Calculating Value and ROI for
Workforce Certification
Computing Cost Savings, Return on Investment, and other company
benefits resulting from Implementing Workforce Certification
Workforce Certification PAYS OFF
Most companies want to know that they are getting a good return on any investment they
make. Calculating the ROI of Workforce Certification can be challenging. However, it can
be done; and it provides a great tool to demonstrate the value of certification and gain
support for additional efforts in this area. Recently more companies are exploring ways to
do this as described in the attached Success Stories.
Three approaches are commonly used to demonstrate the impact of implementing certifications as part of the
selection process.
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The reduction in recruiting and hiring costs resulting from using certifications as part of the hiring
process.
The reduction in on-the-job training resulting from using certifications as part of the hiring process.
Cost savings realized through decreased employee turnover.
Even though companies like to document ROI, they sometimes do not know how to set up the necessary metrics
for things like hiring and training. They may require some guidance (and prodding) to put these metrics in
place; but in the end, they always appreciate when an initiative demonstrates its impact to the bottom line.
A company may work with a community college to design and pilot a program that will prepare candidates to
meet their needs. Or they may partner with the college to identify appropriate certifications for their open
positions and work with the college to imbed or offer these certifications to potential candidates. In this process,
the company works closely with the college to ensure that the students will have the knowledge and skills and
the certification needed by the company. Company personnel time devoted to this process is one measure of
their investment. It is helpful to identify the factors prior to implementation of the certification, preferably
during the planning process. The company should begin to gather information about existing recruitment and
hiring practices (and direct costs) as well as the retention rate of new hires resulting from this process. Based
on this information and input from company trainers and supervisors, they can identify metrics to be captured
at the end of the pilot or beta certification process. Identifying these factors early in the planning process
makes it easier to quantify the value and company benefit once certified workers are hired and on the job.
In either situation, companies have reported measurable and significant impact and benefit to hiring certificated
individuals. To compute these savings a number of factors must be taken into account. Let’s look at each along
with an example that illustrates cost savings.
NOTE: Be aware that the examples that follow are for illustration purposes only.
A company’s actual costs and savings may vary based on their unique situation.
Reduced Recruiting and Hiring Costs
One of the first considerations must be the costs the company incurs when attempting to fill these skilled
positions. These costs may include:
 Advertising
 Interviewing candidates
 Internal meetings to screen and select candidates
 Testing candidates
 Fees paid to a Temporary Agency
Each of these requires staff time. One way to arrive at a company’s true hiring costs is to add up these costs and
divide by the number of hires. Having a sense of what the company is currently spending will be helpful in
computing the ROI at the end of the project.
There are a number of on-line sites that provide calculators companies can use to determine hiring costs.
ADP developed this cacluculator available HERE.
Ashton Associates developed this calculator available HERE.
Here is yet another from HR World. Access it HERE.
For a simple rule of thumb, you can apply the percentage method to calculate hiring costs. An American
Management Association Trendwatcher (7/13/2010) article suggested that the cost of hiring and training a new
employee ranges from 30% –200% of annual compensation. The calculations below use the very low end of this
and assume the hiring costs to be 30% of annual compensation.
$14.00/hour
x 2080 hours/year
$29,120 annual comp. cost
x30% (Low estimate for replacement)
$8,736 (Hiring Cost per employee)
Assume the wages for the position are between $12 $16/hour – or on average $14/hour. Multiply by the number
of working hours in a year to get the annual compensation
cost for the position. Using the very conservative estimate of
30%, the hiring cost for these positions comes to just over
$8700.
When piloting the use of certifications, it can be assumed that there will still be an interviewing process and
potentially internal meetings dealing with candidate qualifications and related issues. However, the advertising,
testing, and temp agency fees may not be necessary if the process is implemented in partnership with the
college. Let’s assume that represents 50% of the recruitment and hiring costs.
The following formula can be used to compute the potential turnover cost savings resulting from this approach:
Hiring Cost/Employee
X Estimated % Reduction in Hiring Cost
= Cost Savings/New Hire
Reduction Hiring Costs:
$8,736
50% (est. reduction)
$4,368 (Savings per new hire)
So, using the hiring cost just calculated, we arrive at a $4,368 savings per new hire as a result of using the
community college and workforce certification process as part of hiring these new employees. For every
candidate hired from the college using industry certifications, the company saves over $ 4,000 by hiring certified
workers.
Reduced On the Job Training Costs
Another significant impact resulting from hiring certified workers is a reduction in on-the-job-training (or OJT)
time. Because the company participates in identifying the appropriate certifications (and levels) and in
developing the curriculum, candidates are prepared to enter into an internship if available and then full
employment with the skills needed to do the job. Following the internship they require less OJT than someone
hired off the street.
