IT Career JumpStart

Aug 15 2008   3:08PM GMT

Calculating Certification ROI

Ed Tittel Ed Tittel Profile: Ed Tittel

Enough readers have commented on pros, cons, and costs of certification that I wanted to throw a calculation tool into the hopper. Whenever you consider spending time, effort, and money on career development or enhancement it’s a really good idea to use standard “return on investment” techniques to calculate your payoff (or lack thereof) from those things.

Here’s how:
1. Add up all the direct costs for obtaining the certification. This will almost always mean one or two books to prep for your exam, plus the cost of the exam itself. It can also include costs for practice tests, training (classroom, online, DVD, and so forth), and getting to the exam center to take the exam (for example, CCIE lab exams are administered at 10 Cisco sites around the world, so candidates must add travel and lodging costs to the not-inconsiderable costs for the exam itself, unless they’e lucky enough to live within driving distance of one of those test centers). This is your “out of pocket” cost for the certification, and requires you to spend those dollars. For the CCNA, for example, the two-test option involves $250 for exam costs, along with a more hypothetical $100 for books, and $150 for practice tests, for a total of $500.
2. Estimate the time it’s going to take you to prepare for and take the exam. It’s rare to find a cert that requires less than 100 hours of preparation, and more demanding certs can easily require 400-500 hours of preparation. Put a value on an hour of your time (the standard approach is to divide your current annual salary by 2080, or the number of working hours in a year) and multiply by that number. This is your “time cost” for the certification. Let’s say your time is worth $35 and hour, and you plan to spend 100 hours preparing for the CCNA. That cost is then $3,500.
3. Other costs: you have to drive around to get to a test center and back home again, and possibly also to pick up exam materials. Let’s say the CCNA costs for this kind of thing come to $40, including 100 miles of driving for various purposes.

OK, your total cost for this effort is $4,100. Your return on that investment is the amount of additional earnings that obtaining the certification will provide for you. Purely as an illustration, let’s assume you work at a company that picks up your cert exam and materials costs ($500), and that earning the CCNA gets you a 7% raise ($2.45 an hour). You’ll earn an extra $5096 in the year following your CCNA, and you get reimbursed for your $500 for direct costs. That adds up to $5596 in benefits versus $4,100 in total costs. Your ROI is the ratio of benefit to cost, or 36.48%. Nearly everybody would agree that this is a pretty handsome and compelling ROI.

But if instead the cert leads to no pay increase, or opportunities for a new and better paying job, your $4,100 in costs will produce a benefit of only $500, which means you lose $3,600 on the deal. Only you can decide if you’re willing to spend the time (worth $3,500, but yours to spend any way you like) and the other costs ($100) to earn that bit of alphabet soup next to your name. For some people, it’s a welcome way to keep sharpening technical skills and knowledge, and a way to keep learning new and interesting stuff. But if you think of certification as a chore rather than something worthwhile in its own right, you may want to steer clear.

BTW, this approach works for just about any kind of career development activity you may care to undertake (or at least want to think about undertaking). In some cases, the payoff will be tangible and you can make or break the case purely by the numbers. In most cases, however, you’ll have to decide if the intrinsic worth of the learning, activity, and effort involved offsets the value of the time you must put in to see things through to completion. Only you can decide if the answer is “Yes” or “No,” but hopefully, I’ve given you some techniques you can use to quantify the exercise. The ultimate key lies in the value you put on your time, and the opportunity cost to you by spending that time one way (on certification) rather than another (entertainment, family, relaxation, or whatever else you like to do).

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