The Financial Benefits of eLearning 

INTRODUCTION Technology is 
viewed in many sectors as an aid to 
productivity. Its ability to lower costs and 
increase output through automation, fast 
information processing, and improved 
communications makes it an important 
competitive tool. In education, technology 
(and more specifically, eLeaming) is 
looked upon as a means for making · 
teaching and learning potentially more 
interactive, effective, efficient, and 
accessible. In tertiary institutions, cost 
issues are of paramount importance to 
course creation and delivery. Indeed, 
financial analysis of education design 
and delivery is "central to the planning 
and development of education systems" 
(Rumble, 1997, p. 2). 

While the productivity benefits of 
eLeaming for corporate training are well 
known (see for example Rosenberg, 2001 
and Rueda, n.d.), little work has been 
done on the financial benefits eLeaming 
makes possible in the education sector 
(Rumble, 2001). According to Cukier 
(1997), most existing studies are more 
concerned with the cost-effectiveness 
of distance education as compared 
with face-to-face education, although 
exceptions do exist (Boeke, 2001). 

In the main, institutions fund eLeaming 
at the strategic level and tend to require 
little financial accountability beyond the 
setting of an annual budget. Eventually, 

MARK NICHOLS 

UNIVERSAL COLLEGE OF LEARNING 

P ALMERSTON NORTH, NEW ZEALAND 

however, it is likely that tertiary 
institutions will be asking financial 
questions of their eLeaming initiatives. 
While this may be desirable, a 
complicating issue for eLeaming teams is 
the fact that eLeaming projects have very 
high fixed costs and very low variable 
costs,· meaning that the initial costs of 
development are extremely large and 
financial benefits can take time to 
accrue. Many costs of eLeaming are also 
difficult to isolate from the overall course 
design and delivery costs. Adding to the 
complexity of tracking cost for many 
institutions is the need for diverse 
eLeaming projects, ranging from course 
adaptation to the development of 
simulations and digital media. Each 
project is a unique mix of scope and cost. 

This paper draws on approaches taken 
by corporate trainers when costing 
eLeaming initiatives, and explores ways 
in which eLeaming departments within 
tertiary education institutions (TEis) can 
proactively and transparently account 
for their activities. 

TEl VERSUS CORPORATE 

ELEARNING Corporate training 
eLeaming budgets tend to be substan­
tially larger than those of typical TEis 
because of the substantial savings that 
result, particularly in the areas of travel, 
less disruption to productivity, and 
flexible scalability (Rosenberg, 2001). Of 

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25 



particular interest to commercial trainers 
is the "tD,-ne to competency" (Rueda, 
n.d.), the time it takes for a trainee to 
become proficient at their job, which is 
significantly reduced when eLearning is 
applied in place of traditional workshops. 
TEis are only able to benefit from 
these same advantages if they are able 
to use technology to offer self-paced 
training packages designed to teach skills, 
although this can be at odds in tertiary 
contexts that have cognitive development 
as a prerogative. Rosenberg puts this well: 

In business, learning is a means 
to an end. Generally speaking, 
that end is enhanced workforce 
performance, which in tum 
reflects its value-better products 
and services, lower costs, a 
more competitive posture in the 
marketplace, greater innovation, 
improved productivity, increased 
market share, etc. (2001, p. 4) 

Financial considerations are still 
important for TEis. However, the 
relative worth of eLearning expenditure 
can be harder to quantify than it is for 
commercial trainers. 

eLearning can be justified based on its 
contribution to the four major criteria 
for business performance identified by 
Hammer and Champy (as cited in 
Rosenberg, 2001): cost, quality, service, 
and speed. The same criteria can 
be applied for justifying eLearning 
investment by TEis. 

