You’re sitting there thinking about a training purchase. You look at the price again. That $750 sounds like a lot for an online course. That $20,000 sounds like a lot for an in-person course for the team. Yes, those are courses are costly…but they’re not the biggest source of costs.
The biggest cost for training is your time.
Yes, your time. The MBAs call this opportunity cost. It means: what could you have done with your time had you not wasted it on bad training? You could have learned something, worked on your product, bought better training, spent time with your family, played video games, etc. Don’t get me wrong. Good training can be the best ROI ever. Bad training will cost you more than the amount you spent. That’s even if you ask for you money back. Let’s look at some cost break downs for individuals and teams.
Let’s go through the cost breakdowns for an individual. For the sake of argument, let’s say the course costs $799. The course has 8 hours of lecture. You spend another 8 hours practicing what you’ve learned. Now, let’s talk about your opportunity costs. For individuals, you can ask yourself how much do you pay yourself? Let’s say you were to do a side project, how much much would you charge? Some people use 1.5 to 2 times your current salary. If you make $80,000 per year with a 40 hour work week, that would be $77 an hour. If you make $100,000 per year with a 40 hour work week, that would be $96 an hour. These numbers give a good starting point. Personally, I value my free time even higher than that. Now that we have a cost rollup, let’s calculate our costs for a person who makes $80,000 per year.
Let’s calculate our costs for a person who makes $100,000 per year.
Compare the costs of the course to the lecture and practice. The cost of a course is 39% to 34% of your total costs. The primary source of your cost is your time.
If you’ve wasted your time you’ve lost 100% of that cost.
Teams and Companies
Opportunity costs for teams are a little more difficult to calculate. For the sake of argument, letâ€™s say the course costs $20,000. The course is four days long and 15 people attend it. The instructor’s travel costs are $3,000. An employee’s cost isn’t just their salary. For companies in the U.S. their costs include Social Security and benefits like health insurance. These are usually 1.5 to 2 times the employee’s salary. The bigger cost is research and development time. For every dollar spent in development, a company will expect to receive 5-10 times the money back. For our 15 person team, that means that a four day course far more expensive in opportunity costs. For this example, let’s say the team makes an average of $100,000 per person. Let’s calculate out the costs.
|Opportunity Cost (5x)||$115,384|
This example is even more striking. This time, only 12.4% of the costs are in the course itself.
That’s some major ouch for cheaping out on training.
This says nothing of training causing poor implementations or leaving massive holes in knowledge. These usually come back in spades with production problems or having to reengineer large portions of the software.
What Should You Do?
I’m by no means saying not to do training. Good training is, by far, the best ROI a team or individual can have. An investment of $2,000 for an individual can become a $20,000 raise. An investment of $185,000 can become a million by creating a product that outcompetes a rival or adds a new feature that brings in massive revenue. I’m saying to be judicious in your choice of training. Many individuals and managers only look at the cost of the training. They forget to look at the total cost of training. Choosing bad training costs you time and money. Choosing good training makes you money and makes you successful.
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This post is the first one in a series talking about costs in training and identifying good training. The second post shows how to identify good training, even if youâ€™re not an expert. The third post shows the ROI of the right training.