Cost Benefit Analysis
Homework Part 2
Sheila Camara
HRM 420
Professor : Dr. Clayton
March 31, 2015
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
Total Cost of the lost employee training= (125*$5000) =$625000
Total savings= ($625000*0.50) = $312500
b. Net savings the first year in place
Net savings=(312500-250000) = $62500
c. Return on investment after one year
ROI= ($62500/$250,000)*100 =0.25 or 25.00%
d. Return on investment after two years
312500 + ($312500*.50)
= $468750
e. Return on investment after six months (assume half of the employees/but all of the cost) (5 points)
ROI= (312500-250000)/250000*100 =0.25 or 25.00%
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)
$70,000/$14,000
= 5
b. What is the return on investment after one year? (2.5 points)
ROI after one year= [($70000-$14000)/$14000]*100
= 4*100
= 400%
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)
No, I do not agree because the cost of the training was incurred in that past year, therefore it cannot be used as
Sheila Camara
HRM 420
Professor : Dr. Clayton
March 31, 2015
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
Total Cost of the lost employee training= (125*$5000) =$625000
Total savings= ($625000*0.50) = $312500
b. Net savings the first year in place
Net savings=(312500-250000) = $62500
c. Return on investment after one year
ROI= ($62500/$250,000)*100 =0.25 or 25.00%
d. Return on investment after two years
312500 + ($312500*.50)
= $468750
e. Return on investment after six months (assume half of the employees/but all of the cost) (5 points)
ROI= (312500-250000)/250000*100 =0.25 or 25.00%
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)
$70,000/$14,000
= 5
b. What is the return on investment after one year? (2.5 points)
ROI after one year= [($70000-$14000)/$14000]*100
= 4*100
= 400%
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)
No, I do not agree because the cost of the training was incurred in that past year, therefore it cannot be used as