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Thanks for joining us again, Troubleshooters! Welcome back to our series on calculating the return on investment (ROI) for troubleshooting training.
Last week, in Part 1, we defined ROI as a performance measure; used to evaluate the efficiency of an investment (in this case, the investment is cost of the training). In other words, what will the payoff, or return, be on investing money to train employees? Knowing the approximate ROI of implementing troubleshooting training in your manufacturing business can help you make an informed, data-driven decision about whether it’s worthwhile.
Just to refresh your memory, the standard formula for determining ROI is:
ROI = (Gain from Investment – Cost of Investment) / Cost of Investment x 100
In Part 1, we dealt with determining the first part of this formula, Gain from investment. Today in Part 2 we’re going to show you how to accurately estimate the Cost of investment so that you can complete the ROI calculation. Next week, in Part 3, we’ll provide a calculator and sample calculation you can use to help you with all of this.
Estimating your cost of investment
Okay, let’s get going. To estimate the Cost of investment (cost of training), you simply need to add up all of the various components of training that will cost your company money. You can do this for any kind of training, not just the Simutech Training System (STS), but for our purposes today we’ll assume you’re trying to decide whether it makes sense to implement the Simutech Training System.
Here’s a list of the most common costs of running the Simutech Training System in your company. Depending on your company’s unique needs and resources, not all of these may be applicable.
1. Developmental costs.These are the one-time costs of designing the training program.
- In-house program design costs include the salary being paid to the person setting up the program. (Simutech Training System works well on its own, in which case there is not much to design. However, some instructors and administrators like to include classroom sessions for introducing trainees to the program and debriefing them after they complete modules or parts of modules, so you would need to include the instructor’s time for designing these aspects of the program.)
- Example: $50,000 annual salary / 258 business days in a year = $194 per day. If you think the Administrator will spend two full days on the set up of the program, count this as $388.
2. Promotional costs. These are the costs of advertising the training program to your staff, if you choose to do it. They are usually one-time costs.
- Depending on your company’s needs, you may decide to advertise the training program in your workplace. For example, if your company is large and training would be voluntary, you might make posters, brochures, or promotional videos encouraging staff to sign up. Estimate the costs of the time for someone in the design or marketing division to design the materials, and the physical costs of printed posters or brochures. (Talk to the supervisor there to get an accurate estimate of the costs.) If this would be done by an outside service, call around to a few vendors for estimates.
3. Administration costs. Determine who in the company would be responsible for overseeing the training program. Is it a Director of Technical Training? A plant manager? Someone else? Their time has to be accounted for. Of course, the time spent administering the program will depend on how many people are being trained at once.
- If you plan to hire an outside company to oversee training, their fees must be added to the overall costs.
4. Travel and accommodation costs. Will your instructor or administrator need to travel and require a hotel and meals? Factor this in. Will you be bringing staff in from other locations to a central training site? Factor that travel and accommodation in as well.
5. Costs of space reserved for training. If you decide to run training with multiple employees in a classroom setting, you’ll have to include the cost of that space. Simutech’s Simutech Training System can be run on an individual computer in a small room with no other apparatus necessary. Or, it can be run in a large room to accommodate many students. Consider your needs, and then determine the cost of the space. If you have available empty space on your premises, this cost may be zero. If you have to run the course off-site, factor in any lease or rent that would entail.
6. Classroom equipment. Depending on how you structure your program, you may need desks or tables, chairs, computers, and other classroom apparatus such as a white board, video monitor, etc. The cost of purchase or rent for these items must be included in your training costs.
7. Manuals and stationery. Consider what you want to provide to students in the way of training manuals (Simutech Training System does not require a hardcopy manual, but the program administrator may want to create something like this). All other physical stationery that would be supplied such as notebooks or handouts must also be included.
8. Opportunity cost of training. This may be the most significant expense associated with training. Employees who are undergoing training are learning a useful skill which will add value to the company later, but during the training interval they are not contributing to the company’s overall production, and they are still being paid. You must factor in the cost of each trainee’s salary during the time spent training. You can do this using the formula in point 1, above.
9. Training software license. If you plan to use Simutech Training System or other training software, there is usually a licensing cost involved.Contact us today to learn more about our corporate and educational licensing plans.
And that’s it, Troubleshooters! Once you’ve added up all of these costs, you’ll have your Cost of investment. If you’ve been doing the calculations as we’ve been going along, you will now have both your estimated Gain from investment, and your estimated Cost of investment, and you can calculate your training ROI using the formula at the top of this blog post.
(Remember to use the same time period for all calculations, e.g., if your Gain from investment is calculated on a monthly basis, your costs should be as well. One-time costs such as design and promotional costs, and classroom equipment, etc., should be prorated over the life of the program.)
Or, you can join us again next week for Part 3, when we’ll provide you with a calculator that will make this exercise a lot easier! We’ll also run through a sample calculation.
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