example, if you are using an outsourced vendor to help with program development, how much internal management time will be required by you or your team? Also, consider the cost of the program over time. How often will materials need to be updated, and who will perform the maintenance? And will the project deliverables need to be translated or localized for a global audience? Those costs can equal or exceed the initial cost of project development.

The Bottom Line

At the end of the day, it comes full circle to the original instructional design questions you asked yourself earlier. Think about your learning objectives and the changes you are working to enable. What benefits will these changes bring to your company? In today’s cost-conscious corporate environment, with so much focus on rapid deployment of learning at the lowest cost per hour possible, it is wise to be prepared to “up-sell” your program based on the overall value it promises to bring to the organization.
Some common benefits of workforce training include:

• Improved employee performance/productivity – especially compelling if the project can be directly tied to a measurable positive result over time, such as an increase in sales.
• Customer satisfaction/retention – through measured improvement in customer service and support.
• Improved quality – to be gauged as a reduction in rework, product failure, or warranty/support incidents/costs.
• Employee satisfaction/retention – often listed as a training benefit, but difficult to attribute directly to a training intervention unless you have the means to do pre- and post- attitude assessments.

Be sure that you are listing benefits that are tied realistically to the scope of your project and really matter to your organization. More importantly, make sure they are points that you are ready and willing to defend when asked, “And how do you plan to measure that?” It is okay to list some of the fuzzier objectives, as long as you include at least one compelling, tangible, and measurable business benefit that you are willing to stand behind.

Justified!

Now take a moment to review your worksheet, and pick out the top few most compelling points. Armed with a number of valid business justifications, you are now ready to present your project to stakeholders. Go forth and enable great change!

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