Forecasting Costs to Maximize Efficiency
By J. Baylis

Many agree that the easiest way to improve training efficiency is to uncover the most economical way to develop, deliver, administer, manage, maintain, and support training programs. For example, if instructor-led training, web-based courseware, and Internet virtual classrooms can all be used for IT training, which option is most economical for your organization? To make that determination, you must consider the complexity of the training material, stability of the content, course length, learner-to-instructor ratios, individual travel costs, and so forth. And, if you can forecast the up-front and recurring costs of plausible delivery options easily and accurately, then savings should follow.

Training efficiencies are, of course, not limited to training media, but extend to other decisions, such as who develops, delivers, administers, and supports the training material. For example, are internal developers more efficient then external contractors in developing core competencies? If the organization has multiple training units, which unit develops training most efficiently and why? If training/project managers engage multiple contractors, which contractor produces the most effective and economical traditional instructor-led or web-based programs. Again, if the development time and costs of similar training programs can be easily shared and compared, then savings should follow.

Although overall historical values are adequate for forecasting training costs of similar courses to similar audiences using the same development team and delivery option, additional details and analysis are needed to accurately forecast and compare the costs of plausible delivery options, identify the most efficient development team, and uncover other venues for improving training efficiencies. For example, assuming that the costs for an eight-hour project management course for 60 individuals are as follows:

These computations, however, do not provide any insight into the costs and potential savings that may result from using alternate delivery options. To forecast the costs of an equivalent web-based or Internet virtual classroom course, the cost breakdown of each component is needed.

Development costs

To accurately forecast the development costs, you need the number of hours needed to develop one hour of training, as well as the average hourly rate of the developer. Assuming that 80 hours was logged by the development team for the eight-hour project management course, the estimates are as follows:
 

For synchronous delivery options, such as instructor-led and Internet virtual classroom, instructor, administrative, and facility costs are highly dependent on the frequency of the course. In other words, the more classes you run the higher the cost. The frequency of the course is in-turn dependent on the number participants in each class. The table below provides estimates for a course with approximately 10 participants.

Because web-based and Internet virtual classrooms do not require travel, costs in both cases are $0. Assuming that 20 percent of learners in the instructor-led course have to travel, then the number of individuals that travel in 1st and 2nd year is 12 (60 x 20 percent) and 18 (90 x 20 percent), respectively. Therefore, the average travel cost per individual is $500 ($6,000 / 12). The table below provides estimates the travel costs over the two year period.

Total Costs

By adding and comparing the costs of the three plausible delivery options over the two year period, moving to a web-based delivery option (in this case) arguably can increase training efficiency by $47,500 ($86,000 - $38,500).

Added Benefits

In addition to identifying the most economical delivery option, capturing the unit costs for development, delivery, management, and support teams, and using a standard technique for computing training costs, can help training departments share, compile, and compare data among project managers, as well as identify programs that are running efficiently (i.e., centers of excellence) and the correct problem areas.

Moreover, the proposed technique facilitates carrying out what-if scenarios and the discovery of new venues for improving efficiency. For example, if the number of learners is limited to 60 (30 in the 1st year and 30 in the 2nd year), would the web-based training approach be viable? No. By using the hourly development costs and ratios, delivery costs per class, and travel costs per individual used in the tables above, the Internet virtual classroom will provide a slightly more economical alternative then web-based training, with savings up to $3,000 ($41,000 - $38,000) over the two-year period with the added benefit of lower up-front development costs.

Bottom line

Of course, your development and compression ratios may be different then industry averages, and other factors can influence results in your organization. The key point is that by using common measures—such as hourly rates of developers, instructors, administrators, managers and support staff; average time needed to develop, administer, manage and support courses with different levels of complexity; average per diem and travel costs; daily equipment and facility costs—you can significantly improve training efficiency by accurately forecasting the costs of plausible delivery options for nearly every program. In addition, you can identify and duplicate programs that are running efficiently, correct problem areas, and carry out multiple what-if scenarios to help you uncover other venues for improving efficiencies.
 

Reprinted from   Learning Circuits Newsletter - ASTD

Steven Shaw is chief learning officer for Eedo Knowledgeware (www.eedo.com), a provider of learning and knowledge management systems to drive productivity and efficiency.