As The Head of HR Department You Have Been Asked To Assess The Cost Benefit Analysis of Training Conducted For Basic Skills in Excel

As the Head of HR department you have been asked to assess the
cost benefit analysis of training conducted for basic skills in Excel.

A cost benefit analysis (also known as a benefit cost analysis) is a process by
which organizations can analyze decisions, systems or projects, or determine a
value for intangibles. The model is built by identifying the benefits of an action as
well as the associated costs, and subtracting the costs from benefits. When
completed, a cost benefit analysis will yield concrete results that can be used to
develop reasonable conclusions around the feasibility and/or advisability of a
decision or situation.
Why use cost benefit analysis?
Organizations rely on cost benefit analysis to support decision making because it
provides an agnostic, evidence-based view of the issue being evaluated—without
the influences of opinion, politics, or bias. By providing an unclouded view of the
consequences of a decision, cost benefit analysis is an invaluable tool in
developing business strategy, evaluating a new hire, or making resource allocation
or purchase decisions.
Cost Benefit Analysis of Training
Cost-Benefit Analysis to decide whether to go ahead with a decision. Cost-Benefit
Analysis is a quick and simple technique that you can use for non-critical financial
decisions. A Cost Benefit Analysis (CBA) is a uniform methodology to assist
agencies in analyzing and documenting potential costs for contracting out services
compared to providing the same service if state employees were used. It is very
important to evaluate the benefits of the training and be able to put that in terms of
numbers. Training comes at a cost and therefore any organisation would be
interested in knowing the return on investment (ROI).
Organizations use different methods to assess the benefits of training in terms of
numbers i.e. the profits. Some of the frequently used methods are ROI.
It is very important to evaluate the benefits of the training and be able to put that in
terms of numbers. Training comes at a cost and therefore any organisation would
be interested in knowing the return on investment (ROI).
Organizations use different methods to assess the benefits of training in terms of
numbers i.e. the profits. Some of the frequently used methods are ROI and Utility
analysis. There are many costs that are associated with the training apart from the
direct and apparent costs. These costs can be described under two headings:
1. There are costs incurred towards the training needs analysis, compensation of
the training program designers, procurement of training material and various
media like the computers, handouts, props, gifts and prizes, audio visuals etc.
2. Then there is another category is costs incidental to the training session itself
such as trainer’s fee / salary, facility costs / rental etc.
3. Finally there are costs involved is losing a man day of work (for those who are
sent for training), travelling, boarding and lodging and training material that
cannot be reused in some other training program.
The model that is used to estimate the benefits of the training program are as
under.
The Return on Investment Model (ROI)
Organizations spend huge amount of money on employee development, it is

therefore very important to ascertain the benefits of training. Different studies
were conducted to evaluate the effectiveness of training programs. In one of the
studies it was found out that sales and technical trainings gave better ROI
compared to managerial training programs. Ford, for example, evaluates all the
training programs against the profitability in a given product line. The basic
formula for calculating the ROI for training is as:
ROI (in percent) = Program benefits / Costs × 100
The analysis component defines the cost of the investment required to achieve a
potential cash flow benefit. Actual calculations are prepared using standard
accounting methods. But unlike some calculations, say those for money market,
interest bearing securities, training cost benefit calculations are not always
based on fixed rates of return. For this reason they are often imprecise. Training
cost benefit analysis, in short, is not an exact science. It can however, provide
an investment perspective based on current training needs and long-term
productivity expectations.
Benefit Types
The first benefit is cost-motivated, where the result of a training experience cuts
costs. Training staff to operate a computerized accounting system, for example,
could reduce the time required to prepare financial reports. This time savings,
expressed at an equivalent salary rate, is reallocated to maximize staff
productivity by paying wages that generate greater outputs. The staff could then
prepare demand financial reports and use the saved time to manage accounts
receivables. An ability to manage accounts receivables, in turn serves to reduce
credit carrying costs.
Revenue-motivated training, the second type, results in an increase of revenues.
The above example touches on a revenue motivation. By reducing accounts
receivables, client collection periods are shortened, which improves the cash
position and allows investment or debt servicing.
Other revenue motivations reflect entrepreneurial ventures where an add-on

service is designed to generate new revenues. A firm introducing desktop
publishing services, for example, may require training on their computer
systems before a quality product can be delivered. Various training
environments often overlap to meet cost savings and revenue generation
expectations. Both address performance discrepancies but realize the benefits in
different manners. These benefits, added together, reflect a net performance
improvement.
Solution Types
The first solution type, hard training, is applied. It involves mental or physical
activities and produces direct, easily measured results. An individual, for
example, who learns to drive a car in a forty-hour course, including classroom
and practical training, is usually able to turn the car on, put it in gear, accelerate
and stop immediately after the course is completed. The degree to which they
are able to do this is easily measured through observation.
The second solution type, soft training, is conceptual, cognitive and results in a
potential for action. This type is more difficult to measure since the results are
not always immediate. If, for example, a sales person takes motivational sales
training, they may be motivated at the end of the course to set a personal goal of
doubling their sales in the next year. The achievement of that goal will not be
evident immediately after the course is completed. Also, with time, the trainee
may become disillusioned, perhaps because of declining sales due to market
conditions or poor office relations. The return on the original training
investment, in this case, depreciates with time, perhaps to the point where
training requires repeating.
Utility Analysis
This is another way of reflecting upon the usefulness of a training program.

Utility itself is a function of the duration up to which the training leaves an
impact upon the trainee, the relative importance of the training program, the
importance of the position or profile that received training and the cost of
conducting the training. For example leadership programs conducted for top
and middle management tend to be high on value where as sales training
programs for the front line sales staff tends to be low on value scale. Utility
analysis basically derives the effectiveness from analyzing the change in the
behaviour of the trainee and the positive financial implications of the same.
This model is not very famous because the deductions made are essentially
subjective in nature.

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As the Head of HR department you have been asked to assess the

cost benefit analysis of training conducted for basic skills in Excel.

The Return on Investment Model (ROI)

Organizations spend huge amount of money on employee development, it is

ROI (in percent) = Program benefits / Costs × 100

Other revenue motivations reflect entrepreneurial ventures where an add-on

This is another way of reflecting upon the usefulness of a training program.

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