Determining the Benefits of Online Learning

In my previous post, I explored how to determine the costs of an online learning program by modeling and comparing the projected costs of a classroom-based training program to those of an online training program. However, modeling the costs is relatively easier than determining the financial and educational benefits of an online learning program.

When considering the financial benefits of a training program, perhaps the most immediate question that any organization should ask is about the Return on Investment (ROI). To determine the ROI, one needs to find a measurable benefit from a training program, and weigh that against the costs. Based on the model I created in my previous post, I used the the metrics of annual productivity and sales increases for employees at a hypothetical company. I then determined the Net Present Value (NPV) of the productivity and sales increases over the five-year period, and divided the sum of these NPVs by those of the costs to determine the ROI.

In the image above, taken from the the model I created for my previous post, I assumed that a company with 10,000 employees would be benefit from an increase in productivity per employee worth $1000 and a sales increase per employee of $10,000 each year from either a classroom-based or an online training program. I then determined the NPV of the productivity and sales increases over the five-year length of the program, and then divided the total NPV of those benefits by the NPV of the costs to find the ROI. Given the enormous benefits that a training program can provide a company, and the lower recurring costs of an online learning program, the ROI for an online learning program is over four times greater than that of a classroom-based learning program.

There are other ways to measure the financial benefits of online learning, as ROI may not be the best measure for some organizations, and some argue that using Economic Value Added (EVA) makes more sense. However, in my example, I used an ROI calculation based on NPV, which is essentially a discounted EVA. One way to think about the relationship between NPV and EVA is that the NPVof FCF = PV of EVA. For more insight into the relationship between NPV and EVA, I defer to the Supreme Master of Valuation at NYU's Stern, Aswath Damodaran, who provides a comprehensive explanation on his website.

While an Excel model can demonstrate the financial benefits of online learning vs. those of classroom learning, what will really matters is whether the training program is effective and can produce benefits to an organization. The common standard for measuring the results of any training program is Donald Kirkpatrick's Four-Level Evaluation Model, which is used to measure the outcomes of training from the learner's initial reaction to the final results of the training on his or her job performance. While the framework of the model is simple enough to understand, implementing the model and measuring the results is more challenging. The process of measuring results will vary depending on the organization, as there is no standard template that will fit every company. A succinct overview of the process, and some of the downsides, of using Kirkpatrick's Four-Level Evaluation Model can be found on this web page.

In summary, a well designed and executed online learning program can produce significant ROI and other benefits to an organization. Perhaps the best example of online learning transforming an organization is that of Oracle's transition from classroom based training to online training in 1999, which reduced training costs from $9.2 million to $5.5 million. This article from Training Magazine, while over a decade old, still serves to highlight the financial and productivity benefits that online learning provided Oracle, and can serve as a model for your own organization's transition.