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/Stephanie Morgan The Benefit Cost Ratio: A budget must?

I have been working with a new client who is very keen to secure a budget for a project that they would like us to design and deliver. It struck me that although they’ve done a brilliant needs analysis and are crystal clear about the learning project’s objectives, they are less clear about the overall benefits to the business and haven’t yet taken the time to calculate what the potential ROI might be.

Let’s face it, lots of us may have gone ahead with a learning project on that basis in the past. That said, this client needs to seek specific budget approval for this project before being able to start. Personally, I think that is a good thing, I hate getting involved in a project where the business case is unclear, as it usually makes the success of the project unclear too. After all, if you don’t know what you were seeking to achieve, how will you know if you have achieved it.

To be fair, of course, these days most of us are used to answering questions on a project’s expected ROI, especially if we have to make a case for a budget. The bad news is that you cannot calculate the true ROI until after the project has been completed. So, what can you do right now to demonstrate your project’s benefits? One technique that other parts of the business are probably already using is calculating a Benefits Cost Ratio or BCR instead.

What’s a Benefit Costs Ratio?

Investors and accountants have been using BCRs on some of the world’s biggest projects for years. In fact, a BCR of over 10.1 is one of the key arguments behind the expansion of Heathrow Airport. The ratio is handy way of thinking about the outcomes of any project, and helps us overcome the absence of actual ROI data in an L&D scenario.

To calculate a BCR all you need to do is add up the benefits of the learning solution and then divide this by all of the costs. If the answer’s more than 1, fantastic! Less than 1? As you may have guessed, this means your project has more costs than benefits, and it’s back to the drawing board!

BCR is a brilliant way of proving (as much as we can) that the learning’s objectives can be achieved affordably and are worthwhile. This reassures the budget holder, making it more likely that they will trust your project and give the go ahead for the budget proposal. In short, a BCR above one means your objectives are reflected in your benefits!

Have you considered…

So, achieving a Benefits Costs Ratio of more than one highlights that your proposal should make money and not cost it, but there’s an added complication which you should consider. It can be tricky to think about the full range of costs which affect a project.

Let’s say forty people are attending your face-to-face learning event. How do you calculate the cost of this lost productivity? Will this have knock-on effects to other departments? Could forty people’s attendance negatively impact your organisation’s service during the event’s duration?  Equally, working out their improved productivity over the following weeks and months is a benefit worth calculating. I usually find that those L&D professionals who consider every possible cost and benefit usually calculate the most accurate and persuasive BCRs!

BCR’s limits

Both the Benefits Costs Ratios and ROI focus on the financial return of a proposal. In my experience, however, most L&D projects have a range of objectives and benefits which aren’t financially driven. For example, maybe your solution will boost staff contentment by 25%?

As such, I always try and ask: “What costs and benefits don’t seem financial in nature?”

You may have noticed the word seem. This is because I believe that most costs and benefits can be monetised, even when this looks unlikely! In the example of improved staff contentment, perhaps this will be reflected in lower staff absenteeism, which you could measure financially and incorporate into your BCR calculation as a financial benefit.

If you want to learn more about preparing a really persuasive budget proposal, keep an eye out for my free webinar ‘Making a case for your L&D budget’. In it I explore a whole range of techniques to maximise the business case within your budget proposal, including monetisation and the best ways to think about the costs and benefits of your learning.

Do you have questions about preparing the perfect L&D budget proposal? Why not get in touch?

Stephanie Morgan

Stephanie Morgan FLPI, Director of Learning Solutions, Bray Leino Learning

Sharing ideas and observations to help improve performance.

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