The Training Investment Decision
One of the biggest strategic decisions you must make as a training executive or manager is where to invest your limited dollars. Unless you are running training as a revenue-generating business, your budget is viewed as an expense. Expense items are rationed - you cannot keep asking for money whenever you need a new program. You must make resource allocation decisions.
We believe that these resource allocation decisions are the most important decisions you make -- even more important than content quality itself. You must decide which programs to focus on. This article will give you a methodology and approach to decide how to allocate training resources.
Where The Dollars Typically Go
Training budgets grew almost 6% in 2006. Annual training spending per employee ranges from $150 for low-spend organizations (typically retailers) to $2300 and higher for organizations in financial services and consulting.
From our recent data from The Corporate Learning Factbook, we found that spending tends to break down as follows:
In most organizations, some percentage of the salary budget goes into direct training delivery (content development and delivery of training), and some percentage goes into back-office administrative functions. One of the big issues in training is determining how to minimize these back-office expenses because they do not directly deliver value to employees or customers. Much of the rush toward purchasing LMS systems and outsourcing training is to minimize these "back office" expenses.
How do you Allocate these Dollars for Highest Impact?
Given these breakdowns, you can simplify the problem by stating that there is a fixed set of dollars (dollars for salary, consultants, technology, and content) which can be translated directly into training programs.
The decision we want to discuss in this article is a critical one: which programs should you invest in? Should you allocate dollars and resources equally among many programs? Should you focus on a few programs? How do you prioritize this spending in advance and how do you deal with the constant onslaught of new products, regulations, and business challenges which require training?
What we have found over the last few years of research is that there is a "winning" approach. We call this approach the "Training Investment Model™." It is an approach which borrows ideas from financial investments and is easy to understand and implement. It it also highly flexible and can easily be applied to many industries and sizes of companies. Finally, it will help you serve as a business consultant to your line of business customers.
The Training Investment Model
This model is very simple. You look at all your training programs for the year and you allocate them into four quadrants. The rows of the matrix (running horizontally) show you whether the content is "custom to you" or "off-the shelf."
The bottom row are programs which can be delivered via off-the-shelf content. Off-the-shelf content is a program, course, or seminar you can purchase from an external provider as-is. Typicall off-the-shelf programs include IT training, basic management training, many leadership training programs, desktop productivity training, project management, etc.
The top row are programs which are "custom to you." These programs are ones which you must build from scratch - using your own SME's, your own training experts, and your own management teams. We will explain how to decide what is "custom" vs. "off the shelf" in a minute.
The columns are equally easy to understand: the left column are programs which you believe are needed to "run your business." That is, they are important, business critical programs which are required for business operations. They are clearly important, but in and of themselves they will not drive your company to "beat the competition" or "increase market share."
The right column are programs that help you "win in the market." These are programs that embody strategic competitive processes, skills, and competencies which make your company beat the competition, gain market share, and grow profits. They are programs which typically build on years of experience and proprietary approaches which you feel your company "owns" and would not want to share with the competition.
How to use the Investment Model
Your job is to take all the training programs you have and fit them into one of these four quadrants. This exercise itself will force you to think hard about each program:
- Is it sponsored by a senior executive?
- Is it funded by a line of business initiative?
- Is it a program which line managers believe is critical?
- Does it embody company-specific intellectual property?
- Is this a program which learners recommend highly?
- Which of the four models does it fit into? (See our Four Corporate Training Models, available to Research Subscribers)
Step 1: Inventory all your major training programs.
The first step is to take an inventory of all your programs. This itself may be difficult - you may need to print off the course catalog for your LMS to find all the programs in your company. Some fall into categories. Try to group similar courses into course groups or course roadmaps that you can segment together.
Step 2: Get a group of Training Managers together and Do the Initial Allocation
Work as a training team and try to determine which programs go in which category. You will find that some are hard to place. Is a program "operational" or "strategic?" Save the upper right category for those small number of programs (3 or 4 at most) which are highly strategic to your organization.
Remember that your business drives this decision. For example, in an insurance company IT certification skills typically fall in the lower left. In a high-tech consulting firm, howerver, IT certification programs may fall into the upper right? In a retailer, project management may fall into the lower left. In a high value manufacturer, however, project management may fall into the lower right.
Step 3: Meet with your Line of Business sponsors and ask them to allocate.
Meet with as many line of business sponsors as you can and ask them which single program they feel is the most strategic. Which program do they feel will "make or break" the company. As the training executive, you are the one who makes the final investment decisions -- but clearly you must gain their input and let them rank their priorities. They do not see the priorities of other business units, but nevertheless you must understand their sense of priority.
Step 4: Develop a final allocation
The most important step to take here is to nail down which programs fall into the upper right and which fall into the lower right. The upper right programs are those which should get most of your investment dollars.
This model is very valuable: it will help you decide where to focus, where to invest in highly strategic programs, and where to look for outsourced off-the-shelf solutions. Coupled with best-practice benchmarking, the Investment Model will help you make sure your training investments are aligned, efficient, and strategic.