Tough love article warning: proceed with caution.
I’ve been around enough to have worked the spectrum from the quintessential training organization where they “over-trained you,” to the other side in companies where training’s labeled “a waste of money.” Let’s be realistic: Training budgets are often the first things to go when times get tough. Some companies do not even have a training budget (big mistake). When things are good overall like today, you can choose to battle that urge to limit the training line item. Instead, make it affordable and recognize the value.
What to budget
The Society for Human Resource Management recommends including costs for training staff salaries, registration or fees (industry conventions, professional certifications, tuition reimbursement programs, etc.), learning facilities, training materials, hardware and the cost of outside consultants. Outsourcing certain training needs to vendors, or benefit from advances in learning technologies to reduce training costs. Investigate free options offering high quality for a lower cost (community college, free industry association resources, webinars). Travel, meals and other associated costs should also be included.
How much to budget
How do you grow your talent organically? First, put a dollar amount to that and then cover realistic costs associated. According to training industry statistics, average budgets for all sizes of companies run between 4 to 6 percent of overall budget in 2014-2015. We usually set a budget (including free resources) … then we double it. We usually spent 99 percent of it each year. In our industry, the Affordable Care Act (or the ever-changing act) requires being up-to-date on regulatory changes and sucks up quite a bit of our training dollars. As CEO, you have a good idea of what your industry demands to keep your expertise current.
Once you’ve set the budget, prioritize your needs. Department heads should be aware of what should be at the top of the list, and if not, rely on your strategic plan as a litmus test. Set measurable goals and metrics to calculate ROI using two formulas
1) BCR = Program Benefit/Program Cost. When BCR is greater than one, benefits outweigh the costs. When BCR is less than one, then the costs exceed the benefits.
2) ROI (%) = (Benefit-Cost x100)/ Cost. If the ROI is greater than 100 percent, that means that the program has a net benefit. An ROI of 150 percent means training yielded a 150 percent return on money invested, or yielded $1.50 per dollar cost. Less than 100 percent means the program had a net cost.
Tend to shy away from hard numbers? You can observe qualitative data. For example, was your employee’s evaulation of the training favorable? Did it positively change their attitude, skills and/or knowledge? Evaluate if there has been improved quality, improved production, decreased costs, increased job satisfaction, reduced problems or accidents, and/or increased sales since the training. How did your bottom line change post-training? How long did that take to occur?
When training is a priority in a competitive business environment, you create better and more loyal employees. Higher retention rates mean less training and recruiting long term. Investing in training also gives the perception that you value your employees. We see a positive correlation between training, knowledge and credibility. When we prepare our employees, then they have the propensity to do what they say they will do with confidence. Clients react to that with loyalty. Employees who know their stuff and are treated well treat clients well too. When you cut training out of your business practice, you cut off your nose to spite your face. The return on your investment in a well-trained staff is significant enough to outweigh the costs. That’s the bottom line.
Jim Annis is president/CEO of The Applied Companies, which provide HR solutions for today’s workplace. Celeste Johnson, Applied’s COO, contributed to this article.