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Explanation of the return-on-investment from eLearning, CBT, and WBT. Also refer to Computer-Based Training, Web-Based Training, business, profits, expenses, classroom training, burdened cost, education, Ron Kurtus, School for Champions. Copyright © Restrictions
Return-on-Investment (ROI) from e-Learning, CBT and WBT
by Ron Kurtus (revised 12 October 2002)
Company management wants to see a measurable return from the money spent on producing and delivering eLearning, CBT or WBT. They also may want to see a comparison of the ROI for the eLearning compared with that for standard classroom training.
The ROI is calculated by comparing the development cost of the eLearning with a measurement of increased productivity or contribution to the company bottom-line.
Questions you may have include:
- What is cost of creating eLearning?
- What is the ROI advantage of eLearning over training?
- How do you calculate the ROI for eLearning?
This lesson will answer those questions. There is a mini-quiz near the end of the lesson.
Cost of creating eLearning
Most analyses show that it costs significantly more to create custom eLearning courseware than to create standard training. Since it is often necessary to sell management on eLearning by comparing its benefits with traditional training, the cost of both will be studied, for comparison.
Classroom (custom training)
Traditional training may be developed in-house or outsourced to training development consultants.
Determination by hour
Reference resources state that the typical development costs for a 40 hour training session would be:
40 hours training x $4,000 development cost/hour = $160,000
Using training manual as criteria
A problem with determining the development of training by length of class is that often trainers will either cram in too much or else pad the time allotted for the training. 40 hours in class may be too little for the amount of material to be covered. It may also be too much time, if there is an insufficient amount of content.
If the training development is done in-house, it is better to consider the cost of developing a good training manual that will cover the subject matter and provide necessary exercises for the students. This would include a trainer's manual that would guide the trainer through demonstrations and such.
A generous estimate of 5 man-hours per manual page would result in 1000 man-hours for a 200 page manual, which could be covered in 40 hours. At a burdened rate of $60/hour, the in-house development cost would be:
$60/hour development cost x 1000 hours = $60,000
If an outside consulting firm did the job, it would cost:
$120/hour x 1000 hours = $120,000
eLearning (custom training)
The cost of developing eLearning can be more expensive. This is especially true in developing CBT with video and audio. Using multimedia in Web-based training can also drive up the cost.
Determined by hour
Since eLearning takes less time than classroom training, a 40 hour class is usually completed in 25 hours with eLearning. Reference resources state that the typical cost for a high-end eLearning module would be:
25 hours training x $16,000 development cost/hour = $400,000
Determined by page
I personally dislike the measurement of eLearning by an assumed time it will take for the user complete it. CBT and WBT are supposed to be self-paced, so the amount of time required widely varies. My preference is to figure out how many pages or screens are required to complete the training module.
In reality, the best way to develop the eLearning is to start from the trainer's manual. This is worthwhile, since most often eLearning is not started from scratch. If the eLearning is started from scratch is, then a form of the trainer's manual is created, using the instructional design process and creating a script for the training.
Factors in determining the cost per eLearning page or screen include, writing the content, designing the page and adding illustrations, and producing multimedia effects, if used.
- Content and graphics
A generous rule of thumb for writing the content and adding graphics is 3 to 5 days per page. Simple pages can take less than an hour, if the writer knows the subject matter. - Audio and video
Audio and video is still measured in time, with video costing about $35,000 per hour.
Savings
In determining the ROI for eLearning, you need to factor in the savings due to reduction in time spent on training.
Reduction in time spent on training
Typically, the time a worker must spend being trained is reduced by about 40% using eLearning. This was verified by studies comparing traditional classroom instruction to equivalent CBT instruction at Xerox, IBM and Federal Express.
Improved performance
As mentioned earlier, our collective experience with deployment of good CBT or WBT is that it is not only faster than classroom training (and nearly always cheaper over 2-3 years), it is also better. People learn better with eLearning. They remember what they learn more accurately and longer (retention) and they are better able to use what they learn to improve their performance (transfer). Here are some of the statistics.
Across many different studies and reports from the military, education and industry show 15-25% increases in learning achievement.
Example of ROI Calculations
Assuming a traditional classroom training plan that includes 500 trainees who each experience a week of training, travel for half of them (250 employees), the time constraint of a 3 month roll-out (5 trainers, 10 locations)-all compared to an equivalent eLearning scenario using very conservative assumptions, including an opportunity cost rate of $400 per day.
Classroom Training |
eLearning |
|
Wages of Trainees ($20/hr, burdened) |
$ 400,000 |
$ 240,000 |
Travel Costs (50% of people traveling) |
$ 250,000 |
$ ---------- |
Trainer Wages |
$ 47,500 |
$ 11,400 |
Trainer Travel |
$ 20,000 |
$ ---------- |
Development Costs (custom training) |
$ 160,000 |
$ 400,000 |
Delivery Systems (1st year amortized) |
$ --------- |
$ 35,000 |
Totals |
$877,500 |
$686,400 |
These figures indicate that the eLearning approach, given conservative assumptions, saves approximately 20% in the first year of implementation. In the second and later years when development costs are not a factor for this course, the savings for eLearning grows to nearly 50%. In addition, the CBT or WBT can be rolled out in half the time, once developed.
Summary
The return-on-investment for eLearning can be 50%-60% greater than for traditional training, which itself can have a 4x ROI, if done properly.
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Resources
The following are resources on this subject.
Websites
Determining Training Return-on-Investment
Return-on-Investment in Training Workers
Menergy - White paper on CBT ROI
It's a Circus Out There - CBT ROI by Rex J. Allen, CBT Solutions Magazine 1997
Show Me the Return by Wendy Webb, Inside Technology Training, November 1999
Books
Mini-quiz to check your understanding
If you got all three correct, you are on your way to becoming a champion in eLearning. If you had problems, you had better look over the material again.
What do you think?
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Also see Answers to Readers' Questions.
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Return-on-Investment for eLearning