Introduction

With companies scrutinizing costs and tightening purse strings, how do they prove that
training/education is worth the investment? A first rate evaluation study may be necessary to
justify the investment of time and capital in a training/education offering.
The classic model to evaluate training/education offerings developed by Kirkpatrick
(1998) looks at four levels of assessment:

Student reaction,

Learning,

Behavior, and

Business results.
When looking at the business results of training, many critics say the Kirkpatrick model

does not go far enough in analyzing the impact of training/education on a companys bottom
line. Training/education offerings should be evaluated at a fifth level--financial return. There are
several methods for evaluating training/education offerings based on financial return and these
methods include both quantitative and qualitative assessments.

Quantitive Assessments for Deteriming Financial Return on

Training/Education
Experts in the field identify three methods for evaluating training/education offerings that
provide a measure of the value of the offering utilizing a cost/benefit approach:
1. Benefit-Cost Ratio,
2. Return on Investment, and
3. Forecasting.
The information provided by using these models can be used to compare one offering to another
based on its contributions to overall return to the organization.
The methodology for Benefit-Cost Ratio and Return on Investment is similar in that both
require determination of costs and benefits and using that data to calculate the ratio or return.
However, the results in the calculations are expressed differently and lend themselves to
alternative presentations. For example, the results from Benefit-Cost Ratio analysis can be
presented in a ratio but also are easily communicated in narrative. The results from Return on
Investment analysis are always presented in percentages.

Benefit-Cost Ratio
Benefit-cost ratio (BCR) analysis allows decision makers to determine the financial
return on a training/education program by comparing benefits and costs. BCR is calculated by
taking the program benefits and dividing those benefits by the program cost (See Figure 1.).
Figure 1: Benefit-Cost Ratio Formula
Program Benefits
Benefit-Cost Ratio = --------------------------Program Costs

Program Benefits can be one or more of the following financial gains for training/education:
Time savings,
Increased productivity,
Improved quality of output, and/or
Enhanced personnel performance.
Program Costs can include the following expenses related to training/education offerings:
Course development or purchase,
Instructional materials,
Equipment and/or facilities,
Salaries of instructors and staff, and/or
Lost productivity due to training attendance.
The result of the calculation is expressed as a ratio. For example, if the BCR calculation
yields a ratio such as 4.5:1, this means for every one dollar of cost invested in training, there will
be 4.5 dollars in benefits from the training program.
For any BCR that is less than 1:1 such as 0.80:1, the total monetary benefits are less than
the total monetary costs and would indicate a less desirable offering. For any BCR that is greater
than 1:1, the monetary benefits will be greater than the costs indicating a more desirable training
/education offering. The higher the BCR, the greater the return of benefits in relation to the costs.
Benefit-Cost Ratio can be used to determine the financial return from a single
training/education offering or from two or more offerings (See Figure 2.).

Figure 2: Benefit-Cost Ration Comparisons for Three Training/Education Offerings

Training/Education Offering

Benefit-Cost Ratio

Offering A

2:1

Offering B

3.5:1

Offering C

8.4:1

The most favorable choice based on benefit-cost ratio analysis would be Offering C which would
produce 8.4 dollars in benefits for each dollar of cost.
Examples of Benefit-Cost Ratio
1. A financial services company purchased software that would aid their sales force in turning
customer contacts into sales. The total cost for the purchase, installation, and training
associated with the new software was $83,960. The value of the benefits from increased sales
was calculated to be $1,114,940.
Program Benefits
Program Costs

$1,114,940
$83,960

The benefit-cost ratio in this example is $1,114,940/$83,960 or 13.3:1. In this case, the
software seems to be a good investment because each dollar spent in training would produce
$13.30 in creased sales or financial benefits.
2. A technology storage company was planning to develop multimedia training to improve the
performance of their technicians. The total cost to develop, install, and train the technicians
was $1,748,327. The value of the benefits from increased performance due to training was
$1,622,321.
Program Benefits
Program Costs

$1,748,327
$1,622,321

The BCR is $1,622,321/$1,748,327 or 0.93 to 1 which is not nearly as high at the BCR in the
first example. The training returned only 93 cents in benefits for each $1 in costs; therefore,
the company decided that training was not the best way to increase the performance of the
technicians.

Return on Investment (ROI)

Return on Investment (ROI) analysis allows decision makers to determine the financial
return from training by comparing net program benefits--benefits minus costs--to costs. ROI is
calculated by taking the net benefits of training, dividing by training/education costs, and then
multiplying the product by 100. ROI is always expressed as a percentage (See Figure 4.).
Figure 4: Return on Investment Formula
Net Program Benefits (Benefits - Costs)
Return on Investment % = ------------------------------------------------- x 100
Program Costs

Program Benefits can be one or more of the following financial gains for training/education:

Time savings,

Increased productivity,

Improved quality of output, and/or

Enhanced personnel performance.

Program Costs can include the following expenses for training/education offerings:

Course development or purchase,

Instructional materials,

Equipment and/or facilities,

Salaries of instructors and staff, and/or

Lost productivity due to training attendance.

For example, a business used a training/education offering that resulted in $4,000 in

benefits and $1,000 in total costs. Total benefits minus total cost equals a net program benefit of
$3,000. Net program benefits ($3,000) are divided by program costs ($1,000) then the product is
multiplied by 100 to yield a return on investment of 300%
Net Program Benefits (Benefits minus Costs $4,000 - $1,000) $3,000 x 100
Program Costs

$1,000

The Return on Investment calculation can be used when both program benefits and costs
can be converted into monetary values. An example of a specific training benefit that can be
monetized would be increased productivity. If a trainee can produce 10 additional units per hour

10

as a result of the training and each unit is valued at $20 per unit, the total monetary value of the
benefit would be $200 per hour (10 units times $20 per unit).
Another example of monetizing benefits could be for improved quality. If, as a result of
training, a worker produces 10 fewer defective items per day and if the value of each item was
$50, then the monetized value would be $500 (10 units times $50 per unit).
For any ROI calcula tions, the higher the percentage, the more desirable the program. For
example, if the ROI% is 25, then for every $1 in cost there will be a return of $1 to cover the
costs and an additional 25 cents over and above the costs of the program. This is said to have a
25% return on investment.
Return on investment should not be used when it is difficult to express the benefits of
training in dollar values and percentages.
Examples of Return on Investment
1. An electronics systems manufacturing company conducted an 18-week literacy-training
program for entry- level electrical and mechanical assemblers. The results of the program
were impressive. The benefits of increased productivity and quality yielded an annual value
of $321,600. The total costs for the program were $38,233. The calculation indicated a 741%
return on the investment in training/education.
$321,600 - $38,233 x 100 = 741%
$38,233
For each dollar invested, the company realized a 741% return or $7.41 in return after the cost
of the program had been recovered.
2. In the second example, the training/education at a large national retail chain yielded a low
return on investment. The retail chain attempted to boost sales by conducting an interactive
selling skills program for sales associates. The program was developed and delivered by an
outside vendor.
The total benefits from increased sales were $68,281. The total costs for the program
were $32,984. In this example the ROI% calculation is:
$68,281 - $32,984 x 100 = 107%
$32,984
For every dollar that the company invested in the training, they had an ROI of 107% or $1.07
in return after the costs of the program had been recovered.

11