Jane Burns, an HR analyst for Standard City, USA, knows that SDy (standard deviation of dollar-valued job performance among untrained employees) for firefighters in her city is $28,000. The fire department has asked the city to provide training in team building for 500 of its employees, at a cost of $2,500 per employee. The effects of this organization-development effort are expected to last for two years.
Equation
?U=(N) (T)(d_{t} )(SD_{y}) -C
Where:
?U is the gain to the firm in monetary units resulting from the training program. N is the number of employees trained. T is the expected duration of benefits in the trained group. d_{t} is the true difference in job performance between the trained and untrained groups in SD units.
SD_{y} is the standard deviation of dollar valued job performance among untrained employees. C is the total cost of training N employees.
Using equation 1, compute the break-even value for dt necessary for the city to recoup the costs of the program.
Suppose, in exercise 1, that you have just read a meta-analysis of team-building studies and know that the cumulated estimate of dt is 0.45. Compute an expected utility for the program and compare it to the break-even value you identified earlier. How might this affect the chances that the project will be funded?
With regard to Exercise 2, suppose that the discount rate is 10 percent and variable costs are -0.10. This city is not taxed. How do these factors affect the estimate utility that you developed in Exercise 2?