" Cost: The relationship between 
financial investment and financial return, 
the focus of cost-benefit analysis (CBA) 
and return on investment (ROI). 
• Quality: Better meeting and 
exceeding client expectations. Improved 

quality can lead to an enhanced 
reputation, with the further benefits of 
increased client loyalty and market 
share growth. 
"' Service: eLearning can lead to 
better responses to customer needs and 
improve satisfaction. This can lead to 
better differentiation in the marketplace 
and improve access for clients, leading 
to higher emolments by part-time clients 
in particular. 
• Speed: eLearning makes 
communications and information 
updating possible in real-time and, 
particularly with asynchronous commun­
ications, enables flexible learning. 

Not all are easy to quantify for 
education providers; however, all affect 
the long-term financial performance of 
an institution. 

WHAT DOES ELEARNING 

COST? Costs of development, delivery, 
and associated overheads should be 
considered when evaluating eLearning 
costs (Rumble, 2001). In spite of these 
clear categories, however, budgeting and 
controlling eLearning expenditure is 
made extremely difficult. Little is known 
about the specific financial dynamics 
of eLearning, although general principles 
are emerging, such as these from Boeke 
(2001, p. v): 

• Technology-mediated delivery is 
more expensive than face-to-face delivery. 
" Communications costs and course 
design are the major costs that make 
technology-mediated delivery so 
expensive. 
• Institutions that are not experiencing 
high costs in communications or course 
design are probably not leveraging the 
technology well. 

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.. Planning costs substantially reduce 
development costs. 
" Mentoring and other �upport 
functions do . affect course completion 
rates. 
.. People costs are generally the most 
significant costs for eLearning design 
and delivery. 

Further, information transferability of 
financial data in literature is complicated 
by a general lack of reporting in the 
following areas: 

• The actual scope of the recorded 
costs. For example, in the creation of a 
website, does the cost of development 
include the writing and proofing of the 
editorial content, or does it solely 
consider the development of the Web 
interface? Does the cost include the 
scoping or evaluation of the product? 
• The mix and management of 
personnel, and their respective skills and 
experience at eLearning design. 
• The learning process required of 
students from the resource. One student 
hour, for example, might involve reading 
a specially written topic summary or 
completing step-by-step tasks, both of 
which will cost different amounts to 
develop. Other resources may point the 
student to external websites, while others 
may require the preparation of fully 
interactive simulations. 
• The level of the course being 
prepared. 
• The level of overhead, which differs 
from institution to institution. Some costs 
may ignore overheads altogether. 
• The actual quality or level of 
professional input into the finished 
product. For example, the footage taken 
for digital video might be of cinematic 
quality, home-video quality, or any point 
in between the two. 

• The ammmt and state of pre-existing 
material used in the design. 

TEis are best to create their own cost 
system if they desire reliable estimates for 
forecasting purposes. One of th'e benefits 
of tracking the internal cost of eLearning 
is that it enables the formulation of an 
hourly rate that can be used to budget 
projects. Of course, such a figure should 
be designed to reflect costs adequately 
rather than accurately, as costing is 
an area that can cause "paralysis by 
analysis." There is a very real trade-off 
between what works and what is perfect 
in terms of budgeting and forecasting. 

The advantage of internal costing is that 
it allows for better comparison between 
internal real costs of production and 
the costs of outsourcing. Considering 
overheads in the hourly rate permits a 
truer view of the actual cost of eLearning 
development than does consideration of 
only direct costs, as the latter may 
make eLearning development appear to 
be cheaper than what it truly is. 

A Project Management Approach 
A project management approach to 
eLearning design is likely to help in the 
allocation of limited resources and 
accountability. Each project follows a 
formalised design process, which is 
carefully managed and justified. Ideally, 
the justification for each individual 
project should be described in terms of: 

1. The student learning/ access needs it 
will help to meet. 
2. The advantages of the eLearning 
solution over the status quo. 
3. The raw materials and resources 
already in place that can be used in the 
eLearning solution. 

