For the Sears training program information is provided for the following trainin
ID: 2789091 • Letter: F
Question
For the Sears training program information is provided for the following training costs:
Direct Costs:
Instructor = $10,000
Distance Learning (satellite space rental) = $5000
Materials = $5000
Compensation for Trainees
Trainees Salaries and Benefits= $1500
Total Training Costs = $10,000 + $5000 + $5000 + $1500 = $21,500
Benefits of the program are determined by the outcomes and the value the company received from the training program. In this case, sales of tools and merchandise is the outcome. As a result of the training program, sales of tools and merchandise on average increased $1500 per store each week. Ten stores participated in the program so this means that the benefit of the program is:
10 stores x $1500 per store x 52 weeks per year = $780,000
To compute ROI:
ROI = Return/Investment = Benefits-Costs/Costs = 780000-21500/21500 = 758,500/21,500 = 35.28
This means that every dollar invested in the training program returned approximately $35 in benefits.
The company is gaining a benefit of $35.28 for every $1 invested in the training. Another way of looking at this is that the annual return on investment for the training is 3,528%. How does that compare with the annual return on other types of investments? Should the company be happy with the result?
Explanation / Answer
Given, Total Training Costs = $10,000 + $5000 + $5000 + $1500 = $21,500
Also, sales of tools and merchandise is the outcome. As a result of the training program, sales of tools and merchandise on average increased $1500 per store each week.
Total increase in sales is given as= $780,000
Ideally, the company should look at the additional profit generated from the training,to calculate the return of the training.
Let us assume that the company operates with a after tax margin of 10%.
So, increase in profits after training= $78,000
Now, ROI= 78000-21500/21500 = 2.6279 or 262.79%
The calculated ROI is much higher than most of other types of investments which give an annual return of 10-20 percent.
If the company is confident of the increase in sales due to the training,it should involve as many stores as possible to improve the margins of the company.
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