Overview: Calculating Benefit-Cost Analysis (BCR) & Return on Investment (ROI)

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To determine the dollar value of the effectiveness or utility of a service or training program, a couple of calculations may be performed. A benefit-cost analysis (BCR) compares benefits to costs and is expressed as a ratio (benefits:costs). The formula for calculating BCR is:

𝐵𝐶𝑅 = 𝑝𝑟𝑜𝑔𝑟𝑎𝑚 𝑏𝑒𝑛𝑒𝑓𝑖𝑡𝑠

𝑝𝑟𝑜𝑔𝑟𝑎𝑚 𝑐𝑜𝑠𝑡𝑠

For example, if the total dollar value of improvement is $60,000 and the program costs are $20,000, then the equation would be:

𝐵𝐶𝑅 = 𝑝𝑟𝑜𝑔𝑟𝑎𝑚 𝑏𝑒𝑛𝑒𝑓𝑖𝑡𝑠 ($60,000)

𝑝𝑟𝑜𝑔𝑟𝑎𝑚 𝑐𝑜𝑠𝑡𝑠 ($20,000) =

6

2 = 3

Therefore, the benefit-to-cost ratio would be 3-to-1 or 3:1. This means that for every $1 invested, you receive $3 in return.

A return on investment (ROI) calculation represents the net benefits (earnings) as compared to the cost and is expressed as a percent (%). Net benefit is benefit minus costs. The formula for calculating ROI is:

𝑅𝑂𝐼 % = 𝑛𝑒𝑡 𝑝𝑟𝑜𝑔𝑟𝑎𝑚 𝑏𝑒𝑛𝑒𝑓𝑖𝑡𝑠

𝑝𝑟𝑜𝑔𝑟𝑎𝑚 𝑐𝑜𝑠𝑡𝑠 × 100

For example, if the total dollar value of improvement is $60,000 and the program costs are $20,000, then the net program benefits would be $40,000. The equation would be:

𝑅𝑂𝐼 % = 𝑛𝑒𝑡 𝑝𝑟𝑜𝑔𝑟𝑎𝑚 𝑏𝑒𝑛𝑒𝑓𝑖𝑡𝑠 ($40,000)

𝑝𝑟𝑜𝑔𝑟𝑎𝑚 𝑐𝑜𝑠𝑡𝑠 ($20,000) × 100 =

4

2 × 100 = 200%

Therefore, the return on investment is 200%. This means that for every $1 invested, you receive $2 after costs.

Note: A shortcut to calculate ROI from BCR is to subtract 1 from the BCR ratio and multiply the

difference by 100. In our example, 3 -1 = 2 × 100 = 200% ROI. Source: Phillips, Patricia Pulliam and Jack J. Phillips. (2005). Return on Investment (ROI) Basics. Alexandria, Virginia: ASTD Press.