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27 



4. The potential financial value of the 
project (cost/benefit). 
5. An itemised budget that includes 
an allowance for unforeseen costs 
and rework, and projected ROI (return 
on investment) or CBA (cost-benefit 
analysis). 
6. An overview of what is already 
available for purchase or license, 
including strengths and weaknesses 
and costs. 

Even if the project is not likely to make 
a positive financial return, the reality 
should be acknowledged before the 
money is committed. Larger projects 
might be broken into independent 
phases. A project may be the development 
of an entire course or the creation of 
an eLearning element within an existing 
course. The nature of eLearning projects 
is as diverse as eLearning itself. 

Projects with a broad application are 
able to justify higher levels of investment. 
Joint ventures or partnerships with other 
institutions might be considered at the 
justification stage if the numbers do not 
add up within a comfortable margin. 

Determining Value 
with CBA and ROI 
The attractiveness of an eLearning project 
should be determined at least in part by 
the undertaking of a projected ROI and 
CBA. Both have always been major 
considerations for commercial training 
projects, although it is important that 
they be used for planning and not as a 
measure of success, because with both it 
is possible to manipulate the result by 
reducing the level of investment and 
compromising on design. ROI and CBA 
should be treated with some caution. 

------------ ------

The ROI is usually determined after an 
intervention has been implemented. ROI 
is the profit or surplus resulting from 
the intervention (benefit less cost) 
divided by the amount invested to make 
the intervention possible (cost). It can 
be used to compare the return of one 
intervention with that of another. An ROI 
of 0.125 would indicate that every $1 
invested into a project resulted in a 
surplus of 12.5 cents. 

The CBA divides the estimated benefit 
of the intervention by the cost of 
design, development, implementation, 
and evaluation. An intervention that 
results in a return of $125 and cost $100 
to make has a CBA figure of 1.25. The 
ROI on that project would be 0.25. As can 
be seen, both figures are very similar; 
which one is used is largely a matter 
of preference. Either can be calculated 
before a project is started to help justify 
expenditure and both rely on financial 
measurements for cost and benefit. 

COSTS All money invested into a 
project contributes to the costs of that 
project. Costs include both direct (real) 
and indirect (associated) expenditure. 
For example, an employee would be a 
direct or real cost; the electricity they 
consume, the wear and tear on the 
computer equipment, and the cost of the 
software they use during the project 
would be indirect costs. Indirect costs are 
also commonly known as overhead costs. 

Overhead costs should be based on the 
total budgeted department expenditure 
during the year for overhead- expenses, 
divided by the number of hours that can 
be used for production. The result can be 
used to set an internal hourly rate for 
projects __ that can be used as the basis 

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for :internal charges or else as a basis for 
departmental account:ing. Overhead costs 
tend to be higher than actual costs of 
production and development, and so it 
is best to show the actual overhead as a 
separate figure rather than bundling it 
to an hourly rate. Overhead could thus 
be represented as a multiplier based on 
the direct costs of development. Explicitly 
confront:ing overhead costs in such a way 
adds :incentive to see them reduced and 
controlled. Rumble (1997, p. 62) describes 
overheads as "burdens that need to be 
decreased" (emphasis original). 

There are many ways :in which costs 
can be categorised (see for example 

Bartolic-Zlomislic & Bates, 1999; Sjogren 
& Fay, 2002), but splitt:ing costs between 
fixed costs (those that rema:in constant 
regardless of output) and variable costs 
(those that :increase or decrease in direct 
relation to output) is typically 'sufficient. 
For a course written :in an eLeaming 
mode, the costs of developing the course 
would be fixed; the costs of delivering the 
course would be variable. 

Table 1 lists the actual categories of 
expenditure required for a typical 
eLeaming project (based on Barfoot, et 
al., 2001). 

Table 1 Categories of typical eLearning expenditure 

Salaries of eLearning staff Internal 

Personnel 

Outsourcing 

Additional costs-staff development, etc. 

