The Real Reason Why Training Budgets Are Cut First and Budgeted Last

Chris Young
March 3, 2009 — 4,636 views  
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Training budgets are cut first and budgeted last due to the lack of evidence of a positive Return on Investment (ROI).

We certainly live in an interesting economic era.  As a "Rainmaker" consultant, I have the privilege of working with very large companies as well as small companies - Fortune 100 to fast-growing $25m companies - in the areas of Talent Management, Cultural Transformation, and Strategic Intervention.  A common question we get from people who are not our Clients is, "How are you doing in today's challenging economic times?"

Our answer is, "We are holding our own quite well."  We have not been forced to reduce our staff.  Most of our Clients have kept their investments in line with their long-term strategic plans. 

Part of our success has been the result of measuring the economic Return on Investment (ROI) we help our Clients realize.  In other words, our valued Clients understand the value of what we have partnered with them to accomplish and they want to continue reaping the resulting ROI.  We measure "life before Rainmakerization" and life after.  We "dollarize" our impact for our Clients as much as possible.

Training is one of our "tools" that we use to help our Clients create the desired change.  Traditionally, training is viewed as an expense rather than as an investment.  The difference in meaning is huge.  An expense is just that - an expense.  An expense "costs" money and is meant to not necessarily provide a return of value.  An "investment" brings a return or dividend as a result.

Are your training iniatives bringing real change - a real Return on Investment?

Again - strategic, bottom-line-oriented companies demand a training ROI.

Warren Buffet recently said:

It's only when the tide goes out that you learn who's been swimming naked. Warren Buffett

He meant that during good times, you cannot see the results of poor decisions or excessive risk-taking.

Spending training dollars without expecting ROI is risky.  With the economic downturn, the "tide" is going out - training budgets that are failing to demonstrate sustainable value-creation are being cut. 

Analogously, companies that are cutting training budgets today are exposing a practice that has long allowed training to occur without training ROI accountability.  During good economic times, the "tide" allowed companies to spend money without training ROI accountability.  During poor economic times, when the "tide" goes out, non-strategic companies who are not measuring their training ROI are "exposed" by having their training budgets cut.

Are there instances where training budgets are being cut regardless of a positive ROI?  Absolutely.  However...  Let us think about what I am saying from a rational perspective.

If an investment of $2500 in training resources into human capital (that fits the job and needs targeted skills development) and then demonstrates a $5000 ROI, the decision is a "no brainer" or easy - keep investing in training in this human capital.  On the other hand, if $2500 invested yields less than $2500 ROI, the "signal" that rings loudly is, "stop investing training dollars in this human capital."

Strategic companies do not blindly throw training dollars at development challenges or just allocate training dollars as part of a budget to be spent as desired.  Instead, smart companies "pick and choose" where to allocate training investment dollars with the intent of actually getting real, measurable ROI.

Following are steps to strategically position training to reap the ROI required and to maximize training ROI accountability:

Step One - Change the training culture or "training mindset" of your organization.  Blindly sending every employee team member to the same training program is disrespectful at best and down right financially reckless at worst.  Not everyone can possibly need the same training - why spend money on something that will yield little or no ROI? 

Create training ROI accountability.  Ask questions like, "How will we realize a true, measurable ROI from this training investment?" 

Expect training ROI measurement to be a "normal" activity or due diligence process for training.  In other words - expect questions such as, "What was performance prior to the training and what were the improvements?"

Another "training culture" or mindset that needs to be changed is "anyone can be trained to do anything".  The reality is this mindset is not particularly pervasive but surprisingly, I still experience companies who think this way.

Create accountability for training ROI by checking Job Fit prior to allocation of training resources.  Stop trying to "raise the dead" through training.  Create the training cultural mindset that training is not the answer to a poor hiring decision.

Step Two - Make sure the Right Talent is on the "bus".  Maximize Job Fit by ensuring the talent fits the Job Benchmark  as tightly as possible.  We have a employee talent selection saying at The Rainmaker Group - It is easier to give birth than raise the dead. 

If the wrong person is in the job - no amount of training is going to help them do the job any better.  The result of training low job fit employee team members is low training ROI.  Why train talent that cannot do the job well in the first place?

Managers who made lousy employee hiring decisions use training to escape the responsibility of removing low performers.  Training low performers is typically viewed as the "right thing to do" when the reality is training low performers is almost always a complete waste of resources.

As stated previously, if the talent or human capital does not fit the necessary "range" of the needs of the job (Behaviors, Values, and Personal Attributes) - then do not train.

Step Three - Ensure each employee team member knows what is expected of them and is being held accountable for performance.  If the Right Talent is in the job, then the next most important step is to make sure they know what is expected of them through performance expectations setting and performance score-cards. If skills development is needed, then this is where training and opportunity meet to create training ROI.  Again, without the Right Talent in the first place, training is almost always a lost cause yielding little or no ROI.

Step Four - Implement a comprehensive training ROI accountability / review process.  Measure job performance before the training and then after.  What change can be measured as a result of training?  If performance is not measured before training and after, it is impossible to understand what the real training ROI has been.

Directly connect performance outcomes with training objectives.

The good news is that current economic conditions are forcing companies to be more strategic when it comes to training.  Case-in-point...  I recently worked with a Fortune 100 company that had an absolutely incredible training ROI process that was extremely strategic, quick, and demanding.  On the other hand, I am still seeing a lot of "old school" thought processes - especially in the health care industry where it seems that everyone goes to through the same training programs. 

It is time to demand accountability for training results.  Failure to demand and realize a training ROI is an invitation to a training budget cut.  The old saying of "training is the last area budgeted and the first one cut" is a symptom of the out-dated training mindsets. 

Training does not have to be the first area cut and the last budgeted.

Now go Maximize Possibility!

Chris Young

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The Rainmaker Group is a human talent maximization company specializing in helping organization maximize their bottom lines by improving employee retention, hiring the best talent possible, and strategic talent management and coaching services. From the Fortune 50 corporation to the small medical office, The Rainmaker Group guarantees lasting organizational change via a unique blend of energy, insight, and science to maximize talent, transform organizational culture, and provide strategic intervention.