Why a Training Budget Is Key to Talent Management

Training Budget

Crafting an ROI-driven training budget can provide significant talent management benefits.

Approximately one-third of organizations don't have a training budget, as reported by the ADP Research Institute® report (ADP RI), Fixing the Talent Management Disconnect: Employer Perception Versus Employee Reality. Although some of this is because of oversight, organizations don't see the ROI for training and thus don't allocate funds to it. The key to creating a win-win situation for an employer and its employees is to define and measure the training costs and benefits in order to forecast a ROI, then advocate for and properly utilize training.

Why a Training Budget Is Important: The Benefits of Employee Development

According to Harvard Business Review (HBR), a primary reason employees depart — aside from compensation — is because of poor managers. Therefore, management training that aids in improving the leadership, coaching skills and processes for managers could have a pronounced impact on employee retention.

Employees want to grow and advance, and training often provides the tools to do so. According to the ADP report, "If training could be brought into alignment with employee goals to grow and advance, changes in this area may have a broader talent management impact."

Today's financial leaders are often strategically positioned to build their firm's capabilities to enhance business performance. According to McKinsey & Co., 78 percent of the most effective capability building firms encourage their employees to continuously develop their skills through a variety of training. Furthermore, 89 percent of these organizations link performance to skills obtained through various learning programs.

Why Implementing a Budget Should Be Prioritized

Ensuring that your team has the requisite development support it needs to grow and fully support the needs of the rest of the organization requires advanced consideration and preparation. Budgets can be used as planning tools. The process of creating and tracking budgets can help finance leaders determine how to best allocate the firm's resources to achieve specific goals and objectives.

Training is a component of the overall budget. To fully utilize the budget opportunity, it is critical to delve into the true costs of various training options and then use a ROI approach to determine what types of training are best for various individuals, groups and departments. According to ADP RI, employees who have role-specific training options are more likely to stay with the firm.

Keys to Driving High ROI

HBR reports that training as a change strategy rarely works. Implementing specific policies, processes and procedures is more effective. Effective training is a mixture of in-class learning with real work situations and other options, such as coaching. In addition, training shouldn't be one-size-fits-all. Instead, it should be tailored or provide options that meet individual and group needs. Furthermore, training should be closely aligned to and linked with business goals and individual performance. Hence, organizational goals must be clearly identified and considered. Then, those goals must be translated into specific training goals.

According to the ADP RI report cited previously, less than 50 percent of employees participate in training. Further, solving job performance issues with training is futile, if those issues are driven by poorly structured performance assessment and reward systems, job design and motivation. When education, training and development is championed by senior leaders, it normalizes it for employees and motivates them to participate. In addition, the conditions are created for people to apply what they've learned and systems are put in place to support and sustain the learning. Doing all of this requires more effort, but can drive a high ROI on training.

Forecasting ROI

It's important to spend time drilling down into the specific costs and benefits of the primary training being considered. Using the considerations above, determine the training that the finance team and your reports need. Calculate all the anticipated training costs including materials, facilities, instructors, travel and evaluation time. Be aware of all the benefits, direct and indirect, soft and hard. These include a reduction in turnover costs, productivity improvements, reduced labor and compensation costs and increased employee sharing and collaboration.

If an organization doesn't see the investment return on training, that training is not helping employees succeed. This can be corrected by providing — from the top down — not just training, but the processes, support and opportunities to use that training. Crafting an ROI-driven training budget using the suggestions above can provide significant talent management and goal achievement benefits to your firm.