Costs of releasing subject experts for the project 

External designers I programmers 

Management 

Overhead 

Costs of sourcing raw materials/ content for the project 

Administrative costs 

Institutional services-premises, security, cleaning, desks, etc. 

Asset costs and depreciation--equipment purchase, maintenance, 
upgrading, etc. 

Administrative costs, such as telephone, stationery, etc. 

It should be noted that using an 
additional internal person in a project 
will incur more than just the cost of 
their salary. Overhead costs will also need 
to be increased to cover the costs of 
their desk space, computer use, electricity 
use, etc., as well. Clearly, calculat:ing the 
departmental overhead based on the 
overall budget for the department 
divided by hours of productivity has the 
advantage of expressing the real cost of 
an internal staff member at an hourly rate 
that includes more than just their salary. 

The projected costs will need to consider 
all stages of the project from needs 
assessment right through to implemen­
tation and evaluation. 

BENEFITS Rosenberg's (2001) four 
criteria (cost, quality, service, speed) 
provide a useful framework for 
determining the value of eLeaming 
interventions. For the calculation of 
CBA and ROI it is important to be able 
to somehow quantify the benefits from 

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29 



each criterion. Benefits that should be 
quanti_,_iJ.ed include all potential flow-on 
benefits, such as: 

Cost: 
• Reduced costs associated with face­
to-face classes, including room rental 
and travel costs (if any). If these costs are 
likely to rise, they should be included in 
the analysis also. 
• Reduced wear and tear on physical 
teaching resources. 
" Justifiable fee/materials charges 
through added value. 
" Potential on-selling revenues. 

Quality: 
" Enhanced institutional reputation. 
• Better student satisfaction and 
retention. 

Service: 
" Improved learning. 
• Increased access and emolments. 
• Increased capacity through reduced 
use of physical teaching space. 
" Subject matter expert (SME) 
and development team professional 
development. The subject matter expert 
development may seem like a false 
benefit, however experience with SMEs 
who work in lecture environments 
has demonstrated that reworking their 
existing resources helps them to better 
understand and express main points. 

Speed: 
• Enhanced delivery through flexibility. 
" Increased adaptability and updating 
of course materials. 

This is a general list, and not all of these 
benefits will apply for each eLearning 
project. Those benefits that do apply to 
a particular project should be quantified 
if at all possible. Financial benefits should 

be calculated over the projected life of 
the course or learning object, as not all 
benefits will be realised in the year the 
eLearning initiative is created. eLearning 
initiativ�s require significant levels of 
investment up front, however their 
benefits are enjoyed for a number of 
years. When justifying eLearning 
projects it is therefore prudent that 
financial benefits are prepared based 
on three categories of benefit: direct 
(the "cost" category of direct financial 
benefits); indirect (the estimated financial 
benefits from "quality," "service," and 
"speed" categories); and on-selling. 

Because Rosenberg's (2001) cost category 
is the only one that can be used as a 
firm basis for quantification and not all 
institutions will be comfortable with the 
thought of on-selling their eLearning 
materials, it is frequently necessary to 
create CBA and ROI figures that 
gradually include each form of benefit. 
Indirect benefits are extremely difficult 
to empirically ascertain and should 
therefore be used cautiously; however, 
they are very real to the institution. 

WORKED EXAMPLE The Universal 
College of Learning (UCOL) has created a 
photography learning object (simulation) 
which is used twice a year for a small 
number of students (about twelve). It is 
estimated to have a six-year life span. The 
learning object explains the concept of 
portrait lighting and permits students 
to experiment with different lighting 
arrangements on a virtual subject. 
Students can also test their understanding 
of the relationship between light source 
and shadow. Before the learning object 
project was approved, the following 
justification was prepared (based on the 
six justification criteria outlined earlier): 

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1. Students have conceptual difficulty 
understanding the effect that lighting 
can have in portrait photographs. This is 

· because it takes time to develop the 
sample shots they take with SLR (Single 
Lens Reflex) cameras and the difficulty of 
making sufficient studio time available 
to small groups so they can experiment 
with different lighting effects. 
2. The eLearning solution will enable 
students to conveniently experiment 
with different lighting arrangements, and 
will test their ability to associate a 
particular portrait with the light 
positions used for that portrait. 
3. Some content material can be adapted 
and included in the solution. 
4. There are no similar solutions 
commercially available. 

