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Calculating the Return On Your e-Learning Investment

A White Paper Prepared by SumTotal Systems

ACCELERATE PERFORMANCE. ACCELERATE PROFITS.™

An ROI analysis should include the following four categories of potential benefits: Hard cost savings vs. This paper provides guidelines for quantifying the hard benefits. . car rental. 2 Increased productivity — More revenue producing days per sales rep or other customer facing personnel. meals. alternative solutions Soft competitive benefits vs. alternatives Soft benefits to individuals vs. distribution and storage costs 5 Re-training for growth and turnover. refresher courses. and multiply by the headcount number. The hard travel savings are easy to calculate. reliable. and compelling estimate of the Return on Investment (ROI). etc 6 Reduction of customer support costs — Start with the average cost per minute for support calls Hard Revenue Impact Hard revenue impact is the total revenue value of the solution that can be estimated or measured. alternatives This paper defines these benefit categories and provides a primer on the mathematics of the ROI calculation. 2 Facilities 3 Instructor fees 4 Printing. consider the following factors: 1 Lost revenue (opportunity cost) — Inadequately trained sales personnel. When rolling up hard revenue impact. Hard Cost Savings Hard cost savings are typically quantifiable in financial value terms and can be easily estimated or measured. soft competitive benefits. Take the sum of airfare.Introduction Building a business case for e-learning that is centered around a quantifiable.2/5 - . alternative solutions Hard revenue impacts vs. consider the following factors: 1 Travel — Traditional instructor-led training (ILT) requires personnel to travel to one central location. is an essential element of the SumTotal Systems value proposition. content updates. etc. A SumTotal e-learning solution is expected to deliver a significant ROI in the first twelve months. hotel. Determine the revenue value of a sales rep’s day by dividing total annual revenue by the number of selling days by the number of sales reps. The key to producing a credible ROI lies in ascertaining the hard cost and revenue impact. When rolling up the total hard cost savings. and individual learner values that are important in developing a complete picture of the total return on investment. this alone yields a 400% ROI. In many cases.

5 Increased revenue opportunities — Delivering fee-based training and/or certification to customers. The soft competitive benefits are then layered on top of the business case to provide a more complete view of the total return.3/5 - . which can vary from trainer to trainer and instance to instance.3 Shorter time to product deployment — Reducing the training ramp expands the front end of a product life cycle. partners. technology-based approaches to large-scale knowledge transfer are inherently more consistent in their delivery than human interaction. 7 Increased morale gained from simultaneous training — “We’re no longer last on the list down here in South America. consider the following values: 1 Immediacy — Since education is treated as an ongoing process and not an event. 6 Knowing whether employees. customers. 4 Closed loop system — Improvement with each iteration. 5 Experts performing their jobs — Not teaching classes. resulting in increased revenue. When developing soft competitive benefits. and suppliers. 3 Certification — Web-based e-learning is a cost-effective medium for certifying knowledge on a large scale. and the ability to deliver more revenue-generating courses to more customers. 2 Consistency — Automated. 4 Increased revenue — Increasing the sales effectiveness of selling partners. Typically. Soft Competitive Benefits Soft competitive benefits are difficult and sometimes impossible to quantify and measure. knowledge transfer is always only a web browser away. the business case for an e-learning investment starts with ROI calculations based on the hard cost savings and revenue impact. Individual values include: 1 Mass customization — No wasted time 2 Persistence of learning — Just-in-time (JIT) activities 3 Motivational aspects — Knowing where I stand 4 Clear learning priorities 5 Knowing somebody is watching my progress . and partners are getting it. but they can be as compelling as hard cost savings and hard revenue impact. They represent an additional category of soft benefits that should not be ignored in understanding the complete business impact of an e-learning solution.” Individual Values Individual values are benefits that are experienced at the individual learner level.

000. Imposing some discipline on the part of vendors and decision-makers to support business impact claims by taking a more methodical and quantifiable approach to business justification.000 in the same time period.Investment ROI = [(Payback – Investment)/Investment)]*100. .000)]/$250.000/$1. You may want to complement your ROI financial measures with other methods that address the key limitations of ROI metrics.000 = 4:1 3 As a time to break-even—Determine the number of days.000-$250. and maintenance over the time period of interest.The Mathematics of the ROI Calculation Three data points are required: 1 The time period — Typically one year. ROI is particularly effective at: Facilitating investment prioritization by making hard number comparisons between investment options. or months it will take to break even on the investment. 3 The return — This is the sum of the cost savings and revenue enhancements gained from the SumTotal solution. 2 The investment — Typically includes the price of the software licenses. There are three ways to calculate the ROI: 1 As a percentage — If you gain benefits equal to $1.000*100 = 300% 2 As a ratio—Divide the return by the investment.000. and additional systems and software licenses which may be necessary. Other financial methods include net present value.000 in 12 months on a total investment of $250. For example. ROI can be an invaluable tool in your e-learning investment decisions. as derived from the answers to the questions outlined above. and options theory.000. ROI does not factor in risk and does a poor job accounting for intangible rewards.000)*12 months = (0.25)*12 = 3 months or 90 days Conclusion ROI analysis must be used in context of a broader evaluation framework because it is just one of several financial measurement tools that can be used to support an investment decision.4/5 - . Also includes non-SumTotal costs such as courseware conversion/development. professional services. the ROI can be calculated as follows: If. Enforcing an understanding of the top/bottom line business impact of the investment since it is impossible to complete an ROI analysis without understanding the potential impact on cost and revenue generation. or in this case: [($1. If used properly within the context of a “balanced scorecard” evaluation framework that factors in non-financial decision criteria. Time period to break-even = (Investment/Return)*Time Period ($250. $1.000/$250. weeks. scenario planning. allowing decision-makers to focus on the intangible benefits separately. Return = Payback . other professional services. Setting investment screening thresholds.000.

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