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The ROI Academy™

Training Delivery

Management Voice

HOW TO DO A COST BENEFIT ANALYSIS

STEP ONE - Decide on WHICH COSTS you will take into account

1. DIRECT - money paid out of the business to third parties.

May include:

• Programme development fees
• Instructors fees & travel & subsistence
• Travel & subsistence for delegates
• Hire of venues & equipment
• Hosting of e-learning
• Printing of Manuals & collateral

2. INDIRECT – non-cash costs incurred in developing and running the programme

May include:

• Time costs of employees developing and attending the programme – at salary cost or ‘full benefit' cost
• Management overhead in developing and attending the programme
• Use of internal facilities
• Cost of cover for those attending programme

3. OPPORTUNITY COSTS - particularly relevant to sales peop

May include:

• Loss of revenue generated due to employees attending training rather than selling
• Loss of production due to employees attending training

STEP TWO - Action

• Gather the costs in ‘bands' as appropriate. i.e. Employee costs can be given as averages rather than as actual individual amounts for each person.

• Enter the costs into your own spread sheet or use the 3C basic model

STEP THREE - Decide on WHICH BENEFITS you will take into account and HOW you will measure them

Possible measurements:

• Actual £ value – usually applicable for sales. Maybe revenue, Gross margin, net profit etc.
• Improvement in THE PERFORMANCE POUND™
• Estimated value based on LINE of SIGHT from programme outcomes to business drivers or strategic goals

Make Assumptions:

• What proportion of benefit is due to programme
• What timescale is appropriate
• Etc.

Cost benefit is the cost in £ per unit of

change measured

The calculation will be:

Total Benefit in £

Total Cost in £

So if your total benefits are £ 10,000 and your costs are £ 2,500 then your cost benefit sum is

£10,000 = 4     This means you have gained £4.00 of value

£ 2,500         for every £ 1.00 you have spent

Note that

• The cost-benefit analysis does not tell you WHEN the benefit will arrive in the business, nor HOW.
• There is no element of risk in the cost-benefit analysis
• It is usually appropriate to estimate a range of benefit value and a range of cost values and then do the calculation with the higher and lower figures – this will give you a range within which your cost-benefit will probably fall. Such an approach is more credible.