The potential value of the project and an 
itemised budget are detailed below (note 
costs are in NZD). 

Direct Benefits: 
• Reduced materials cost (film, 
processing, and paper) for teaching the 

topic; potential savings of $20 per student 
x 12 students = $240 per offering. 
" Freeing up of studio, cost of 1 hour x 
$50 per offering = $50 per offering. 
<> Less wear on equipment (lights, etc.), 
estimated at $20 per offering. 1 

Indirect Benefits: 
.. Enhanced face-to-face contact and 
reinforcement of concepts, estimated at 
$20 per student for a total of $240 
per offering. 
• Staff development for 
content material and 
exercises: $200. 

gathering 
generating 

" Staff development for project 
team: $400 (although it may actually 
be more, as each project builds up 
needs-based expertise that can be later 
exploited further). 
• Enhanced institutional reputation as 
innovative, both for students and 
industry: $600. 

On-Selling Benefits: 
• Potential sales of 10 copies at $500 per 
institutional license. 

Direct savings: ($240 +$50+ $20) x 12 (number of offerings) = $ 3,720.00 

= $ 4,080.00 

= $ 5,000.00 

= $12,800.00 

Indirect savings and additional benefits: ($240 x 12) + $200 + $400 + $600 

On-selling revenues (potential): 10 x $500 

Total potential return on investment over six years ($2,133.33 pa): 

Note: This ignores the effects of interest and inflation, both of which will affect the value 
of future estimates. However, for the sake of internal controls, ignoring future dollar 
values is acceptable provided inflation is not running rampant! 

The actual budget for the project 
was approximately $8,100.00 including 
allocations to all internal overheads. 
The budget was prepared based on 
prior experience of simulation projects. 
The actual cost of the project was 

$8,935.00. The difference of $835.00 was 
mainly additional expenses related to 
programming, which had the additional 
benefit of furthering the programmer's 
skill repertoire. 

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Table 2 Financial analysis 

Budgeted Anticipated Return 
Benefits Cost CBA Per $1 Invested (ROI) 

Direct $ 3,720 $8,100 0.4-6 -0.54 

+Indirect $ 7,800 $8,100 0.96 -0.04 

+ On-Selling $12,800 $8,100 1.58 0.58 

Table 3 Budget 

Stage No. of Hours Cost (@ $90ph) 

Preliminary phase (initial assessment, solution analysis, 15 $1,350.00 
proposal preparation and approval) 

Management phase (actual creation of the intervention) 50 $4,500.00 

Implementation and evaluation phase (contextualisation 15 $1,350.00 
of intervention, distribution, formal evaluation) 

Unforeseen costs and rework 

Total 

However, this is all only part of the story. 
A case is made for the intervention to be 
created, but the following issues are not 
fully addressed: 

• Might the money be better spent 
elsewhere? Perhaps, but the amount to 
be spent on this project is at least 
justifiable. Typically, decisions on major 
budgets are made at a level above that 
of the institution's eLearning function. 
It is also of significance that the project 
does consider its generous contribution 
to overhead costs, which must be 
covered regardless of whether or not the 
project is approved. 
• What about the effect of increased 
use on facilities such as computer 
labs and servers? Typically this is 
not an issue for the eLearning team, 
as most institutions do not link 
their infrastructure costs to their 

10 $ 900.00 

90 $8,100.00 

eLearning budget. There is also an 
institutional desire to increase the use 
of computer labs. 
• What about the fact that most of 
the costs are already absorbed into the 
eLearning team's salaries? At least a 
return can be demonstrated, and the 
investment in eLearning salaries is 
shown to have a potential return 
beyond maintenance of existing 
eLearning systems. 

