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Cost-Benefit Analysis in Training

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Emorej Guarte

on 13 July 2015

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Transcript of Cost-Benefit Analysis in Training

What is Cost-Benefit Analysis in Training?
Wait, what?
How can we measure this?
Utility Analysis
Return of Investment Model
Cost-Benefit Analysis in Training is a term that is usually used in Economics or Accounting being applied to Industrial Psychology

Measures training and development costs against the monetary benefits of training and development.

Cost Benefit Analysis for Training. (n.d.). Retrieved July 13, 2015.

Fresh Perspectives: Industrial Psychology. (2008). Pearson.

Basically, the money spent on developing and conducting the training programme is added up and compared to how much money the organization can make as a result of its employees having attended the said programme.
Organisations 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 three headings:

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.

Utility analysis basically derives the effectiveness from analyzing the change in the behavior of the trainee and the positive financial implications of the same.
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.
Industrial Psychology
Cost-Benefit Analysis in Training
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.

Then there is another category is costs incidental to the training session itself such as trainers fee / salary, facility costs / rental etc.

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 basic formula for calculating the ROI for training is as:

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