Leveling Up Your Learning Measurement with the Benefit to Cost Ratio (BCR)

Written by John Heffernon, Talent Consultant, Explorance.

What do education, careers, and video games all have in common? When you achieve an important milestone, you LEVEL UP! Learning measurement follows a similar pathway.

If you are reading this, you are likely familiar with Kirkpatrick’s Four Levels of learning measurement (1. Reaction; 2. Learning; 3. Behavior; 4. Results). You also are likely aware that Dr. Jack Phillips of the ROI Institute enhanced Dr. Kirkpatrick’s model with another level – Return on Investment (ROI). Why are you familiar with all this information? Because it is essential to effective learning measurement. Learning functions across the globe follow these levels and are continually seeking to level up their measurement capabilities to have a greater understanding of the impact their training has on employees and the business overall.

Every level crafted by Kirkpatrick and Phillips is valuable and should be part of the learning measurement strategy within your organization. Today I want to focus on that fifth level, the one that provides us with the Ph. D, the position in the C-suite, or the reward for defeating the final villain in the last level of a video game. Like with any activity where we try to level up, getting to that final level is the toughest challenge of all.

Utilize what you have learned in the previous levels to save the princess

Once again, just like with education, careers, and video games, practice makes perfect. Many will claim that it is just not possible to measure the financial benefits of a training program. Like with a final exam, an important client presentation, or a rendezvous with a video game nemesis, it takes consistent, precise efforts to come out on top. It may seem overwhelming at times to convince others you truly can measure the benefit of training, but it is important for you to win (that princess is not going to save herself).

When it comes to measuring the financial benefits of a training program, we need to utilize what we have learned in a previous level to help us get over the hump. The key result of a vast majority of employee training is to improve job performance. Uncovering performance improvement due to training is the major obstacle to overcome in the quest to find financial benefits. Luckily, Dr. Phillips has given us the tools needed to obtain performance improvement. It takes three simple ingredients: Estimate, Isolate and Adjust.

Determine the cost of training and how much our employees are worth

After we discover our performance improvement due to training, which we discussed thoroughly in the last article in our KPI series, the next steps are much more straightforward. We need to determine how much our training costs and how much our employees are worth. The first step here is the more challenging one. Typical training costs need to include items such as needs assessment, design, delivery, materials, overhead, evaluation, lost work time of participants, and travel expenses of participants. The second step is much simpler. To determine what employees are worth, simply figure out what their total compensation is. Total compensation is the sum of employee salary and benefits together. The HR department should be able to provide benefits as a percentage of employee salary. For example, if the salary of the trained population is $50k and the average benefits package is 30% of salary, the average total compensation per learner is $65k ($50k + ($50k x 0.3) = $65k).

Variables Needed to Calculate Benefit to Cost Ratio (BCR)
Variables Needed to Calculate Benefit to Cost Ratio (BCR)

 

Now we have all the variables necessary to perform our calculation for the Benefit to Cost Ratio (BCR).

  1. First, we need to come up with our monetary benefit.
    • Monetary Benefit = Average Compensation x Performance Improvement
  2. Next, we need to calculate our BCR
    • Benefit to Cost Ratio = Monetary Benefit / Average Cost per Participant
  • That was it!

For easy interpretation, the Benefit to Cost Ratio is frequently expressed in a ratio format, as BCR:1. Ratios greater than 1 indicate a positive financial benefit. Ratios less than 1 are a negative financial benefit, and ratios equal to one are break even. For example, if you have a benefit to cost ratio of 2.5, which can also be expressed as 2.5:1, that means the training program returned 2.5 dollars in hard and soft benefits for every dollar spent. It is necessary to mention, BCR and ROI are not interchangeable – they are two ways of expressing the financial benefit of an investment. These two metrics each have unique definitions and calculations. We lean towards utilizing BCR as a reporting metric because it is easier to interpret.

Different types of learning experiences should expect to see different levels of benefit to the business. A great way to use BCR to compare the relative value contribution is to compare programs of similar investment levels and strategic value to the business. The Portfolio Evaluation Model allows you to do this, so you can easily compare the BCR across all courses designed to drive growth, for example. This is especially true when the salary and cost per learner values are accurate for the training program participants. It is essential to understand what training BCR looks like across the different portfolios and build internal targets for BCR. Instead of internal targets, external benchmarks are a great option for comparing your training program BCR to that of your peers and competitors.

Learning is, without a doubt, one of the most important investments any company will make, yet all investments are scrutinized. In today’s world, companies are tightening their belts for a host of reasons, and as a result, they seek out ways to value engineer everything, including learning. To that end, today’s world-class learning organizations are finding innovative ways to design and deliver training better, faster, and cheaper. These organizations are then monitoring the effects of these changes through comprehensive measurement systems, and Explorance helps these organizations improve their Return on Learning Investment with metrics like the BCR.

If you are looking to level up your learning measurement, Explorance is the right tutor, mentor, and YouTube play-through for the job.

Read part 1 and part 2 of the Key Metrics Series.

 


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