It’s Just Not That Easy…

In response to a reader’s request, my previous blog entry presented an example of the financial analysis that a learning professional could and should perform to determine “when employee training is the right thing for a company to do.”  The example that I used was relatively straightforward—a training program designed to reduce the scrap rate of a manufacturing company’s production line.  In this case, both the costs to implement this program, as well as the benefits that would be realized (reduced scrap), could be quantified without too much “brain damage”.

If you’ve been in this business long enough, you probably realize that many situations aren’t as clear-cut or as easily quantified as the example I used—as my clients say, “it’s just not that easy.”  Most of my clients have questions about the financial impact of their training decisions, as I’m sure many of you do.  Following are the three questions I’ve encountered most often over the past few years, and the advice I’ve provided in response:

• Do we need to analyze every training decision from a financial perspective? 
   
  I’m sure many of you will be relieved to know that my answer to this question is a firm “no.”  Some training is mandated by regulatory agencies, and other training is required to avoid costly litigation (e.g., sexual harassment and diversity programs).  These programs should be considered a cost of doing business. 
   
  Another aspect of this question is this:  most companies have a spending threshold, where expenditures below this limit aren’t required to be supported by financial analysis, and those above are.  Even if a training program is below the spending threshold, however, I would advise you to perform an “informal” financial analysis to ensure that your training dollars are being spent wisely.  We all know that funding is limited (particularly in this economy!), so I would encourage you to invest in only that portfolio of training programs that generates the most bang for your buck.  The only way you can determine which programs deserve your training dollars is to analyze all of them from a financial perspective.

• Not every training program will have a financial impact on the company, will it? 
   
  Unless you’ve found a training program that can be procured without any type of investment—time or money—every single program will have some type of financial impact. 
   
  First, there’s the cost of the program, which represents your investment.  If you’re purchasing the program, the cost of the program is the amount paid to the vendor.  If you’re developing the program internally, the cost of the program is the amount of payroll attributable to the project, as well as any direct expenditure for materials. 
   
  Then, there’s the financial benefit of the program.  To quantify this, you must have a thorough understanding of what you’re trying to accomplish with the training program:  Enhancing revenues?  Reducing expenses?  In the end, it’s got to be one or the other.

• I’m not sure what the financial benefit of the training program will be.  How do I figure that out? 
   
  I am a proponent of training only when there is a financial benefit to doing so (except for the mandatory training discussed earlier), so I always ask training professionals to describe the financial benefit they expect to realize as a result of one of their training offerings—a leadership skills program, for example.  The response I hear most often is, “it’s intangible.” 
   
  Make no mistake; everything in business has a tangible impact that can be observed in the company’s financial results.  The trick is to follow the chain of cause and effect to determine the ultimate impact.  In the case of the leadership skills program I just mentioned, the ultimate impact might be reduced employee turnover.  Most companies analyze the cost to hire and train a new employee, so reduced turnover can be quantified—you might need the help of someone in accounting or finance, but you can get there. 
   
  I would encourage all of you to start thinking about the financial results you expect from your training programs.  If it’s difficult for you to determine cause and effect, enlist the help of your partners in operations and/or finance and accounting.  A team approach is usually the best approach to gaining a thorough understanding of the training programs currently in place, as well as those your company needs.

As always, feel free to post a comment to this blog or send an email to me at my personal email address:  pae@tmiwebmail.com.  Your feedback and comments are important to me and will help shape the course of this blog.