Magazine article Workforce

Training Budgets 101

Magazine article Workforce

Training Budgets 101

Article excerpt

here's a general guideline about budgets: True learning organizations will spend between 3 percent and 6 percent of their payroll on training. Although the American Society for Training and Development (ASTD) doesn't have a formal position on budgets, the Washington, D.C.-based National Association of Manufacturers does-it recently said firms should spend 3 percent of payroll on training.

While ASTD remains mum as far as advocating a budget number, Laurie Bassi, vice president for research at the Alexandria, Virginia-based firm, says ASTD studies confirm companies that spend 3 percent of payroll on training do achieve exemplary financial results (she adds, however, that companies making such a commitment to training usually combine that training with smart HR policies in general).

But it's not just having a big budget that ensures big results. You have to be smart about what you budget for and why. If your company isn't quite at the lauded 3 percent, don't beat yourself up-the actual average is .9 percent, according to ASTD. Throwing money at training won't ensure employee excellence. More importantly, some companies and functions simply don't need as much money for training as others.

Big budgets don't ensure big results.

To determine a training budget, says Kevin Wheeler, head of consulting firm Global Learning Resources in Freemont, California, first consider the type of company you are. Learning organizations require more diverse, intense and ongoing training efforts than will manufacturing firms that require workers to have a narrow expertise. Also consider who you're hiring, says Wheeler. Companies that promote from within generally are going to need bigger training budgets than those that prefer hiring candidates who already have the necessary skills.

While these considerations help you get an idea of the size of budget you need, the most crucial aspect of putting a price tag on training will be the type of training you want to do. A good starting place is identifying the core skills most employees must have to work at your company. Kathy Leck, executive director of LEAP-Leadership Education Advancing Performance-at the Lake Forest Graduate School of Management in Illinois says, "Some skills need updating constantly. The dollars should be parallel to how intense competition is for your company. So the question is: How much would you lose if your people stay at the status quo? That's the question I ask [companies], rather than [asking about] their economics."

If you're primarily a customer-service company, for instance, everyone should go through customer-service training, even if some employees aren't likely to have direct customer contact. "Other than those cores, training will probably have to be worked out, if not on an employee-by-employee basis, then by a department basis," Leck says. With this decentralized budget model, you can cover the core training in your budget, and if departments want more, they can choose to spend it.

Laraine Mancuso, head of training and development for Reliance National Insurance in New York City, has a similar approach to budgeting. One chunk of the training budget is hers to spend as she identifies the company's needs. But most of the training she does comes at the request of departments on a charge-back basis. …

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