Question

The company spends $8,000 per quarter in wages for each Level 1 employee. Productivity is currently 200 units per worker, requiring 500 Level 1 employees to meet the production goal of 100,000 units. By spending $60,000 on training, it is projected that productivity can be increased 2%. Respond to the questions below to calculate the ROI and decide if the investment is worthwhile.

1. What is the new productivity, if it increases 2% over the current 200 units per worker?

2. How many employees will be required to meet the production goal of 100,000 units at the new level of productivity?

3. What is the savings from the reduced number of Level 1 employees?

4. ROI for training expense?

Answer 1

1. New productivity after increase over 2% over current 200 units per worker = 200 x 1.02 = 204
2. Revised number of employees now will be required = 100,000/ 204 = 490.196 ( 490 rounded to nearest whole number )
3. Therefore , reduction in number of employees = 500 – 490 = 10

Savings from reduced number of level 1 employee per quarter = $8000/ employee x 10 = $80,000

Therefore , annual savings = $80,000 / quarter x 4 quarters = $320,000

Training expense = $60,000

4) Therefore , ROI on training expenses = Annual savings/ Training expenses x 100 = 320,000/ 60,000 x 100 = 533.33%