Cost-justifying training spend

Return on dollars invested in a variety of people-related expenses in business (including conferences, training courses and on-the-job training – direct and indirect costs) can be measured in a number of ways.

The bottom line of this argument is: any activity that is directly related to making sales or reducing costs (including those due to inefficiencies or lack of initiative and commitment) is going to impact the bottom line of your business – directly or indirectly. Any investment to improve either one of these can be shown to yield a positive return IF you inject preparation and follow up into the equation, instead of sending people away to be trained in isolation.

Do you want to spend money to prove the return on investment, which can be costly as an exercise in itself? Or do you want to put your time and energy into ensuring the intervention impacts on the businesses as needed, and instead use the international ROI research from the last 50 years to cost-justify the spend?

A manager said last week that he was on the verge of firing someone when he invested in some people management coaching earlier this year. (We spent about 2 hours face to face,  had a couple of phone discussions and exchanged a couple of emails.) That “problem” person became the company’s star performer inside 3 months and went on to secure a million dollar plus sale. The spend on this training was about 0.1% of that sale. Those returns are hard to beat! This manager was able to change this person and their results through that investment.

It is understandable that business owners and managers want ROI evidence as there is too much expenditure that does not yield positive results. The post “People Management” refers to research showing the cost of staff as at least 50% more than actual salary – due to a range of indirect costs of employing staff.

No manager I have asked says they are getting 100% return on that investment, yet where is the call for evidence of return from that investment? Is this just a human thing that when someone else spends money it has dubious value but when I spend money, it is justified?  I do wonder why business owners are reluctant to spend a mere fraction of what staff cost every minute of every day to increase the return on what they are spending anyway. Especially when you consider what the research tells us about the value of well-designed interventions – see more below.

One company I worked with four years ago for three months (half a day a week) attributed their continued trading to this intervention. The return may be roughly calculated as their net profit over X years plus what they will make (minus cost of sale) when they sell the business (which was their original goal for starting out in the first place) minus the $10,000 in the intervention minus the indirect costs of time spent by the business implementing the solution, minus what they could’ve made as two individuals working together (over X period) which was the alternative.

Those are some anecdotal examples; here are some large scale research examples reported in Branded Customer Service by Janelle Barlow and Paul Stewart:
The American Society for Training and Development (ASTD), found that for high investors in employee training:
 Shareholder “market to book” value was 20% higher
 Net sales per employee were 57% greater
 Gross profits per employee were 37% steeper

It was estimated that a minor drop in employee engagement in Singapore cost that economy between $4.9 billion and $6.7 billion annually. (Gallop Management Journal, October 9, 2003.)

Lyle Spenser claims that while results vary from company to company, in general, every 1% improvement in service climate delivers a 2% increase in revenue. (From “Improvement in Service Culture Drives Increase in Revenue” – paper presented at Cambridge, Massachusetts, April 19, 2001.)

While researching this topic I discovered a paper dating back to 1979, quoting research from 1965. One can only imagine the amount of research generated over a 50-year period!

I suggest you use the results of research conducted by numerous multinationals with deep pockets, and instead turn energy and attention to maximising YOUR return on training spend.

There are two key ways you can do this:

1. Ensure you specify what you expect people to bring back from any training opportunity and how you expect them to change themselves and the business as a result. Have them report back on their success with achieving this mission straight after the course, reviewing their personal improvement and action plans.

2. Set them a one-month assignment to measure pre-post changes. Support them with this but allow them to work out how to calculate the benefit to the business of their new skills and workplace actions. Their measures may not be scientifically perfect  but Einstein did say: “Not everything that counts can be counted and not everything that can be counted counts.”

Developing financial literacy in staff is essential for optimum business performance – so that everyone makes the right calls, day in day out. As managers and business owners, you’re outnumbered. It is not what you do, but what those around you do that makes the difference.

(More about financial literacy in another blog entry.)

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About Cherri Holland

Fascinated with business, brains and how to use the brains on the payroll to make business buzz.
This entry was posted in Measuring return on people expenses. Bookmark the permalink.

One Response to Cost-justifying training spend

  1. Thanks Cherri. I especially liked you referenced Einstein’s quote as it goes a long ways towards ‘soft’ cost and benefits. Another type training delivery method/medium that has a different ROI and Cost Benefit analysis is video training courses. Please tell me what you think of the layout for ROI and cost justification we did at http://bin95.com/Training-Cost-Justification-ROI.htm I am seeking feedback from experts like you.

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