CONCLUSION For any eLearning 
development project, costs and benefits 
need to be expressed as fully as possible 
so that a true picture of the financial 
situation can be given alongside the 
teaching and learning benefits that 
may arise. An effective system will 
continuously measure real costs and 
benefits, . and adjust budgets and 

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32 



projected savings accordingly. Even if 
an eLearning department is not required 
to account for its institutional budget 

.
·
in detail, such knowledge will assist in 
the efficient use of institutional funds 
and provide important considerations 
for the expansion or outsourcing of 
eLearning activities. ROI and CBA are 
useful tools for providing financial 
analysis on eLearning activities; however, 
their use often requires arbitrary 
quantification of qualitative benefit. 
While it may seem that this arbitrary 
quantification is merely an attempt to 
help improve ROI- and CBA-based 
justification of a project, many of the 
financial benefits of eLearning are 
indirect and would otherwise not be 
sufficiently considered. 

Tracking costs within individual projects 
has the additional benefit of revealing 
potential bottlenecks or fine-tuning the 
outsourcing of tasks. Once a history of 
actual project costs is developed, it 
can be used as a contributing factor to 
buy-in/make decisions also. While these 
may not be fully accurate, they will be 
indicative and therefore of pragmatic 
use in justifying and illustrating the use 
of eLeaming budgets. 

REFERENCES 

Barfoot, J., Brown, M., Butts, J., Cenedella, K., 
Duckworth, M., Herrod, J., et al. (2001). 
Ideas for improving technology resource 
allocations. Retrieved January, 2002, from 
http:/ /www.learningpeaks.com/ 
delta_project/ resource.pdf 

Bartolic-Zlornislic, S., & Bates, A. W. (1999). 
Assessing the costs and benefits of 
telelearning: A case study from the 
University of British Columbia. Retrieved 
February, 2002, from http:/ /research. 
cstudies. ubc.ca/ nee /EDST565. pdf 

Boeke, M. (Ed.). (2001). Technology costing 
methodology casebook 2001. Boulder, CO: 
Western Cooperative for Educational 
Telecommunications (WCET). Retrieved 
June, 2002, from http:/ /www.wiche.edu/ 
telecom/ projects I tcm/TCM..t.Casebook_ 
Final. pdf 

Cukier, J. (1997). Cost-benefit analysis of 
telelearning: Developing a methodology 
framework. Distance Education, 18(1), 
137-152. 

Rosenberg, M. (2001) , E-Learning: Strategies for 
delivering knowledge in the digital age. 
New York: McGraw-Hill. 

Rueda, M. (n.d.). E-Learning economics: 
Expanding our understanding of the 
traditional ROI. Retrieved June, 2002, 
from http:/ /www.hptcorp.com/pdf/ 
econornics.pdf 

Rumble, G. (1997) . The costs and economics 
of open and distance learning. London: 
Kogan Page. 

Rumble, G. (2001). The costs and costing 
of networked learning. Journal of 
Asynchronous Learning Networks, 5(2), 
75-96. Retrieved June, 2002, from http:/ I 
www.aln.org/publications/jaln/v5n2/ 
v5n2_rurnble.asp 

Sjogren, J., & Fay, J. (2002) . Cost issues in 
online learning: Using "co-opetition" to 
advantage. Change, 34(3), 53-57. 

Mark Nichols is an eLearning Consultant at 
UCOL. His experience, research, and practice 
interests combine in the study of eLearning and 
learning design for open and distance education. 
He is currently convenor of the Institutes of 
Technology and Polytechnics of New Zealand 
eLearning forum, an executive member of D EANZ, 
and Director of Course Design for the Centre of 
Distance Learning, Bible College of New Zealand. 

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