Reference no: EM132899302

Case Study:

DATAIN is a company that was started by two students who saw an opportunity to make some money and help pay for their education. As an increasing number of organizations today survey their customers and employees, the two students saw a need for data input and analyses.

With a loan from their parents, they rented space, purchased 20 used computers, and set up shop. They hired other students to do data input and analyses and began advertising their services.

Within a relatively short period of time they were having trouble keeping up with demand. In fact, business was so good they had to hire more students and purchase more computers.

After about six months, however, they began to notice some problems. The data files were often full of mistakes, and the data analysis was often incomplete and incorrect. As a result, almost 40 percent (20 jobs per month) of all jobs had to be completely redone. This turned out to be a rather costly problem. Each job took approximately 10 hours and cost the company $150 (students were paid $15 per hour).

To make matters worse, they began to notice that their new hires were quitting after only a few months on the job. In the last six months, they had lost an average of four employees a month. Every time an employee quit, they had to replace him/ her and the cost of this was beginning to get very expensive. The cost of advertising, interviewing, and hiring a new employee was estimated to be about $5,000.

In order to cut down on these unanticipated costs, DATAIN decided to invest in a training program to reduce the mistakes and errors in data input and analyses and to improve employee retention. They contacted a training consultant to conduct a needs analysis, design and deliver a training program, and conduct the training evaluation.

Based on the figures provided by the consultant, DATAIN thought it would be a good idea to determine whether the training program would be a worthwhile investment. The consultant estimated that the needs analysis and training evaluation would each take about 20 hours at a cost of $100 per hour. The fee to purchase the actual training program would be $5,000. The training program itself would be for one day (8 hours) at a cost of $200 per hour to the consultant.

In addition to the consultant fees, DATAIN would also have to give its 25 employees one full day (8 hours) of pay ($15 per hour); lunch that would cost $10 per employee; and coffee and snacks at a cost of $50 for the day. The training would take place at DATAIN so the only cost for classroom space would be a portion of the cost associated with room heating, lighting, and maintenance, which was estimated to be $100 for the day. As well, some administrative support work would be required to plan and prepare for the training, which would involve about two days (8 hours per day) of work on the part of DATAIN's administrative assistant, who is paid $15 an hour.

According to the training consultant, DATAIN could anticipate an 80 percent drop in mistakes and errors and a 90 percent reduction in turnover. In other words, instead of 20 jobs a month only four would have to be redone, and instead of four quits a month there would be on average fewer than one.

This sounded like a great investment; however, DATAIN was concerned about the loss of a full day of work while employees attended the program. So they decided to get an estimate from a vendor that specialized in e-learning training programs.

The e-learning vendor told DATAIN that she could design an e-learning program for $25,000. The program would take four hours to complete and would include interactive exercises and opportunities for practice. Employees would be able to take the course on their own time and at their own pace. The anticipated benefits are a 90 percent reduction in mistakes and errors and a 60 percent reduction in turnover.

DATAIN does not know how to calculate the potential benefits of the two training programs. As a result, they do not know which training program to purchase.

Question

Looking at the benefit, net benefit, benefit-cost ratio, and return on investment of the consultant's program and the vendor's e-learning program, which one would you recommend? Why?