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Aharon Tziner
Netanya Academic College
This paper was written when the second author was a visiting professor with the
School of Business Administration at Bar-Ilan University. Both authors have contributed
equally to this paper.
Address correspondence to Assa Birati, School of Business Management, Bar-Ilan
University, 52900 Ramat-Gan, Israel; email: birata@ashur.cc.biu.ac.il.
sider the principle behind it, that is, the notion of capital budgeting pro-
cedure and its bearing upon training cost-effectiveness.
1. Training costs
2. Earnings paid during training less positive production during
training (Table 1, p. 328).
We further assume that the net training costs (C), are made in cash
at the initial stage of the program.
The after-tax cash outflow for the cost of training is therefore:
(b) Cash Inflows From Training Benefits (B). Going back to Cohen's (1985)
formula, we find the following benefits to the employer from training:
From these benefits we must deduct the expected loss in the poten-
tial benefits incurred by trained employees quitting.
Thus the calculation of benefits from training produces (Bt), the es-
timated total annual real cash inflows resulting from a training pro-
gram:
2
This method recently developed by Tziner and Birati (1996) for assessing direct and
indirect costs of turnover may be adapted and used for the purpose of estimating the
economic value of these components.
ASSA BIRATI AND AHARON TZINER 161
where Bt is the present value of the cash inflow from the benefits in
period t, and St, Nt and Mt are the estimated future cash inflows result-
ing from improved performance, higher retention rate, and improved
morale, in period t, respectively.
where C and Bt are derived from equations (1) and (2), respectively, and
t is the period of the benefits.
CONCLUSIONS
cate the limited financial resources available for investment and to im-
prove their training programs.
Similarly, our model could be used to determine for which employ-
ees, for what type of job, or in response to what kind of training needs, a
training program should be instituted, based on analysis of the economic
utility ensuing from the various alternatives. Likewise, decisions as to
what type of training methods and procedures to opt for could emanate
from the application of the present cost-benefit analysis approach. Hope-
fully, as the conceptual model we have advanced here provides a more
accurate estimate of the economic utility of training, it will become a
standard tool in the hands of organizational decision makers who must
determine whether to launch, or to discontinue, a particular training
program.
Nevertheless, we suggest that future researchers attempt to further
refine the estimation procedures of cash flow components resulting from
training. Also, empirical investigations should be conducted to examine
the extent to which the prospective advantages of our present approach
actually materialize in practice.
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