Employee OJT Costs:
$15.00 / Hour Salary
x 1.3 (30% for benefits)
$20.00 / Hour (fully loaded)
x 142 hours est. OJT
$2,840 (per new hire)
Anecdotal reports from manufacturing companies, suggest that the
typical OJT time for new hires is approximately 142 hours over three
months. (Source: MAGNET) This represents time that an individual is
paid but not very productive for the company. At $15/hour plus an
additional 30% for benefits these workers have a fully loaded cost of
$20/hour. Eliminating these 142 hours of OJT (or converting them to productive work time) leads to a savings of
$2,840 per employee. If some OJT will still be required adjust the number accordingly to arrive at a cost savings
that accurately reflects the company’s reality.
Supervisory time is also required to support the OJT experience.
Typically this is approximately 88 hours of time when the skilled
supervisor is not productive. Using a similar approach, assuming a
supervisory salary of $27/hr. with 30% benefits these employees have a
fully-loaded hourly value of $36. Assuming the supervisor invests 88
hours of time over three months, this training costs an additional
$3,168 per new hire. Again, these numbers can be adjusted as needed
to match the company’s actual investment of time.
Reduction in OJT Costs:
$2,840 Employee time in OJT
+3,168 Supervisor time
$6,008 Total Cost of OJT
x 50% (est. reduction in OJT)
$3,004 (Savings per new hire)
Supervisory OJT Costs:
$27.00 / Hour Salary
x 1.3 (30% for benefits)
$36.00 / Hour (fully loaded)
x 88 hours est. OJT coaching
$3,168 (per new hire)
If we conservatively estimate that implementing workforce certification
as the preferred hiring approach reduces the OJT time by 50% the cost
savings will cut this total cost in half. Adding the employee and
supervisory time together yields a total of just over $6,000, which means
that a 50% reduction in OJT saves another $3,000 once the employee is
on the job.
Cost Savings Due to Improved Retention
A hidden benefit that should also be considered is the tendency for a well-suited employee to stay with the job,
rather than wash out or leave in frustration. Improved employee retention can save the company considerable
time and expense in the hiring process. As noted above, this can be as significant as $8,000. When an employee
leaves, not only is that investment lost, but the company has to invest again in a new candidate. If the new hire
leaves in less than 3 months, the loss to the company can be significant.
Ask the company, if possible, to provide their retention rate resulting from current practices. Using the figures
above you can quantify their investment in each new candidate. If the retention rate of the current practice is
50% that means that 1 out of 2 new hires fall into the "Bad Hire" category. Each of these, costs the company
approximately $ 8,000. If they invested an additional $6,000 in OJT, that too is lost.
If it can be demonstrated that hiring certified workers
results in new hires that stay longer than past
employees, this $14,000 becomes another value or
cost savings to the company.
Improved Retention
50% (Old Retention Rate)
80% (New Retention Rate)
30% Less New Hires
If the retention rate of new hires was 50%, and it
improves to 80%, that means there are 30% less hires
required per year. So, assuming a company annually
Cost Savings due to Improved Retention:
$14,000
x20
$280,000
Workforce of 100
Annual hires: 50
Annual hires: 20
hires 100, instead of hiring 50 new employees, only 20 new employees would be hired, saving the company the
hiring and OJT costs that they would have spent for 30 additional employees that they now do NOT need to hire.
Summary of Cost Savings
So the total cost savings to the company/value to the company given a workforce of 100 where 50 employees
are typically hired per year would be significant. (Numbers rounded down to simplify calculations.)
50% Reduction in New Hire Costs:
$ 4,000/employee
x50 hires
= $200,000
50% Reduction in OJT Costs
$ 3,000/employee
x50 hires
= $150,000
Improved Retention Savings
$ 14,000/employee
x20 less hires
= $280,000
TOTAL COST SAVINGS TO COMPANY: $730,000
Calculating Company Investments in Certifications
Project Planning Activities
Typically, the company’s initial investment in the pilot project includes the supervisory and HR staff time
required to plan and implement the process. To compute this, the company would look at the number of hours
involved per person, the approximate hourly rate including benefits, and possibly the value of time lost on the
job. In many cases, those most involved are from HR or Training and this
activity is viewed as part of their job. However, when engaging the
HR & Supervisory Planning:
supervisors and the most skilled production associates in the
$36.00 / Hour Salary
development of the curriculum there may be a more significant cost to
x 1.3 (30% for benefits)
the company.
$46.80 / Hour (fully loaded)
x 90 hours of project planning
Assume the average HR and Supervisory salary is $36/hour or $46.80 with
$4,212
30% added for benefits. Assuming a total investment of 90 hours for
project planning and administration, this comes to $4,212.
Project Management
In successful projects where certified workers are being prepared, the
company identifies a point person to serve as manager of the project.
