The true cost of cutting your training budget

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We all know businesses are operating in tough economic times; no doubt you’re tired of hearing it. But regardless of that much-played out fact, research we undertook earlier this year suggested that, for many organisations, L&D budgets are actually on the move (and in the right direction, too). 30% said their L&D budget would increase, while 50% said it would remain stable, meaning only a fifth of those surveyed were expecting their budget to actually shrink. When it came to successful implementation of L&D, however, budget constraint was still cited as the primary hurdle.

Clearly there is some headway still to be made, then, when it comes to the perceived value of impactful learning. When lowering costs is a key priority, L&D budgets have historically been one of the first areas to take the hit. The justification is, always, that L&D is not one of the most business-critical costs, and therefore not an essential cost. That logic is fundamentally flawed, though. It is during the lean times that you need your teams to be at their most productive. The right L&D, delivered in the right way, can, and should, drive performance, from an individual right up to an organisational level. The answer to whether L&D is business critical, then, is ‘very much so.’

L&D should be an integral part of your overall business strategy, not simply a dispensable side-project. In fact, not investing enough into the development of your people could do more harm than good. Let’s take a look at the true cost of cutting your training budget.

A drop in productivity

L&D has been proven to boost productivity. By cutting your training budget you are making a quick saving. What you are losing however, is the benefit of having your people being as effective as possible in their roles. The effect of that loss varies depending on the level, and specific job role, of the employees in questions. Cut back on sales training, for example, and you may not realise the full potential revenue that those teams could be bringing in. Cut back on customer service training, and your customer satisfaction scores could drop, which ultimately reflects your brand and company reputation. Reduce IT training, and the efficiency with which people work may decline.

When profits are strained and costs need to be cut, people tend to make the mistake of thinking training is an expense that can be cut without having to worry about ‘business as usual’ being affected. But this approach is counterproductive. By improving productivity, the right L&D can actually have a direct impact on the bottom line of your business.

An increase in staff turnover (and what that costs)

Training your staff not only shows that you value them – because you’re willing to invest time and money into their development – but it also makes them feel positive about their future in the business. Positive, optimistic and motivated workers are far less likely to leave than those who feel undervalued, or simply at a dead end. They are also likely to perform better. Neglect to invest in people’s development and you run the risk of not only staff who are not working at full productivity, but also of losing them altogether.

Is staff turnover such a worry, though? The answer is, of course, yes. Research published earlier this year by global forecasting firm Oxford Economics showed that staff turnover costs the UK economy at least £4.13bn each year. That figure is undeniably huge. Let’s take a look at how it is broken down.

Logistics

For every new hire, there are generally advertising and recruitment agency costs involved. The average figure for those two combined? £5,433. And that is before the person has even started.

Wages during period of low productivity

Whatever your role, we all know that there’s a period of time from your start date during which you don’t fully know what you’re doing. That length of time obviously varies depending on the role, the organisation, and how much time you need in order to get up to speed, but according to Oxford Economics’ research, the average time it takes to reach optimum productivity is 28 weeks. The average cost in wages, therefore, comes to £25,182.

The total amount of money a business needs to spend, then, on average, before a new employee is able to contribute to the success of the organisation, is a staggering £30,615. That certainly puts the price of developing existing talent into perspective, and should, perhaps, make employers think twice before thinking of L&D only as a cost.

If you have to cut down, try coaching

If you really do need to cut your training budget, look at ways you can save on costs but still deliver effective learning rather than simply removing L&D from your strategy altogether. In the CIPD Learning and Development survey undertaken earlier this year, respondents were asked which talent management activities had the biggest impact in their experience. 46% said coaching – the top result by some distance.

Coaching not only creates an environment in which staff take ownership of their own development, but it also helps pinpoint specific training needs, which means any L&D investment will be better targeted and, ultimately, money better spent. In a financially tight environment, this approach enables you to continue developing your people effectively without incurring large costs.

L&D as a strategic business tool

The driving point here is that L&D – provided it is done in the right way and following thorough consultation – is much more than simply an extra cost, and it is dangerous to think that you can cut back on its implementation without having an impact on the business. Even if you don’t believe that cutting your training budget would actually have a negative impact, you would still be missing out on the significant positive impact that L&D could bring.

With its ability to boost productivity, improve employee engagement and turnover and ultimately have a positive impact on your organisation’s bottom line, L&D should be a key part of your overall strategy. The decision to cut it from your budget, therefore, should be taken as seriously as any other business function.

Mark Eagle is a Management and Leadership L&D Consultant at Thales Learning & Development. Having spent time training large teams for big businesses such as Virgin Atlantic and BUPA, Mark is now responsible for delivering TLD’s suite of management and leadership programmes.