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E Learning

E Learning

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Published by: api-3728738 on Oct 18, 2008
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Is E-Learning Worth It?
NPV Analysis for E-Learning Projects
Part 1 Benefits
Draft 3.0
January 16, 2004
Prepared by:

Rick Humphress
ICS Multimedia Inc.
770 Ritchie Hwy., Suite W15
Severna Park, MD 211146

Phone 410.975.9440, Fax 410.975.9445
Is E-Learning Worth It?
ICS Multimedia
Page 2 of 27
Table of Contents
Executive Summary 3
Introduction 3
The E-Learning Project 4
Demonstrating the Return on Investment 4
Direct Revenue Benefits 6

Indirect Revenue Benefits 11
Direct Cost Benefits 14
Indirect Cost Benefits 21

Salvage Value 25
\u00a9 2003 by Rick Humphress

All rights reserved. No part of this work may be reproduced in any form or by any means,
electronic, mechanical, photocopying, recording, or otherwise, without the prior written
permission of the copyright holder.

Is E-Learning Worth It?
ICS Multimedia
Page 3 of 27

This white paper is the first of a three part series. In this document, I present the Net Present
Value Equation and outline the Benefits for an E-Learning project. In Part 2 Costs, I develop a
cost estimation technique that quantifies the cost side of the equation. In Part 3 Sample
Analysis, I offer two sample analyses as well as the primary research that served as the
foundation for the overall whitepaper. RH

Executive Summary

This whitepaper presents a Net Present Value (NPV) framework for analyzing the revenue and
cost benefits from an E- Learning project. The framework helps generate a Return on Investment
(ROI) that any company can use to compare an E-Learning project to the rest of its portfolio of

investment decisions.

Using field research accumulated in 2003, the whitepaper classifies E-Learning revenue and cost benefits. It, then, provides a detailed analysis of now to derive all of the components of an NPV analysis. These components include Total Benefits, Total Costs, Salvage Value, and Discount Rates. In the final sections, these components are all woven together in two Sample Analyses.

This document contains two helpful Addenda. Addendum A presents the primary research used
to construct the framework. Addendum B outlines the relative amount of production work a
company can expect for each of four levels of E-Learning interactivity.


E-Learning is technology-enabled learning performed outside the classroom that uses the
Internet to organize the traditional manual processes of learning management and assessment.
By contrast, classroom learning uses traditional learning concepts within a physical location and
relies on staff to manage the user bookkeeping [www.brandonhall.com]. As the pace of business
accelerates and as every business seeks to decrease its costs while increasing its competitive
positioning in the world economy, the management and dissemination of knowledge becomes
more imperative. As one analyst states, \u201cKnowledge is your most important raw material.
Knowledge is your most important source of added value. Knowledge is your most important
output. If you are not managing knowledge, you are not paying attention to business\u201d [Stew
109]. E-Learning addresses the imperative to improve this knowledge value chain.

While nearly every companyw a n t s to improve knowledge management, getting such a project
into ana p p r o v e d budget is another story. One of the chief concerns we hear from our prospective
clients is that the y lack a good template for cost justifying their E-Learning projects. Surely,
they say, we can learn from other companies who have successfully investigated E- Learning.
Can\u2019t we incorporate their experiences into our analysis? This whitepaper attempts to provide
just such a framework. It describes a model that any organization can use to construct a business
case for an E-Learning investment. It can be used at any time during your project: (1) at the
beginning to kick-start the effort; (2) in the middle to justify continued funding; and (3) at the
end to assess whether the project met or exceeded its initial goals.

E-Learning projects have the reputation of being hard to justify. Despite the imperative to
improve knowledge assets, even skillful project managers can find weak support in the executive
suite. Why? Clients tell us they face the following obstacles. First, executive managers show a
strong preference for investments that directly affect balance sheet items. Indeed, executive
compensation rewards, almost exclusively, the short-term improvement of the accounting bottom

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