There’s a huge push right now to transform ILT courses to V-ILT courses, for obvious cost saving reasons. And there is a pretty common misconception that it is harder, costs more, or takes more time to create webinars. This is largely due, I believe, to the (relative) newness of the constraints webinars present for designing interactivity. I would suggest that these constraints are not any more challenging than designing interactivity for large events, with 200+ participants. Do you have to get creative? Yes. Does it take more effort or a different skill set than creating activities for small classes? Not really. Just different design parameters to work within. (Let me know if you’re interested in tips on designing interactivity for either large events or for webinars; I’d be happy to do a post on either of those as well.) Of course, there are some caveats to consider, which I discuss below, but first, let’s gown down to the numbers.

The Formula

Length of course in hours x development ratio x (blended) cost of resources.

Or, for an 8 hour course being produced by a team with a blended rate of $80/hour:

8 × 36 x $80 = $23,040 (costs of materials would be extra)

How it's Derived

• Level of effort (LOE) for design and development: A lot of the literature estimates that it takes 40 hours of effort to produce 1 hour of ILT, or a production ratio of 40:1. Research from late 2007 from the Chapman Alliance puts that number at 36:1, which I believe is more realistic. While there are definitely economies of scale to be gained that could lower that ratio (and if you have a strong ID who is also very familiar with the content, that ratio could be significantly lowered) this is a solid number for estimating and budgeting costs for ground-up development.
• Cost of resources: Whether you’re using internal or external resources, they all come with a cost that you can distill down to an hourly rate. A vendor will just tell you what they’ll charge you per hour, or will give you a total bid for the project (which may or may not be fixed). But they’ll get to that number by figuring out their own costs and adding their markup to get to their billable rates (they are for-profit businesses, after all) and then multiplying it against the estimated LOE just like I’m doing here. To do the same thing for internal resources, you need to consider their “fully-burdened” rate, that is, the costs for all of their benefits and employment taxes, etc. in addition to their direct salary. This number can vary, but salary + 25% is a safe estimate, so the fully burdened annual costs of a person grossing $60,000/year would be $60,000 + ($60,000 × 25%), or $75,000/year. Divide that by 2080, the standard number of work hours in a year, and you get a fully burdened hourly rate of $36/hour.
• “Blended” rate: For the most accurate determination of costs, figure out the different types of resources that will be working on the project, their unique costs, and the percentage of the effort that they will be responsible for. (If you’re looking for guidelines for % of effort for design, development, etc. see the Chapman Alliance report that I referenced above.) For a fast estimate, use a “blended” rate which averages the costs of different resources. $80/hour is a reasonable blended rate, even for outsourced development.

So what are the caveats? Here’s a short list to consider, there are likely more:

• Multi--media: Any multi-media components needed should be calculated separately. For instance, if you want to produce a video to show in a classroom, or during a webinar, there’s a separate LOE required.
• Technical Architecture: If you don’t already have it in place, you’ll need to find and configure your technology for webinars, and will also want to think through what integration, if any, you’ll want with your LMS.
• Large, multi-track events: Just like live face-to-face events, if you’re planning to do a completely virtual event (which can and has been done), then there will be a purely logistical component to scheduling and administration.
• Train-the-trainer: Budget more time for this than usual. While the design and development effort for webinars is essentially the same, the delivery is rather different. Especially for trainers not accustomed to facilitating webinars. Give them extra time and practice to get used to the medium.
• Delivery: Plan for an extra person to assist in the delivery of a virtual event. There’s a lot going on in the technology, between running polls, monitoring chats, troubleshooting any technical glitches, etc. that you will really want someone dedicated to handling all of that. It will be much smoother to have that extra person on hand and will let the facilitator focus on the content and the participants, as they should.

What else can you think of?

When I was on the buy side, managing corporate training, I really wished there was a cheat sheet of some kind that I could reference to help me with budgeting projects and evaluating bids. Now that I’ve spent the last 4+ years on the sell side with consulting companies, I deeply appreciate that the correct answer to the question “what will it cost me” really is “it depends.” (For a discussion on some of the factors that enter into this, see my earlier post on transcending constraints.) Still, “it depends” is frustratingly unhelpful. So I thought I’d do a series on how I approach pricing, offering perspective from the inside of the sausage factory, as it were. I have gotten pretty good at back of the envelope estimates, and figured other folks might find it helpful to have a working model. Note that some of the benchmarking research I draw from may be a bit dated, so feel free to replace any baseline numbers offered here with your own benchmarks. Better yet, please use the comments to point me to more recent findings, or to describe your approach. I’d love to hear how others think through this. Meanwhile, let’s dive into the first topic.

How to price content conversion from ILT to WBT

A top-down pricing model for converting ILT content to self-paced WBT content involves three factors:

1. Compression ratio: What would the length of the course be if it were online vs. classroom based? There's been a lot of research on this, and answers vary anywhere from 20% to 80% of the original length, but there's general agreement that an average compression ratio is typically about 50%, or a four hour course in the classroom should take the student 2 hours to complete online.

2. Development costs: What would it cost to convert the materials into web based training? This is usually expressed as cost per hour of completed WBT. Varies wildly, depending on how sophisticated you want that online training to be, though these costs have been trending downward for some time. Best research I’ve found is from a 2007 Bersin article which indicated average price points based on level of interactivity:

• Level 1: $15,000 per finished hour
• Level 2: $23,000 per finished hour
• Level 3: $30,000 per finished hour
• Level 4: Undefined. What level 4 actually offers in terms of level of interactivity can be all over the board, for example, from branching sales scenarios to a full-fledged flight simulator. No real way to estimate cost per hour of Level 4 WBT without clear design parameters.

Sidebar: “Level of interactivity” is something that can be defined very differently from vendor to vendor. While there are some general guidelines, such as level 2 includes audio but not video, there is still a lot of room for variance. For example, how much audio does it include in terms of total recorded minutes? Is the audio professionally scripted, recorded, and edited, or just a talking SME with a ppt deck? Is the audio the same or different from on-screen text? Is it timed to play with each changing “screen” or are there smaller audio clips that play upon click? And so on.) As you can see, you’re going to need vendors to very clearly define what it is they propose to build. Otherwise you’ll be comparing apples to oranges, or potentially even apples to an entire fruit basket.

3. Reusability savings: How much effort can be saved in development since you have existing source materials from the ILT course? Varies wildly based on how stable the content is, and how easily it translates to the web (which largely maps back to level of interactivity desired). My best guess, based on my experience,  is that you could reduce LOE by:

• 50-75% for level 1
• 25-50% for level 2
• No more than 25% for level 3
• No more than 10% for level 4

So, the formula would be:

Length of course in hours x compression ratio x (cost per finished hour based on level of interactivity x reusability savings)

For example, if you wanted to convert an 8 hour ILT (with completely stable content) into a Level 2 WBT, the math would be:

8 x .5 x ($23,000 × 50%) = $46,000.