Сalculating the cost of employee training in numbers (part 1)

and trying to understand whether it is profitable for you

In this article by "employee training," we mean the initial transfer of information about the company, its product, and the company's processes to employees, but not the process of their soft skills development.

We often hear the opinion that it is very difficult or even impossible to calculate the effectiveness of corporate training. The majority of managers can define its success only when they ensure employees' understanding of the work. However, they need to consider efficiency, confirmed by numbers, not feelings.

Because of this, many managers are distrustful of this process and abandon the implementation of the employee training system. After all, the fear of wasting money is great for them.

However, we can avoid useless guesswork and identify metrics that would show us if the training can be beneficial. In this article, we are going to focus on how much money we can save while implementing the training system. We will play with financial and time indicators and illustrate in numbers whether training is profitable or not.

What metrics do we use

Go to

Without a training program

Go to

With a training program

Go to

Results

Go to

What metrics do we use

Edburo made many calculations to understand the effectiveness of training in several companies from different fields, and now are sharing a unified example of calculations. Here we are going to compare the productivity of a new employee without and with a special training program.

We are going to use 2 metrics that interest us: salary and time of manager and employee.

Manager's time

that would be considered inefficient when mentoring since he has the main duties

Manager's salary

that he receives for the main work and mentoring. He doesn't get extra pay for mentoring which is also inefficient

Employee's
time

that he spends on getting involved and on actual work

Employee's salary

that he receives for his work, as well as for training (inefficient, and you will want to cut it)

Our task is to see how the introduction of the training system will affect the time and salary of the manager and employee, which will form the total cost of training.

First, let's take a look at the salary. We will take the average numbers and start from them.

*Here we will use abstract numbers that are close to reality and based on our experience in RUB

The second input is the time spent on the learning process on both sides. That we will divide into two separate cases.

Without a training program

First, let’s take a look at the "pure case" when the manager puts only his efforts to train the employee.

According to our experience, the time of the manager and the new employee for training was introduced in general as follows.

These are average values based on our work experience

The manager’s duty in the first week is to describe to the new employee the general frame of work in the company and explain specifically his tasks, that is why it takes so much time. On the 2nd, 3rd, and 4th week he provides the rest of the information.

The picture might be slightly different for the new employee. He will learn not only from his manager, but also from colleagues, searching for information on the Internet, and looking through instructions from past employees. That means that more time may be required.

Knowing the salary and time for training from both sides, let’s find the cost of mentoring by the manager and learning by the employee. To do this, we need to find out what part of the salary (manager and employee) covers the training activities weekly and add these two amounts. We will use this formula.

We will do it more accurately if first find out the salary per day. To do this, we divide the salary by the average number of working days per month: 21 (as it is in Russia). Then we find out the weekly salary by multiplying the salary per day by 5 working days.

Manager

Salary per day = 300,000÷21 = 14,286 RUB

Salary per week = 14,286×5 = 71,429 RUB

Substitute under the formula:

Cost of mentoring time =

(71,429×80%)+(71,429×50%)+(71,429×20%)+(71,429×10%) =

57,143 + 35,714 + 14,286 + 7,143 = 114,286 RUB

New employee

Salary per day = 40,000÷21 = 1,905 RUB

Salary per week = 1,905×5 = 9,524 RUB

We get:

Cost of learning time =

(9,524×90%)+(9,524×70%)+(9,524×50%)+(9,524×30%) =

8,572+6,667+4,762+2,857 = 22,858 RUB

Now we are ready to count that number we are all here for. To know the total cost of training one employee we need to sum the cost of mentoring and the cost of learning, so the two parts of the process finally meet each other.

In our case:

the cost of mentoring + the cost of learning =

= 114,286 + 22,858 = 137,144 RUB

With a training program

Now we will try to compare the cost of training we got in the previous calculation with the amount that will be obtained if we implement a training program.

To make it easy we will not add here the time and the cost that we will spend on the preparation of instructions and LMS and consider it as a default.

In this case, the manager’s time is significantly reduced. The employee can read all the basic explanations while examining a training program in the system, so for the manager, it is his only responsibility to propose practical tasks and control their implementation. Let's see how the manager's time changes:

If it comes to the new employee, it does not change much. However, the speed of information consumption is still changing thanks to streamlined instructions and LMS. It will affect the cost of training because less effective time is spent on it.

Let’s calculate the cost of training in this case according to a similar scheme.

Manager

Cost of mentoring time =

(71,429×5%)+(71,429×10%)+(71,429×10%)+(71,429×10%) =

3,571+7,143+7,143+7,143 = 25,000 RUB

New employee

Cost of learning time =

(9,524×80%)+(9,524×50%)+(9,524×20%)+(9,524×5%) =

7,619 + 4,762 + 1,905 + 476 = 14,762 RUB

In this case:

the cost of mentoring + the cost of learning =

= 25,000 + 14,762 = 39,762 RUB

Results

What conclusions can we draw from these numbers?

The manager's time in training was significantly reduced by each week.

1st week - by 75%,

2nd week - by 60%,

3rd week - by 10%.

4th week - remains the same, but compensated by others.

This is how the manager becomes more effective and how much he can improve the time for his main duties.

The time for the employee to learn about his new job also decreases.

1st week - by 10%,

2nd week - by 20%,

3rd week - by 30%,

4th week - 25%.

This is a percentage of the time he could spend on the work that would affect the whole business performance.

Now money.

Without a training program — 137,144 RUB

With a training program — 39,762 RUB

The training program has saved so much money!

Let's calculate the benefit: 137,144 - 39,762 = 97,382 RUB.

This is the amount of money that was saved by implementing a training program for each hired employee.

Thus, we have an additional budget that can potentially be spent on various needs of the company.
For example, this will allow you to hire a new employee in parallel with the first, or at least earlier. Without a training program, you should wait for more money to hire the next one.

Benefit÷salary RUB = 97,382÷40,000 = 2,4 months

— this is the time that shows how much earlier you can hire a new employee in this case.

Salary and training time are specific data that should not be underestimated. Having considered the dynamics of changes in the time spent on training with and without the program, you can understand in numbers whether one or another method of training a new employee is effective or not without waiting for the results of the employee's performance.

Feel free to try these formulas on your case!

In the next Part 2, we will take a deeper look at this case and try to take into account the cost of preparing a training program as an integral and, no doubt, expensive part of the process.

KNOWLEDGE SharinG

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