-4. How do you develop an ROI for e-learning?

- You can't avoid risk, but doing a return on investment (ROI) analysis lets you quantify the risk.

- There are two types of ROI analysis you can do for e-learning:

- Cost analysis: how it saves money (if you already have existing training you're running).

- Value analysis: how it improves value (lets you do things you couldn't before).

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ROI is "return on investment." As a businessperson, ROI is what you spend your time figuring out day in and day out so you can make good business decisions. No organization has all the resources to do the things it would like to do. ROI analysis helps you figure out if you should spend money on project A, project B, or project C (or sometimes on more than one of them, or even none of them).

Your business is always faced with this situation: The roof is leaking, the kitchen needs remodeling, and the car is no longer getting the gas mileage it used to. And you don't have the money to fix all of those problems. (You never have enough money to do all the things you might do.) Which of those, if any, should you invest in?

You typically do what brings you the most return, the most benefit—where "benefit" might mean either getting something positive in return or avoiding something negative. Preventing water damage from a leaky roof is avoiding a negative consequence, but that might be the most important thing to do at the moment.

You've already seen from a previous question/answer section that there is a wide range of e-learning costs. You could spend only thousands on e-learning, or you could spend many millions. But if you're spending only thousands to get little or no benefit, then you're wasting your thousands. If you're spending millions to get multimillions in benefit, then you're spending your millions wisely.

The key insight is that "costs themselves are meaningless." It's the ROI that helps you determine whether something is a good deal. So much depends on the benefits you're trying to get for that cost.

There are two main ways of looking at an e-learning ROI calculation:

1. Cost-focused ROI—where your main concern is reducing existing expenses

2. Value-focused ROI—where your main concern is getting more value

These two approaches are not mutually exclusive. If you can, you should use both approaches and get an even fuller picture. We will, however, look at each one separately in the following sections:

Cost-Focused ROI

E-learning is immediately attractive to you if your business is already doing a great deal of training and you want to reduce costs. You might already be spending thousands or millions on training and you'd like to spend less. For example, recall the example of the IBM management development training in Chapter 1. In that case, shifting a major part, but not all, of the training from the classroom to an e-learning delivery dramatically reduced costs.

I'll be using "ducats" as the monetary unit for the ROI examples. I do this to underline the fact that the cost numbers I quote in this book are not supposed to be real. The ducat was a coin, usually of gold, used at various times in different European countries. (The first ducat was struck by Roger II of Sicily.)

Let's say you are planning to spend 1,000 ducats for training new managers this year in the traditional classroom manner, but you think that e-learning might be an improvement. Here's the general shape of a cost-focused ROI analysis. (Your numbers, of course, will vary based on your situation.)

Existing Cost for Classroom Training

Replace with E-Learning

Courseware update costs = 100 ducats

Courseware costs = 325 ducats

Communications costs = 25 ducats

Communications costs = 100 ducats

Instructor costs = 375 ducats

Instructor costs = 375 ducats

Room and other delivery costs = 100 ducats

Other administrative and delivery costs = 100 ducats

Travel costs = 400 ducats (for students and instructor)

Travel costs = 0 (for students and instructor)

Total cost "old way" = 1,000 ducats.

Total cost with e-learning = 900 ducats. You save 100 ducats.1

1. Of course, to put this in real business terms, you have to figure the dates when the costs are incurred, the dates when the benefits are realized, and adjust everything for the present value of money so that you are comparing apples to apples. This is important to do in real life, and I expect you know all about that from other ROI analyses you've already done in other parts of your business.

Let's step through the numbers here so you understand what's going on:

1. The courseware costs increase because for the classroom training you would do a minor update to existing material you've used before. But the courseware for the e-learning approach needs significantly more work to get it into a form that can be delivered over the Internet. (While you can teach the same "material" in the classroom and by e-learning, you need to do work to put that material into an e-learning form.) After the first conversion, you'll get back to doing updates just like you did for classroom courses—so this cost will fall over time.

2. The communications costs (to tell prospective students that the course is available) exist for both cases, but the higher cost for the e-learning case reflects the situation that you need to communicate more about the new style of learning as well.

3. The instructor costs are roughly the same whether it's classroom or e-learning delivery.

4. For the classroom, you need a room, and there will be other costs like printed student materials. For e-learning, there will be costs for administering the e-learning system that manages the delivery of such e-learning courses.

There is an old story about how computer technology made the impossible possible. Imagine you're running an insurance company in the 1950s and you are handling claims by hand. You have a small army of clerks and buildings full of filing cabinets. Lots and lots of filing cabinets. You are considering buying one of the new mainframe computers to automate the claims processing. You will be tempted to make the computer purchase decision on the basis of cost savings. That would make sense for what you know, but what you don't know is that on the business horizon are new U.S. government health programs. But you will not be able to bid for those huge government contracts with manual claims processing—it's just too slow, no matter how may clerks and filing cabinets you have. (In the same way, the U.S. Government Census Bureau moved to automated tabulating machines around 1900 because they were still counting the last population census by hand when it was time to take the next census.) Without the new mainframe computer, you can't get in the game of processing government health claim forms.

5. For the classroom course, students and instructors need to travel to the class. For the e-learning course, they don't travel.

Value-Focused ROI

E-learning enables improved value by letting you accomplish things that cannot be realized in other ways. This is a lot like what much of today's technology enables better, faster, cheaper.

Take this as an example: A high-tech company needs to provide regular product update training for its salespeople, who are spread about in many geographic locations (see Case Study #1 in Chapter 2). With e-learning, you can quickly train all the salespeople on everything they need to know about selling the new product. Without e-learning, it will take so long to roll out a new product sales course to all the salespeople that you won't even try. You'd have to be satisfied with an incompletely trained sales force—and that's going to mean you're losing revenue because of missed opportunities and basic sales mistakes that could have been corrected with a little training

Here's the general shape of a value-focused ROI analysis:

Potential Benefit

Cost of E-Learning Solution

You'll gain an additional 1,000 ducats in revenue if you can get all your salespeople quickly up to speed on selling the new product. If you can't get those salespeople up to speed quickly, then you don't achieve the

1,000 ducats.

- Courseware costs = 100 ducats

- Delivery costs = 100 ducats

- Communications costs = 50 ducats

- Instructor costs = 200 ducats

- Travel costs = 0

Total benefit = 1,000 ducats

Total cost = 450 ducats

Your total gain is the total benefit (450), or 550 ducats.

(1,000) minus the total cost

Let's step through the table so you understand what's going on. First of all, your projected revenue is 1,000 ducats. Then your costs break down like this:

1. Courseware costs: You need to develop the courseware to be delivered in an e-learning form.

2. Delivery costs: There will be some costs to deliver the courseware from an e-learning system.

3. Communication costs: You will need to promote the course to your target students.

4. Instructor costs: This is the time that the instructor takes to prepare for and teach the course.

5. There are no travel costs for either the students or the instructor.

So, if you subtract your costs (450) from your revenue (1,000), you get your gain of 550 ducats.

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