Four Steps to Building a Business Case for LMS

Learning Management System (LMS) is probably one of the most mature HR and Learning Technology platforms available for the CLO organization. Most of the established learning departments already have one (in many cases they are grappling with more than one due to acquisitions or haphazard attempts to replace legacy systems that refused to go away) or thinking of buying one. Considering the fact that the LMS product category has become a commodity, choosing the right LMS is an exercise similar to selecting the right cantaloupe or watermelon! You never know what’s inside and every product has identical set of features. Luckily, vendors have started to differentiate their offerings and are moving away from just price based differentiation.

But a key challenge for the training or learning department is to convince the CFO to allocate the budget for a LMS implementation. Here are four steps you can make use of to help you make a compelling case for securing the budget.

STEP 1: Calculate the cost of training delivery in the absence of a LMS. These cost items are:

  • Cost of conducting a classroom based training such as travel and lodging, man-days spent on travel, cost of securing training space, cost of hiring a trainer, and cost of consumables.
  • Opportunity costs for various user groups in the absence of a LMS. Examples: Loss of sales revenues due to delay in conducting training sessions on a new product, productivity loss as a result of a new system attributed to lack of training, number of support calls to help desk  team in the absence of training or as a result of delay in training.

In summary, direct costs of traditional training + opportunity costs associated with delays and inefficiencies in traditional training = total cost of training in the absence of a LMS.

STEP 2: Now start adding up the cost of getting a LMS in place and maintaining it once you have it implemented. This is pretty easy to compute as the LMS vendor should be able to give you life-cycle costs. Here are the cost items you should track:

  • Cost of doing the due diligence to select the LMS product. This will include all the time you might be spending reading up on various LMS products, research reports, and listing to vendor spiel.
  • License costs for the LMS.
  • Ongoing maintenance cost such as staffing a help desk team or outsourcing support to the vendor.
  • If the LMS is hosted in-house, budget the cost of hosting and administering the LMS instance.
  • Any integration costs (such as integrating the LMS with your ERP or talent management systems).
  • Cost of future upgrades and customization efforts (best guess).

STEP 3: Now, start computing the benefits of having the LMS in place. These are typically cost savings as a result of the convenience offered by the LMS in delivering standardized learning content to all employees, asynchronously, and thereby delivering increased learner productivity and cost-effective learning consumption. A more sophisticated analysis of benefits would be a measure of productivity gains, reduced need for support, sales gains, better inter-departmental collaboration, and better decisions as a result of robust analytics and reports available through the LMS. The purpose of this rather difficult exercise (i.e placing financial value to the benefits of the LMS) forces the training department to shape their LMS strategy and align the LMS strategy to business strategy. This is a  critical step and without it, you will end up with a LMS that will make your life miserable. If you do not know what benefits you want to derive out of the LMS, the decision on the right LMS for your organization will boil down to which LMS vendor has the best sales team!

STEP 4: This is the last and the easiest step. Subtract the LMS costs from the benefits you hope to derive out of the LMS (result from step 3 – result from step 2). The resultant value should be more than the value you computed in step 1. If not, you are probably evaluating a LMS that is not the right product for you. But remember, there is always the right LMS for your organization but you won’t know it when you see it. It’s all in the numbers!

Srinivas Krishnaswamy

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I love to read and share thoughts on technology, enterprise learning, mobile and any thing cool that impacts enterprises.

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Posted in eLearning, Training

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