hello there,

can anyone out there tell me the differences between

IRR - internal rate return
ROI - return on investment
NPV - net present value
hrv - human resource value
dif analysis and payback time.

how do you calculate for each? i want to find out some of the ways to calculate cost benefit analysis for training?

please help. thanks!!

Wow!! - surley not in one sitting anyway - maybe there's a QA/cost accountant out there somewhere that could help?

Jessica

Too big subject to be discussed in the forum. You had better take some books on finance or engineering economy and have a look. Any of them should discuss in details about your question.

Cheers,
Tuan

Any takers on any of them 1 at a time?

well i don't expect a very long explaination. just maybe the formula will do and some feedback on either one. it is amazing how so many ways can be used to quantify cost benefit analysis.

IRR and NPV is very seldom used, i think. don't hear much about it.

Short and sweet:

IRR, ROI and NPV all recognize the time value of money - a dollar received next year (for example, as savings from reduced errors) is worth less than a dollar today.

NPV is the net present value (the value today) of all those future savings - simplistically, $1 today, +$1*0.9 for next year's savings (at a 10% interest rate), continuing for all the years; and by the way applied as well to any investments made. Lots of different ways to do this calculation - see a finance book.

ROI is the rate of return on your investment-
again simplistically, if you invest a dollar now and in a year you have $1.10, you've made 10% on your money. Again, lots of variations on ways to do this.

IRR (internal rate of return) is often used within corporations as a "hurdle rate" - for example, "we will only make investments that have an IRR of 13.5%". Used in this context, the ROI for a project is compared to the required IRR, to see if the project is acceptable.

Payback ignores the time value of money - if you invest $10,000 in a training program, and save $4000 per year from that effort, your payback is 10,000/4,000 = 2.5 years.

A finance book will give you more details on mechanics, but this should help you find what you are looking for.

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Paul

dear mr vragel

thank you so much on your feedback. i came across this formula not long ago.

utility gain = TNdt SDy - NC

T = the number of years a training program has had an effect on performance

N= the number of employees trained

dt = the difference in job perfromance between the average trained and the average untrained in std deviation units.

SDy = the std deviation of job performance of the untrained group in pounds

C= the cost per head of training

i don't think it is such a popular method used. gosh there must be more ways out there. do you know which way is more preffered and why?

Does anyone have info on percentage of quality employees as a ratio to how many employees altogether? Or any ideas on substantiating how many quality employees should be in a facility?

Originally posted by Dawn:
Does anyone have info on percentage of quality employees as a ratio to how many employees altogether? Or any ideas on substantiating how many quality employees should be in a facility?

The old rule of thumb that I am used to is:

3-5% for consumer type QOS (like ISO)

5-7% for compliant type QOS (like QS/TS)

This is the old/new rule I am used to. I put it that way because not too many years ago I had 54 out of 350 = about 15%. But that was back when you had lots of inspectors and inspection "gates" all over the place.

Right now, for instance, I have about 3.5% in a compliant (QS) environment. That is difficult.

Comments anyone?

Paul Vragel's explanation of the various finance terms is a very good summary. I agree a basic finance book will give more detail.

I have never seen the utility gain calculation. It may sound very scientific until you get to

dt = the difference in job performance between the average trained and the average untrained in std deviation units.

Defining what job performance is and how it directly correlates to training is very subjective. If all else was equal for the workers, the job etc. then maybe you could determine the effect of the training but the problem is that there are too many other factors that can effect performance. In addition, it ignores the huge effect of management on the process and its outcome.

Bill Pflanz

dear mr vragel


dt = the difference in job perfromance between the average trained and the average untrained in std deviation units.

SDy = the std deviation of job performance of the untrained group in pounds



These are variables that can only be quessed at due to the "Human Factor" of the equation. You can have cases where an untrained person, because of individual ablilities or personal attitude, can out perform trained people doing the same task.

We only need to look back into some military history for evidence. The Army of the Potomac (professional and at the time well trained) was unable to defeat time and again the Army of Northern Virginia (well managed and motivated but not as well trained as its northern counterpart) until the weight of Northern logistics ability came into play.

More recently look back on the events in Afghanistan from 1979-1989. The Muhajidin defeated a much larger, better equipped and trained Soviet Army. The major factors weighing in on the side of the Afghan's were motivation and faith.

When we try to develop some formula like the one presented we essentually have to "SWAG" the standard deviation stuff, because many times the human factor is not considered.