What's in Your Training Budget?
By Holly Dolezalek

How can you create a budget that spends wisely and earns the approval of those who review it? Use the numbers to tell a story. The best "Accounting For Dummies" books start out by explaining to the neophyte that accounting isn't about numbers. It's about using numbers to tell a story. Sure, a financial statement contains profits, losses, depreciation, and amortization (we think), but those numbers are backed by assumptions, projections, decisions, and evaluations. That stuff gives the real meaning to the numbers.

The same is true in the finances of training, and that's good news for those of you who are responsible for (or at least involved in) creating the budget for training at your organization. It's not an easy task to make or defend spending decisions when thousands, hundreds of thousands, or even millions of dollars are at stake. But when you think of this activity as a way to explain the worth of training, as well as a set of decisions about what training and when, it's both less intimidating and more meaningful. In truth, it'ss both an art and a science.

Like art, financing training means making decisions, thinking proactively, and taking some chances. Like science, it often means sitting down with a spreadsheet and basing your decisions on numbers and concrete goals. Once it’s done, anyone involved with the budget has to hope he or she has made good decisions and the money will be spent on learning experiences the company needs—and nothing has been overlooked. By thinking of training finances from several different roles, you can be more effective at covering all the bases and be prepared for everything.

The Planner

Diane Valenti is the president of Applied Learning Solutions, a training consultants firm in San Francisco. When she sat down and wrote down everything she knew about a clean budgeting process, she found she had enough for a book. The result was "Training Budgets Step-by-Step" (Pfeiffer, 2003). The book lays out a systematic process of meeting with executives, department heads, and other stakeholders to find out organizational goals and problems and set out budget priorities for the year.

The book includes dozens of templates that can help you to gather all this information, pull together a plan, and make financial decisions based on realities rather than guesses. But she readily admits that following such an orderly process isn't an option for everyone. "There's the plan, and then there's reality," says Valenti.

In fact, Valenti points out, training professionals often start out as subject matter experts who suddenly have responsibility for taking care of training. And a promotion can mean a new training professional who also has to figure out how to create a budget.

The Budgeter

Anyone worth his or her salt as a trainer can think of ways to blow the budget and do the training that would make the organization smarter. But if you're in charge of the budget, you’re stuck with finding ways to make the learning fit the bill without bouncing the check.

That can be tough when an organization's leadership isn’t too keen on the concept of training. Without support from upper management and buy-in on the value of training to the organization, being in charge of the purse strings can be a thankless job. And someone who's new to the budgeting role faces these challenges and others, as well.

Although it might be tempting, it isn't advisable to go on what the budget was last year. It's a good place to start, but it isn't a good template for the whole budget. "It's understandable, but people often ask themselves what training happened last year and what people liked," Valenti says. "Instead, they should take a proactive approach and ask questions, find out what problems folks are facing, and which are the needed skills or knowledge for this year's initiatives rather than last year's favorites."

Valenti suggests that many budgeters don’t realize their budget isn’t the last word on what training goes on at an organization. For example, even in a centralized training structure, some departments go off on their own to arrange training with a vendor without even informing the training department. "That can be uncomfortable, not to mention inefficient," Valenti says. "I once called a training director about a project I was working on at his company, and he didn’t even know it was happening."

The good news is that this is the right time to be in training. Since the dot-com bust and subsequent economic slowdown, training has been among the first line items in the budget to be cut, and the long-held tendency to see training as an extra that can go in lean times has been abundantly on display. But those days are ending, and the reason might be the baby boomer in the cubicle or office next to you.

Some industries already are feeling the contraction of the labor market as baby boomers get ready to retire, because there aren't enough Generation X or Generation Y folks to replace them. "The whole issue of talent is why budgets have begun growing again," says Josh Bersin, principal, CEO, and founder of Bersin & Associates, a learning research firm in Oakland, CA. "Companies are having a hard time hiring people at the manager level, and are finding gaps at the first, second, and third tiers of management. As companies realize they have to develop talent internally, the training function is becoming more and more strategic, and the folks who are getting more money for their budgets are the ones who are proposing big initiatives for big talent problems."

