Creative Ways to Reduce the Cost of Your Learning Management System
By Richard Nantel
Brandon Hall Research

Small organizations aren’t the only ones looking for a low-cost LMS. Business units within a large organization may require their own system. Associations and nonprofit organizations of any size are often limited in the amount of funds they can allocate to e-learning infrastructure. Resellers of e-learning courses may be looking for a simple LMS to create a corporate university. Even large organizations with impressive training budgets may be searching for a low-cost solution if their LMS needs are simple and limited to core functionalities.

Organizations of all types and sizes have found novel ways to reduce their LMS costs. The following case studies present strategies and ideas to help you achieve similar savings.

Smaller organizations

Smaller organizations often feel overlooked by LMS vendors. We commonly hear this complaint at trade shows and conferences. They feel that LMS vendors have been targeting companies with large workforces and deep pockets. The truth is that there are solutions for smaller budgets. There are also ways for smaller organizations to dramatically reduce the cost of their LMS.

An organization with about 250 employees had allocated $150,000 for an LMS. Through self-discipline and creativity, they were able to get a system for less than $13,000. They accomplished this impressive task by focusing on solutions with just enough functionality to meet their needs. In addition, they considered banding together with similar companies to share an LMS license. They also considered the possibility of leasing instead of buying a system. They considered the short- and long-term costs of a hosted solution.

In the end, since the organization has a good information technology department, they selected an “out-of-the-box” solution they could install, configure, and maintain internally (e.g., “out-of-the-box” systems are offered by IntraLearn, Integrity eLearning, and DKSystems.) The purchase of such a system substantially reduced the overall cost of the LMS, since vendors charge substantial fees for installation, configuration, etc.

The organization found itself with a staggering $137,000 left in its training budget; these funds could be allocated to course libraries, authoring tools, and new content.

Business unit in a larger company

Although many LMS vendors target large multinational organizations thinking they’ll get licenses for large implementations, many large organizations are actually composed of independent business units. These units may be in different geographic areas or may be responsible for specific products or services. Although the organization may have 100,000 employees, the business unit may be much smaller and may have control over its own training budget.

A business unit of a large multinational technology company was looking for an LMS to help train its software engineers. The selection committee was comprised of individuals who were very comfortable with software and, accordingly, wanted every possible feature an LMS could deliver. Feature scope creep was quickly ruining any chance they had of finding a low-cost system.

This business unit certainly had the technical skills to purchase an out-of-the-box solution, but management decided they’d rather not allocate their valuable IT resources to installing and maintaining a system. They then considered a hosted solution to avoid staffing costs.

Before finalizing their decision, they decided to investigate what systems other business units within the company had purchased. In their survey, they discovered that some of the systems in place could support multiple domains. In other words, the LMS could provide a custom interface and catalog of content for employees of one business unit and a different interface and collection of content for another business unit. Although the systems in place elsewhere in the company didn’t provide all the functionalities they had hoped to purchase, the cost of extending an existing license to include their division cost a fraction of what it would have cost them to license their own LMS. The cost savings were so overwhelming that the selection committee had little trouble convincing management that this was the route to take.

Associations and nonprofit organizations

Associations and nonprofit organizations are unique industries with their own culture, language, and processes. These differences create distinctive challenges and opportunities. For one, budgets in these organizations are often limited. In addition, employees are often valuable volunteers with special training needs.

A nonprofit, environmental organization was in the market for an LMS. Their intent was to provide their custom-built courses on good environmental practices to businesses through a training portal. Traditionally, this organization has generated its revenues through dues collected from members and through public donations. They were now hoping members and businesses would pay to take these online courses, thus generating a new stream of revenue. They estimated that the revenue from this initiative would eventually pay for their LMS, but they had no funds for the initial licensing fees.

They contacted many LMS vendors and eventually found some who were willing to accept a low up-front cost and then collect royalties for content delivered. For the environmental organization, this was a low-cost and low-risk solution. The more they would sell, the more revenues they would make. And if they sold less, they would pay less.

Since the LMS was to be hosted by the vendor, no servers or other infrastructure needed to be purchased and no human resources needed to be allocated to maintaining or configuring the system. For the LMS vendor, the prospect of making sufficient royalties seemed quite good since the vendor believed in the organization’s cause and felt the courses would be popular. This arrangement resulted in a low-cost solution that could benefit both the customer and the vendor.

E-learning resellers

Some e-learning providers are resellers of courses developed by other companies rather than developers of their own courseware. For example, resellers may provide IT training from NETg, soft skills courses from SkillSoft, and desktop software courses from DigitalThink.

