How to Determine the Real Cost of e-Learning Programs

“How much is it going to cost?” asked the project manager. “Well, it isn’t that simple!” was my pained response. After 14 years in this training world, moving through instructor-led, programmed learning, interactive video disk, computer-based, CD-ROM, video, blah, blah, blah training, I knew I wasn’t going to be able to duck this question. “I wish I could say, well its going to be $32,000 dollars. We will finish inside of six weeks, learning will occur at a very high level, and you will be a hero!”

But it’s just not that simple!

Costing e-Learning is much like peeling an onion... there are many layers, they don’t ever seem to end, and sometimes it really smells. In the world of advanced training development there has been a pain consistently felt by every CFO, manager, and project leader. That pain is how to determine the cost of creating learning programs! In reality, if you understand the variables involved in determining costs you can take the magic right out of the process. Don’t be misled that it’s easy though; there are a lot of variables to consider!

So how do you determine the cost of an e-Learning Program? Just add up all the hours everyone spent on the project and multiply those hours by his or her rate. There’s the first layer of the onion! Of course, you must decide between two basic approaches: Blended Cost and Actual Cost.

A Blended Cost approach is to take all hourly rates and average them into one rate and then multiply the total expected hours by this number. Lets say, for example, there are 379 development hours required and our blended rate is $67.15 per hour (rate + rate + rate / total # of roles = Blended Rate). So 379 hours x $67.15 per hour = $25,449.85. Wow, this is easy isn’t it? OK, but is it accurate? (See Table 1)

An Actual Cost approach takes into account the hours each role is expected to use. To determine actual costs simply add the hours for each role and multiply by the rate for that role. Then add these dollar amounts together. In our example, the Instructional Designer spent 80 of the 379 hours at a rate of $65.00 per hour (ID = 80 x $65.00 (rate) = $5200.00). When added to the other role costs on the project you have an actual cost of $21,245. (See Table 2.) If there are several Instructional Designers who are working on a project you can determine cost within the role either by blending the role rate or by determining individual hours. Using this Actual Cost approach will allow you to find improvement areas, as it is more descriptive by role and

individual. In addition, Actual Cost takes into account differences in requirements for each project. Although using individual hours is more accurate, it should be noted that the accuracy of the Actual Cost is highly dependent on what is considered in the individual’s rate.

Got a headache yet? This was the easy part; let’s peel the onion further and describe other variables you must consider.

The impact of a single variable is dependent on so many issues that you must look at each project individually to determine accurate costing. The key to getting an accurate cost is getting the involvement of the project members. Discuss the project with each of the team members and have them determine the amount of time it is going to take them to do the work. Typically, we will take an example of courses, lessons and/or topics that is similar to what has been requested and have the members of the project team determine their own hours. In fact, we have them bid on the work. This way they sign up for the work and control their own scope.

Each of the variables listed below should be considered when determining costs. In fact, to accurately determine the cost of an e-Learning program, it is important that you also understand the implications of each of these variables. And, it is highly likely that there are several additional variables that must be considered by your department or company. Here are some of the big ones that will help get you closer to creating an accurate costing methodology.

Project Personnel Content Length Interface Design Functional Requirements Media Elements Interactivity Levels Testing/Certification Playback Environment Integration with other Systems Quality Checks

The Project Team

Let’s begin with the Project team or, more accurately, the Personnel variable. Personnel is a wildcard variable affecting the project in ways that are really hard to measure. Do you consider it? You bet! Many a consulting company and/or internal project team has fallen victim to the Personnel variable. In fact, we were brought in to help salvage a project that skyrocketed to 300% over the intended budget due to “personnel” issues.

The Personnel variable can be broken down into two basic areas: Skill set and Rate. What skills are required relative to the need? Do I need a FLASH programmer? If so, what level of programmer is necessary? How about Rates? Yes, I need to have 3D animation in every lesson. Well, it turns out that 3D graphic programmers are more expensive than your typical HTML programmer is. On every project each role, the amount of time this person will spend on the project, and their level of expertise, must be considered. This should be done at the individual level, not just at the role level. Again, involving the project team in determining their actual role costs has proven to be very effective in controlling scope.

Content

There is considerable debate over the issue of “conversion.” Is there really such a thing as a conversion process that moves instructor-led training to the Web? Well, actually there is. It is called the instructional design process. Don’t be fooled into thinking that, because content already exists in the Course ? Lesson ? Topic format, instructional design will not be needed. Does having content in this format impact costs? Absolutely. Not considering instructional design is analogous to thinking the claims on the boxes of development tools are accurate, and all the content is just going to port over and be web-ready in less than an hour! Both are ridiculous and costly conclusions!

You must determine how much of the content is created, organized, and in electronic format and how much lives in the heads of the Subject Matter Experts (SMEs). The more content that you must extract, capture, design, and then develop from the SMEs head’s, the more time will be required. However, be cautious about blindly accepting already formatted material. Often, the way the material is presented in the manual is totally different from the way the instructor presents the course. You must determine the level of creation and manipulation of all content.