The key word from that last sentence is "strategic." A dubiously founded optimism leads training professionals to believe more and more companies are getting the value of training. But it’s probably more accurate to say training has to prove itself regularly, sometimes repeatedly, and while one CEO might be completely sold on training as a strategic asset, his or her successor might not be.

A certain amount of paranoia, combined with brutal honesty, is Faith LeGendre's strategy. LeGendre is the director of training for 1-800-FLOWERS' service centers. The employees who work these service centers, many of whom are based at home rather than at a call center, take orders and provide customer service. 1-800-FLOWERS is a seasonal business, so the number of agents fluctuates seasonally between 1,000 and 2,800.

When LeGendre creates a budget every year, she budgets for every training hour, by day, week, and hour, for each of the brands 1-800-FLOWERS owns. In that budget, she includes every dime involved: employee time spent off the phones, the cost of training rooms, and every other involved cost, all the way down to how much it costs to keep the computers running and to buy markers for the whiteboard. She even includes the benefits paid to employees and FICA taxes in the cost of employee time.

"I see this a lot, where somebody in training wants to show a great return on investment (ROI) and they leave costs like this out, which makes the required budget seem smaller and the ROI more significant," says LeGendre. "But when you pay attention to the hidden costs—printing manuals, using supplies such as paper and ink—the ROI actually is not that great."

Not only is LeGendre's budget—prepared in part with the help of someone from finance—as accurate as it can be, it's also padded for the unexpected.

LeGendre builds in a layer of extra money for training requests that weren't in her original budget. For example, 1-800-FLOWERS has been making many acquisitions in recent years, and she knows that any of the 14 brands the company owns probably will come to her after the budgets are finalized with a brand-new product line in which all customer service employees must be trained pronto.

"Say if marketing comes up with a new sympathy product line, well, I don't have the training for that in my budget," she says. "But now we're talking about an extra hour of training for every agent—2,800 of them if it's during the season, such as Mother's Day or Valentine's Day—at $10 to $11 an hour. They can't let me know ahead of time, because sometimes these products come up suddenly and because often the brands want to keep the new products under wraps until the last minute. So I don't have that money, which is frustrating to me and the brands if they can’t have the training they need. So I add in some money for ad hoc requests, although it's never enough."

Whatever else you do when you pull together a budget, don't think in terms of productivity. Nobody else in the company cares what training happened last year or how many people took training last year. "If you know what existing business metrics are keeping managers up at night, you'll be much more successful both at offering training people need and at getting the money for that training," says Rich Taylor, vice president and head of learning for Reuters Development, a division of London-based news agency and information provider Reuters. "Think in terms of reducing time to competency, or time to market, and your budget will be much more defensible."

The Consultant

In a company with a centralized training budget, where your budget is going to (mostly) be the last word on training expenditures, it's possible to exercise more control over training's efficiency and effectiveness. But another way to have influence over training decisions is, ironically, when you don't have a budget at all.

That means folks in charge of the budget also can find themselves in the role of consultant for department heads or managers who want to arrange development for their employees but don't have the knowledge or time to do it well. You can find yourself acting as a consultant, helping to identify needs and find vendors for training you didn’t even know about.

In a more decentralized model than 1-800-FLOWERS, where budget responsibility for only one division or department falls on the department head rather than the training director, one surefire way to make training not only strategic but necessary is to make yourself a resource for others to come to. Nothing gives you more credibility in financial decisions than helping to save someone from themselves.

Reuters doesn't have a central training department; instead, each department has someone in charge of training, who reports to the department head. Training is a line item in each manager's separate budget. That means Taylor essentially has no budget, so when he gets a request for training, he also has to find someone to pay for it. It makes the link between strategic goals and training pretty tight, because department heads are unlikely to spend their money on training that's just nice to have. But occasionally it prevents larger initiatives from happening, and Taylor says he often feels like much of his time is spent creating buy-in for training that would benefit—but also has to be paid for by—more than one department.

