Financial analysis: The methods and their application to employee training

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Abstract

Training and development is big business; therefore it should be evaluated in the same way as other large investments, in terms of costs and benefits. In this context, training becomes another tool for a firm's survival. According to Nancy Mosier, although training directors recognize the importance of cost considerations, many still use intuitive methods rather than collecting and analyzing hard numbers to justify their programs. Managers can now take heart because Mosier describes some basic and useful techniques to get the cost-returns analysis rolling. The same applications as are used to justify capital, land, or other resources can be used to justify training and development. Mosier reviews common capital budgeting techniques; for example, payback time, average rate of return, present value or present worth, internal rate of return, and cost-benefit ratio, and contrasts these techniques with those now being used in training and development. Much of what is available in training focuses on costs and advocates making decisions only on the basis of costs. Her message is clear—financial analysis in training and development must be made on the basis of both costs and returns for the like of the project, and this article helps training directors to look at the complete picture.

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