Another content issue that often causes fits in costing is the subject of “compression rate.” The idea is: if course (A) is taught over ten hours in an instructor-led training (ILT) format I should be able to teach it in four on the Web using a compression rate of 60%. There’s no question that there is a compression rate component! The question is how much is it? It is usually dependent on the audience’s familiarity with the content, the importance of the role of the instructor, and the learner’s motivation. Using blanket compression rates like 60% or 40% can get you in trouble in a hurry. The best way to determine the actual compression rate is to sample several lessons within the ILT course, and determine how much development time will be required, regardless of the learner’s seat time.

Length of Course

Recently someone called us to ask exactly how long one hour of self-paced e-Learning was? Hmmm? This is similar to “How much does a ton of feathers weigh?” Their question really was, “How do I determine how to price self-paced learning?” This thinking was driven by the metrics often spewed at conferences, “We develop one hour of e-Learning in 500 hours, or 300 hours, or 120 hours.” Whatever! These statements mean so little in reality! Part of the costing problem is that we still use arbitrary metrics like 500 development hours for one hour of e-Learning without peeling the layers of the onion! It is critical to compare course to course, development team to development team, and project to project and all the variables under each. I still marvel at a SPAM-mail I received the other day that stated quite clearly that for $2500.00 and 25 hours they could take your content and create one hour of e-Learning!

If the learners are time-bound and can only interact with the program for certain periods of time, then you should field-test a representative sample. This sample should be timed to determine how long they needed to read, to interact, and to test to the prescribed level of mastery at the Topic, Lesson, and Course levels. If this is a requirement, then you will spend more time in design working through modularity issues and potentially more time in development.

Interface Design & Functional Requirements

One of the first distinctions to make is to determine whether you are using a templated interface course design or a custom course design. Simply using the learner’s company colors and logo does not make a custom design. Using templates reduces time in design and development, increases standardization, and reduces time to market. But choosing a custom approach often increases the transfer of training and overall acceptance of the learning programs. There is a belief that custom designed courseware costs more; however, this is not always the case. It is often believed that “true” learning cannot occur using a templated design; this, also, is not always true.

Consider using a Template Interface if:

• Time to market is critical
• Your SME is also the designer and developer
• There are skill-set issues in Programming

Consider using a Custom Interface if:

• You are going to develop several courses
• Strong brand identity is required
• Special Learning circumstances need to be met

Leveraging the technical design from course to course in the interface and functional design area should be a goal of the development team. Functional Requirements must be defined early in the costing program as this impacts both design and development. Glossary capabilities, note taking, FAQs, email questions, interface with Office Products or Home systems, and Help Systems. All these must be defined in order to have an accurate costing. Re-use possibilities should also be identified at this point.

Media Elements

Similar to identifying the individual roles on a project you must consider the cost of each media element independently. Media elements include Graphics (photos, line drawings, clip-art) audio files, FLASH files, Video files, and 3D animations. Typically, this becomes a real scope-creep nightmare! Everyone must be on-board with the media elements in terms of expectations, quality, and the ability to deliver. (See Figure 1.)

FIGURE 1 Media elements cost comparison

Interactivity Levels

What must the learner do to reach mastery of the knowledge and tasks? Interactivity requirements need to be defined at the topic, lesson and course levels. The requirements and expectations of the learners are often not communicated down to the level needed. Each interactivity element requires design and development time and, even though there is the possibility of reuse of the code (drag ‘n drop et al.), they must be considered independently to determine cost. (See Figure 2.)

FIGURE 2 Interactivity cost comparison

Testing Requirements

Testing of the learners in an e-Learning program ranges from testing basic understanding of concepts to full-blown certification programs. Legal defensibility issues will impact the design and security issues will impact development. Learner testing can range from the simple pre-test post-test realm to adaptive pre-testing and prescriptive post-testing. Adaptive pre-testing determines the level of understanding of the content the learner already possesses and lets them skip Topics and Lessons. Prescriptive post-testing determines what areas the learner needs remediation in, and selects a course of action based on performance. These testing methods impact cost in design and development! Testing requirements must be included in the discussion on interactivity, interface, and integration, and must be determined at the Topic level. Testing at the Topic level is more expensive than testing at the Lesson level, even if you combine several topics together.

Playback Environment

In a lot of companies there is a standard playback environment. However, to get the most accurate impact on development costs you must also concern yourself with software versions. Some design and development standards are impacted if you are designing for programs that must run on Internet Explorer 3.0 through 5.0. Standardizing on a single platform and version is greatly desired. And there is significantly more work involved in supporting both Netscape and IE vs. just one or the other.

Integration and Reporting Requirements

AICC and SCORM require a certain level of reporting within the learning environment. Two years ago this represented a serious challenge in determining accurate costs due to confusion as to the standards and reporting across Learning Management System (LMS) vendors and AICC/ SCORM. If your developers have to learn how to do this it will greatly impact your costs! If there is a home-built system, the reporting and integration issue is a gray area that must be defined by your development team and the IS department who built the LMS.

Quality Checks

It almost goes without saying that the quality of the program must be checked. Quality checking is an expense that must be considered as part of the overall cost of the program.

Summary

The onion has many layers! The key is to determine your course requirements at the Topic, and Lesson level using each and every one of the variables mentioned. Creating a costing program to do this isn’t rocket science, and many seem to naturally do this with a certain level of accuracy. However, times continue to change: ROI and profitability, offshore development, and increased exposure to custom content will drive the creation of exact costing programs

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