"Sometimes it feels like I'm wasting my time, but I'm not—I'm building community among the middle managers who actually take the strategy the senior leaders dictate and put it into practice," says Taylor. "For me to get much of anything done, it's crucial to have the respect of these people—and to know what they need from me to get it done."

One of the ways he earns that respect is by helping them to save money in their own budgets. Taylor looks for redundancies to eliminate and tries to encourage managers to come to him when they get ready to spend their budget so he can help them spend wisely and economically.

"I'm trying to do a better job of educating them on what's available," Taylor says. "For example, at one point, we had many different contracts for training with Microsoft. We finally set up a more global relationship and saved 40 percent. A few years ago, I went to finance and worked with them on training vendor relationships; we cut down the number of vendor relationships to one-third of what we started with."

1-800-FLOWERS's LeGendre says she deliberately enlists her training colleagues in a never-ending search for ways to save money. Knowing shareholders want the best deal for the least money, LeGendre says she and her confederates go to conferences to find ways to spend less and deliver more without sacrificing efficiency or effectiveness.

"Recently, we had to deliver training to five locations, which ordinarily would mean five trainers and five sessions," LeGendre says. "So we tried teleconferencing. But we used Liveoffice.com, which has free teleconferencing. You just sign up for a line online and hold your conference. Plus, I could tape the class and save it on a password-protected site, then convert it to a podcast and listen to it on my iPod on a Sunday in my hammock."

In the same way that no battle plan survives first contact with the enemy, no budget survives first contact with the real life of an organization. Like 1-800-FLOWERS' LeGendre, Taylor is well acquainted with the ad hoc request for training that wasn't included in the original budget. He suggests that responsibility for the training budget includes responsibility for finding money for those ad hoc requests. "People often don't realize they have a need until there’s a crisis, and so a lot of training is reactive," he says. "But if you can work with other departments, share resources, reuse content, and help find a way to deliver unfunded training, you'll earn a lot of credibility in the long run."

The Analyst

What about ROI? It's a language you need to know how to speak, even if it's to handle the hostile questions of some manager or leader who doesn't agree with your budget. But it's a mistake to overfocus on ROI.

"I don't know how useful ROI is in determining the value of training," Valenti says. "Most of the real ROI is wrapped up in the initiative that training is supposed to support, such as a new product launch or a process improvement. I'd rather see people think about return on expectations, such as whether employees actually are following the new process they're supposed to be following. Being able to demonstrate ROI is great, but there's lots of training that supports organizational objectives and goals even if the ROI can't be shown."

Your best bet is to examine each decision on a training expenditure and ask, "What will this training accomplish?" If your answer is that people will like it or that your department ran the training last year, that's a decision that might merit some more consideration. But if it's going to improve productivity in a concrete way, or help the company to reach a financial or performance goal, it will be much easier to defend.

By the Numbers

The budget is where money and training intersect. Here are a few national data points from The Corporate Learning Factbook to put that intersection in context.

• Average cost per training hour: $111
• Average annual training expenditure per employee: $1,273
• Amount of each training dollar spent on payroll: 65 cents
• Average amount spent annually on learning technology: $87,000
• Average amount of total training expenditures: $694,000

Source: The Corporate Learning Factbook, published by Bersin & Associates. To purchase a copy of the full report, go to www.bersin.com/factbook.

Quick Tips

• Don't go on what the budget was last year. Instead, find out what problems people are facing, and what skills or knowledge is needed for this year's initiatives.

• Keep in mind that your budget isn't the last word on what training goes on at your organization. Individual departments may arrange their own training with a vendor.

• Pay attention to the hidden costs such as printing manuals, paper, and ink.

• Build in a layer of extra money for training requests that aren't in your original budget.

• Act as a consultant for department heads or managers who want to arrange development for their employees but don't have the knowledge or time to do it well.

• Examine each decision on a training expenditure and ask, "What will this training accomplish?"

Reprinted from Training Magazine