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Beginner
Basics >
Conducting
an e-Learning Break Even Analysis
by
Kevin Kruse
Doing
a simple cost savings analysis -- even when positive -- does
not, however, tell the whole story. Because e-learning is
typically more expensive to create initially than instructor-led
training, the payback often doesn't begin until year two or
three. Using a break-even analysis will identify at what exact
point in time the program begins to "save" money.
The value of this measurement is usually in terms of the number
of students it will take to train in order to reach break-even.
To put break-even analysis simply, it answers the question,
"How many students will we have to train in order for
our up-front investment in technology-based training to begin
to pay-off."
Using
the fictitious case of Acme presented in other articles, the
figure below shows the three-step formula for calculating
the break-even point. Note that in this analysis, the calculated
cost to deliver the training to each student factors in both
standard delivery costs, as well as administration and maintenance
costs. The final result of 263 students as the break-even
point is another indicator that the investment in e-learning
is a wise one since in ourmodel case there are 800 total students
to be trained. If less than 263 students were to be trained
in the three-year period, classroom-based training would make
more sense from a financial perspective.
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Break-Even
Analysis for Technology-Based Training
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Step
1) Per-Student Delivery Cost of e-Learning =
Total e-Learning
Costs divided by Total Number of Students
Step
2) Per-Student Delivery Cost of Classroom-based
Training (or other training method) =
Total Classroom
Delivery Costs divided by Total Number of Students
Step
3) Break Even Point =
(Total e-Learning
Costs - Total Classroom Costs) divided by
(Per-Student Classroom Costs - Per-Student e-Learning
Costs)
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Step
1) ($134,400 + $16,200) divided by 800 students
= $188.25 per student
Step
2) ($1,026,920 + $5,168) divided by 800 students
= $1,290.11 per student
Step
3) ($350,000 - $60,000) divided by ($ 1,290 - $188)
= 263 students
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Break-Even
Point = 263 Students Trained
In
other words, e-learning initiative in this case will
achieve break even with 263 students trained.
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