Well-trained employees are essential to the success of any company. Unfortunately, in a bad economy, a lot of businesses consider employee development to be an unnecessary expense. But while cutting your training budget can seem like the logical thing to do, stop and think about its long-term implications, as they can far outweigh the immediate costs saved.
The right training program will have a plethora of benefits for a company: it increases employee engagement, retention, and productivity; it decreases the need for supervision, reduces absenteeism, improves customer service, and boost sales.
Well-trained employees make fewer mistakes and, because they feel valued and appreciated, training increases their commitment and personal confidence.
It’s all about creating a positive and stimulating work environment. If you plan your training budget wisely, you can minimize staff turnover and maintain productivity.
As you attempt to make money-conscious choices on staff – always turn to your trustworthy HR department for suggestions on how to manage training and development budgets. Their guidance will help you handle motivation levels and business inefficiencies before they’ve gotten out of hand.
According to the Training Industry Report, an average training budget for a small company amounts to $234,850 on an annual basis. The average training cost per employee in 2016 comes to $1,041.
Proper training has a positive effect on employee and customer retention, sales, and overall profitability. Of course, your training budget will vary based on your specific business training needs, but typically 2 – 2.5% of the company’s budget allocated to employee training is considered standard.
What is a training budget?
There is no real need to go into lengthy explanations about the training budget definition, but it’s good to have a general idea of what it is and what it isn’t. Think of it as all direct and indirect costs associated with courses and materials needed to analyze, design, develop, implement, evaluate, and maintain employee training or retraining.
In some sectors, there is an ongoing requirement for maintaining certifications to adhere to local, state and federal regulations related to their jobs. This can create substantial expense for small and medium companies.
Creating a training budget plan is not just necessary from a regulatory point of view, but it does make sense financially. It is one way to ensure your personnel has the skills and competencies required to complete tasks up to the required standard of quality.
The question becomes “how to prepare training budgets without breaking the bank?“. Let’s look at a few ways to maximize the return on your training cost.
How much do companies spend on training?
Many medium and large organizations invest anywhere from 2 to 5% of salary budgets back into training. While that may not be realistic for a small business, it’s important to find a training budget per employee your company can absorb. For this purpose, you can go on a ‘needs’ basis. For example, outside trainers can seem attractive, but they are not absolutely necessary.
Sometimes, senior employees under management supervision can do just as good a job as external training providers, and they’ll cost you next to nothing. Of course, it all depends on the type of training you’re interested in, as some professional and industry-specific subjects can’t be handled internally.
Before you begin planning your budget, start by assessing the training needs of your business. You may need to focus on researching which skill deficit is affecting productivity and performance. This way, your program can identify and focus on the real issues and actual needs of the business and its employees, and your training budget can be put to good use.
How to manage training expenses
Budgeting for your company’s training needs does not mean using surplus money when you have it. Ideally, you need to build a separate line item for training into your annual budget. A training budget should factor in the following costs:
- Initial briefing about the training program
- Training delivery (e.g. classes, video tutorials, eLearning, course fees)
- Training materials (workbooks, videos)
- Staff time (including replacement time)
- Instructor fee (if applicable)
- Travel, lodging or meal expenses required to participate (if applicable)
- Ongoing training (upkeep)
Upon approval, your training budget needs to be carefully managed if you want to stay on track. This responsibility lies with the HR department. Naturally, every now and then there will be extra costs due to unforeseen events, such as employees quitting or temporarily leaving the company (maternity leave, sick days, vacations, etc.).
Bear in mind that training costs increase if you need to rely on external resources. As your company and staff grows, your training cost per employee will increase as well.
Keep in mind that the most important item in effective cost management is understanding the cost-revenue structure of your business. When you take a strategic view of your training program, you can accurately determine what your company needs and how to go about delivery in the most cost-efficient way possible.
Prioritize and develop a clear understanding of how the learning and development activities can be factored into your organization’s strategy. This will allow you to achieve the desired results without going over the budget.
Optimizing training structure and minimizing costs
Once you have prioritized the training needs of your employees and drafted an initial training budget, you can look at ways to maximize its cost-efficiency. Once you look at the cumulative expenses of training cost per employee, you can consider several ways of reducing them:
There are a lot of options for employers who can’t afford to bring outside help and they can produce adequate results in training your employees. These include:
- Rolling out group training: Earn volume discounts by training multiple employees at once.
- Finding trainers within your company: Focus on training one employee with strong communication and interaction skills and have them train the rest. You can expand their job description to include training their colleagues.
- Hosting weekly or monthly events: These don’t have to be formal and are a great way for team members to get involved, educated, and motivated. Select a topic of discussion in advance and cover all questions and concerns they may have. Listen to the information they’re sharing and synthesize it in follow-up e-mails or memos for quick access.
- Cross-training employees: This is common practice in businesses that rely on an agile workforce. Give your employees new roles or responsibilities and have them sit with someone who is comfortable performing the tasks you want them to learn. Change roles frequently to keep your employees motivated and continuously learning.
- Starting a mentorship program: Expanding on cross-training employees, a mentorship program benefits new and inexperienced workers without having you actually pay for their training. Have a senior worker act as a mentor and ease their transition into your corporate environment. The added benefit of a mentorship program is increased accountability.
External training resources don’t have to break the bank and throw your training budget out of order. If you’re smart about how you distribute resources and take advantage of industry-specific offers, there are ways to optimize your training costs:
- Re-using materials: Most training materials such as videos have a long shelf life and may be used repeatedly. A lot of offices don’t want to have anything lying around that’s not constantly in use, but textbooks, CDs, and DVDs can be stored and used for new employees, so don’t be quick to throw them away just yet.
- eLearning: Online options are more affordable than traditional training. eLearning is usually associated with decreased material costs as all or most of the training information is available online. It allows for flexibility and reduces travel costs too, as employees can access courses remotely.
The eLearning model supports the learner’s development in real-time and offers a certain degree of personalization and synchronization.
- Associations or trade groups: Some industry associations offer discounted or free training programs for members at annual events, online, and through seminars.
- Turning to your vendors and clients: You can negotiate free or reduced-cost training from your vendors for specific projects or products. Clients are motivated to invest in training if it means they will receive better service.
You can use these techniques individually or try a combination based on your business needs. Ultimately, having the right training program in place will save you money in the long run.
Supporting company goals through efficient training budgets
Ultimately, efficient training cost management comes down to employee commitment. If you want to be successful you need to factor in this component. This means setting specific goals for employees that you expect them to achieve.
Of course, they shouldn’t feel pressured that their jobs depend on it, but holding them accountable is part of the dynamic of your working relationship.
Many employers use training courses as part of employee annual performance reviews to address competency gaps, as well as employees’ desired areas of improvement. This includes setting specific training goals for each employee and letting them know they are monitored.
It’s a good idea to assess the impact training has had on their overall skills and performance on a monthly and annual basis as well.
If you are paying for outside classes to improve their knowledge on a specific subject, get employees to commit to working for you for a specified period of time after completing the training. You can have your HR department include a reimbursement clause in their employment contract if they aren’t able to fulfill the agreement.
Ultimately, you want to have the full support for training efforts from your senior staff and HR employees. If they understand the long-term value of employee development and training budget allocation, they will be able to assist you in every way possible.
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