A training company that specialized in classroom-based training on basic business skills decided it wanted to expand its services and provide e-learning to its clients. Rather than develop their own courses, the company decided they would resell third-party courses available from a number of commercial content suppliers.

By becoming a reseller of commercial courseware, the training company could generate revenues from the fees its clients would pay to access the training, as well as royalties from the courseware company. The only challenge was to find an LMS to run the courses.

For the most part, the training company’s needs were simple. Most of the reseller’s clients needed limited LMS functionality such as the launching and tracking of online courses and the generation of simple reports. A small number of other clients, however, required more sophisticated functionalities such as human capital management, 360-degree evaluation tools, advanced collaboration, or virtual classroom tools.

The reseller considered getting a license for an LMS containing these sophisticated features even though most of their clients would never tap into the system’s potential. Unfortunately, the cost for such a system was outside the budget. As a solution, the reseller decided to adopt a hybrid solution of two LMSs.

The reseller partnered with one vendor who provided a simple hosted LMS that provided the basic features most of its customers needed. The LMS partner was willing to accept low-cost set-up fees in exchange for royalties. For clients that needed sophisticated features, the reseller partnered with a second LMS supplier. The costs for this second LMS was higher, but the reseller could pass the higher fees on to customers requiring such features.

Large organizations

As we mentioned in Part I of this article, organizations with budgets of less than $100,000 aren’t the only ones considering low-cost alternatives. Even the largest and most affluent organizations may not wish to spend a large amount of money on an LMS when their business requirements are limited.

A well-known business consulting firm was looking for a simple LMS with basic functionalities. Since they had a very large workforce, they considered building their own LMS. They assumed that since many LMS vendors used a price-per-registered-user model, it would be much less expensive to build their own system. As an added bonus, if the product turned out well, they could license it to clients, recouping the cost of development and perhaps generating additional revenues.

Unfortunately, they had little time to build their own system. After consulting with the IT department, the training department estimated it would take more than a year to develop a system. They needed an LMS within the next three months in order to launch a large training initiative.

Some members of the LMS selection committee were adamant that the company should still focus on developing a system in-house. By allocating extra personnel, a simple LMS could be launched in approximately six months. Others on the committee wondered whether their IT department could meet this deadline and still produce a stable and functional system. Besides, why build something when so many good products already exist?

After much deliberation, they reached a compromise. The firm decided to a buy a simple, low-cost system as an interim solution. If they later decided to build their own LMS, the small cost of a basic system would not be a large loss. One key requirement, however, was that the system they would purchase would need to export learner transcripts and data records to their proposed in-house solution.

In researching potential systems, the firm discovered there are modular solutions that allow you to start with a low-cost core and extend the functionality as needed. These systems appealed to all members of the selection committee. Proponents of the plan to build a system in-house liked the low cost of buying just the core module. This would allow more funds to be allocated to developing an in-house system later on. Proponents of buying a system were thrilled as well. If the core module worked well, there would be little need to build a system. The firm would simply purchase additional modules as required.

After a few months with the new low-cost LMS, lobbying to build a system in-house lost its intensity. The system cost a fraction of the price of purchasing a large, enterprise-level system. The system was also being used within weeks of selection. The training initiative the firm had planned went ahead without a hitch.

Summary

The cases above provide tips that could help you lower the cost of your LMS. In summary, remember to:

• Focus on key functionalities and avoid feature scope creep
• Consider sharing the cost of the license with other companies
• Consider extending an existing license within your organization to include more than one business unit
• Propose new pricing arrangements, such as royalty sharing, with vendors
• Consider leasing an LMS
• Consider buying just the core functionality of a modular LMS

A common thread that runs through these case studies is the creativity these organizations showed in finding the right solution. In selecting an LMS, you should consider more than simply selecting a system with the right features. Spend time investigating pricing options, partnerships, and other ways to lower costs.

Richard Nantel is the CEO of Brandon Hall Research

This article is an excerpt from the Brandon Hall Research report, Low-Cost Learning Management Systems 2007: 31 Products for Limited Budget. For more information, please visit www.brandon-hall.com.

Since 1992, Brandon Hall Research has been providing independent expert advice in the form of published reports and phone consultations on the tools of e-learning: LMS, LCMS, authoring tools, content providers, and other tools that help organizations develop successful e-learning solutions. Dr. Hall participates regularly as a featured speaker in conferences such as ASTD and Online Learning. He earned his doctorate in educational psychology and has served on the faculty of San Francisco State University's Multimedia Studies Program.