To demonstrate how online learning programs can result in lower costs, I created an Excel model to compare the costs of classroom-based training to those of online training. I based the model on a hypothetical company that needs to implement a new five year training program and wants to have a cost comparison of a classroom training program to an online training program. There are other types of learning models, such as blended learning, and other types of organizations, such as schools that would need to determine the costs-benefits of online learning, and thus their cost model would differ slightly from the example I created. However, this sample model covers the basics that you would need to create a cost model for your institution, and you can make your model as simple or complex as you want depending upon your penchant for Excel.
For the model, I assumed the company would need to train 10,000 employees each year for five years, and then calculated the costs of both a class-room based program and an online program. I based the number of training hours per year on Training Magazine's 2012 Training Industry report, which stated that small, medium, and large US companies held an average of 40-hours of training per employee in 2011-2012. I then started building the model by examining the upfront costs in Year 1 of developing either a classroom or online five year training program.
In either approach for training, employees need engaging learning content that ensures they meet their learning objectives, and thus there is an upfront cost of paying experts to develop the content. I assumed that the learning content for a classroom-based training course would cost $3000 per course hour for a subject matter expert or instructor to develop the content, and this content would consist of paper-based training notes that would augment instructors' training inside the classroom.
The cost of online content development is higher than that of classroom-based training content, as creating engaging and interactive online content requires not only a subject matter expert, but also instructional designers and multimedia experts to design and author the content. The cost of online training content will vary depending on the complexity, but I used a common quotation of $10,000 per hour of content (about 60 screens of highly interactive content that can ensure employee engagement in the learning process). For the online system implementation cost, I used a pricing model based on prices common to cloud-based learning management system (LMS) providers, who usually charge an implementation fee and a per-user-per-month recurring fee based on the number of users. For example, a cloud-based LMS provider might charge $40,000 to implement the online platform that would deliver the interactive learning content to 10,000 users. With all these upfront costs in mind, I started creating the Excel model:
Note that the first-year upfront costs are almost three times higher for an online training program than those of a classroom-based training program. However, don't let these numbers give your CFO a heart-attack, as the real cost savings for online learning are realized through the recurring costs, and the cost savings become even greater when calculated over a period of five years. The first thing to calculate for recurring charges are the costs of instructors to deliver the training:
The number of instructors for either classroom or online training depends on the instructor to employee ratio. To train 10,000 employees, for instance, a training manager might want an instructor to employee ratio of 1:500 or 0.002 (trained in small groups of 20-50 employees each). With 10,000 employees, this may require 20 instructors to ensure quality training. However, an online training program would require fewer instructors, as the instructors take on a facilitation role to monitor discussions on the LMS's web forum, as well as monitor and report employee progress. Thus, the instructor to employee ratio for an online training program might be 1:2000 or .0005. Assuming all instructors have an annual salary of $60,000, the instructor salary cost for online learning is much less, as is the travel costs for instructors. Thus, the cost savings of online learning becomes apparent within the first year, as the instructor cost is over four times less expensive, and that may save your CFO a trip to the hospital for cardiac arrest.
Besides considering the cost of instructors for a training program, you should also calculate the costs of training the employees. With classroom-based instruction, employees will need instructional materials, and even just making copies of materials for employees still costs the firm money. In addition, if any of the employees need to travel to a training venue, such as field employees who need to return to their regional HQ for training, there is additional costs. Thus, I've included these costs in my model, and assumed that each employee would require an average of $50 worth of training materials, and that 20% of the employees would require an average of $50 for travel reimbursement.
Assuming that employees can access the online learning program via their work or home computers or mobile device, the online training program would have substantially lower costs each year. Depending on how complex you want to make your model, you can also calculate the opportunity cost of employees, which the cost to the firm of employees having to take time off of work for training. However, opportunity costs can be difficult to measure depending on how an employees work hours benefit the firm, and if you assume the time employees take off for either online or classroom training is the same for online or classroom-based training, then there is a negligible contribution to the cost comparison.
Finally, the other costs that need be considered are training venue costs and the recurring costs of the online platform. Training venues might be hotel conference rooms that the firm might rent for the purpose of training, or even premises at the company's offices. Either way, there is still a cost to for the training venue, either the external venue's fees or the rent paid by the company for its own office space, and this cost should be included in the model. Likewise, online systems have their own form of real estate as they require server space and service providers, and thus online training platforms would cost a recurring fee based on the number of active users. For the purposes of this model, I assumed that there would be an additional 500 users on the platform, in addition to the 10,000 employees, who might be instructors, learning content developers, or managers that would need access to the platform to manage users and the learning materials.
Once again, the costs of training employees is still less than classroom based training due to not having to provide a physical training venue. After considering the costs of a training venue and online platform, I added up all the annual recurring costs, and even though online learning has a higher upfront cost ($440,000 compared to $120,000 for classroom-based learning), the annual recurring costs is less than 16% of classroom-based learning.
Finally, after calculating the upfront and recurring costs of classroom vs. online learning programs, it's essential to consider the total costs of both programs over the projected length of the training program, which in this case is assumed to be five years. I created a Net Present Value (NPV) model of the costs, which brings the future projected costs into the dollar value of today by considering the discount rate or cost of capital (in this case assumed to be 20%).
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