Return on Investment
2. Answer the four following problems and submit all questions in a Word document. Include a title page with your name and APA (6th edition) information, headers, and any references you use to answer the problems. Note to students who are planning to take the SHRM Assurance of Learning exam, PHR, or SPHR exam, these problems are derived from SHRM-based scenarios. (Homework Part 2, 25 points)
A. Training return on investment (ROI) is a calculation of economic return on a project. Refer to the lecture for the formula. Review this problem.
An organization lost 125 employees last year, at a cost of $5,000.00 each. (Value is derived from cost to rehire and fill opening, as well as lost investment in the employee.) You suggest that a one-time investment in a training program (costing $250,000 up front) will reduce turnover by 50%. Calculate the following numbers using historical figures as your assumptions.
a. Total savings that the program stands to create
b. Net savings the first year in place
c. Return on investment after one year
d. Return on investment after two years
e. Return on investment after six months (assume half of the employees/but all of the cost) (5 points)
B. Cost-benefit analysis presents data as a ratio to determine financial impact on company profitability. The formula is: cost-benefit ratio = value of projected benefits divided by cost.
We have estimated that a training program on sexual harassment will cost $14,000 and result in a savings of $70,000 (the cost of the two settlements we paid last year).
a. What is the cost-benefit ratio of this training? (2.5 points)
b. What is the return on investment after one year? (2.5 points)
c. Do you agree that we can use the amount of our settlements from the prior year as our savings figure? Why or why not? (5 points)
(10 points total)
C. Break-even analysis. This is the point in which revenue (or savings) from the program equals the cost of the program-the time the company has “broken even” on the cost of the training.
Formula = Break-even point = cost/savings * time
*time is the period of time in which the return is being calculated−if annually, then 12 months.
a. A program has an annual cost of $70,000 and is expected to generate in return a savings of $80,000. When would the break-even point occur, given steady savings and costs? (5 points)
D. Why is it important for trainers to be able to estimate the ROI, cost-benefit analysis, and break-even analysis? Give three reasons why calculating this information will assist the training endeavors. (5 points)
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