This person will serve as the point of contact with the company for all
aspects of the project and will have the authority and responsibility of
engaging the key personnel needed in every step. In addition to
placement and oversight of interns (if offered as part of this project),
this would also include any internal resources, H.R. activities, and
reporting requirements.
Project Management:
$42.00 / Hour Salary
x 1.3 (30% for benefits)
$54.60 / Hour (fully loaded)
x 50 hours of project mgmt.
$2,730
Assume a salary of $42/hour or $54.60 fully loaded. (Again, company numbers can be inserted. These are for
example purposes only.) Assuming a total of 50 hours of project management, this yields a total company cost
of $2,730.
Intern Supervision
Supervision of Interns:
$36.00 / Hour Salary
x 1.3 (30% for benefits)
$46.80 / Hour (fully loaded)
x 40 hours of intern oversight
$1,872
Although it is expected that the interns will be prepared to perform the
job at the company, there still are required orientation and on boarding
activities to ensure a successful internship or employment experience.
The training cost of these activities also is another company investment
that can be quantified as part of the ROI process.
Assuming similar salary information as outlined above, and 40 hours of
intern oversight, this is an additional cost of $1,872.
Other costs
Other costs might include donated equipment, payment of fees or tuition for participants, staff time if a
company supervisor or trainer assists in the delivery of the curriculum. Again, secure actual costs from the
company. For example purposes, assume projected additional costs of $ 2,000.
Summary of Company Costs
Total Investment:
Planning Process
Project Management
Intern Supervision
Additional Costs
$ 4,212
$ 2,730
$ 1,872
$ 2,000
$10,814
Adding together all of the above estimated costs to implement workforce
certification yields a total company investment of nearly $11,000 as
shown in the example here.
Calculating Total Return on Investment (ROI)
Using the investment and savings number from the above sections, one can easily calculate a Return on
Investment (ROI) for implementing workforce certification as part of a company’s hiring and onboarding
process. The formula for ROI is:
Return – Cost of Project
Cost of the Project
Total Investment:
$10,814
Cost Reductions (per new hire)
Reduction Hiring Costs:
$4,368
Reduced OJT:
$3,004
TOTAL per new hire:
$7,372
TOTAL savings:
x5 (new hires)
$36,860
Assume a company implements a small
pilot/beta test where only five employees are
hired at a similar salary ($14/hr) as used in prior
examples. To simplify this calculation, set aside
the cost savings in the coming months from reduced turnover. So,
we’ll focus only on the 50% reduction in hiring costs ($4,368 per
employee) and the 50% reduction in OJT costs ($3,004 per
employee). That adds to a savings of $7,372 per new employee, so
for five new hires a company has savings of $36,860.
Total Return:
Total Cost:
$36,860
-$10,814
$26,046
$26,046  $10,814 = 2.4 (240% ROI)
Assume the total company investment was $10,814, as calculated in the above section. Applying these numbers
to the ROI formula we arrive at a total ROI of 240%. These are numbers that will bring a smile to any business
owner or CFO! And, remember, there are more savings if the potential reduction in turnover is calculated. And,
there are still other benefits that could also be considered; read on.
Additional Company Benefits from Using Certifications in the Hiring Process
If a company chooses to include certifications as a preferred qualification for new hires, they can also measure
(compare) the performance of certified new hires with previous individuals hired without the certification.
These benefits are related to their current work demands and meeting customer needs. For example if the
company is projecting back orders or late shipments due to lack of workers to meet the order demands, there
could be a quantifiable benefit related to the savings.
$600,000 Backorder and late shipments
For example if a company has $600,000 in backorders and
.25 (estimated 25% cancellation)
estimates that 25% of these sales may have been lost if the skilled
$150,000 Retained sales
employees were not hired in time, that equates to a savings of
$150,000 in retained sales that might otherwise have been lost.
Companies also track employee productivity. If it can be demonstrated that the certified workers perform at a
higher level, this additional productivity can also be captured and calculated. (For example: Measurable
Increased Productivity; Number of Standard Hours -Actual Hours = Productivity)
Reduction in rejects and rework might also be used, by comparing changes in amount of scrap or the number of
rejections correlated with the new certificated workers
Role of Education Partners
The ability to talk in these terms and help companies calculate ROI may elevate you from simply an education
and training partner to that of a true business partner; strengthening your relationship and giving you leverage
to do even bigger projects together. Education partners should be able to explore these metrics with the
company and help them understand the value of maintaining an ongoing relationship with your college.
Education partners will acquire a better understanding of these data points as they continue to work with their
partner companies. This will lead to increased quantification of the value of the certified workforce and may
result in certifications being available to the incumbent workforce as part of the retention and promotion
strategy.