Dear Tightfisted:
Businesses measure two kinds of costs: fixed costs, which remain unchanged, and variable costs, which fluctuate depending on given factors. Separate these two pieces, then add them back together at the end of your calculation.
Variable costs are easier to adjust and manipulate than fixed costs, which usually involve long-term assets or investments, even salaries.
Calculate fixed costs only if they are dedicated 100 percent to trainees. If these resources are used for other purposes, you’ll have to understand that usage rate as a percentage. For example, if Mary the Administrative Assistant spends 50 percent of her time in Center A and the remainder handling non-training duties at the company front desk, calculate accordingly. Don’t allocate all of Mary’s costs to training.
Fixed costs can include:
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Building leases/mortgages
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Equipment (already purchased/leased/owned)
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Overhead salaries (management, office staff, etc.)
Variable costs are considered directly related to a particular training class and may include:
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Rental equipment
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Training materials (supplies, copies, etc.)
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Food and sundries
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Salaries and/or temporary-employee costs
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Room rental
Annualize each of your fixed costs and add them together. For example, if you lease Center A for $2,000 per month, your annual cost would be $24,000. Separate your costs per center, along with the cost of classes delivered at each site. You don’t want Center A subsidizing the costs of Center B. If there’s a large cost differential between centers, you won’t see your real costs, thus hampering your decision-making ability.
Next, annualize variable costs and add them together. If you use one flip chart per class at a cost of $10 each, and you deliver 10 classes per week for 50 weeks, you’ll spend $5,000 on flip charts alone. Sure, some classes may involve more flip charts than others. However, depending on the volume of classes, the variation may be too small to make a notable difference.
Finally, divide the total fixed costs by the number of trainees. Divide total variable costs by the number of trainees. Add these two figures together to obtain your cost per trainee. Keep the costs separate but part of the equation.
For example, let’s presume that you incur the following fixed annual costs:
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Rent for all centers: $100,000
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Management and training professional salaries: $500,000
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Equipment and computer amortization: $25,000
Likewise, we’ll presume these variable costs per year:
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Training materials: $25,000
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Contracts with training professionals: $10,000
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Food and beverage: $10,000
Here’s how you’d compute total fixed costs:
$625,000 divided by 1,000 trainees = $625 per trainee
For variable costs, the breakdown looks like this:
$45,000 divided by 1,000 trainees = $45 per trainee
Combined, your total cost per trainee equals $670 per year.
SOURCE: Don Gaile, principal, dmg consulting company, New York, New York, March 10, 2004.
LEARN MORE:The First Three Things HR Should Measure.
The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.