Prepping for an accurate and ROI-driven L&D budget? Don't fall for the trap and view "cost" merely as a tangible element—you need to factor in the non-tangible elements as well.
Ask any L&D leader what their biggest pet peeve is, and the typical answer is understanding how much an employee training program actually costs. Sure, the number demonstrates a telling tale.
According to the recent Training Industry Report, the total training expenditure per learner reduced by almost half between 2019 and 2021, as did the hours per training session for large enterprises. For small enterprises, while the training expenditures increased, the training hours went down for the same time period. On the other hand, for midsize enterprises, the training expenditure, as well as hours, shot up:
Plus, training expenditures in the U.S. skyrocketed by 12% to $92.3 billion in 2020-2021 due to numerous factors, such as the increased focus on virtual learning, employee well-being, and retention.
While the numbers can help L&D strategists map out useful strategies, understanding the true cost of training requires L&D leaders to look at L&D budgets under a more holistic lens.
In this blog, we will understand how L&D leaders can put their best foot forward by:
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Understanding the critical monetary and non-monetary elements of an L&D budget
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Creating a budgetary blueprint that works twice as hard to pay off huge dividends to the organization
Let's get straight to it.
What are the Tangible Factors that Can Affect an L&D Budget?
Let's start by understanding the various factors that typically make up an L&D budget. These include (but are not limited to):
- Business size: Generally speaking, the training costs are higher for smaller organizations as compared to mid-sized and larger enterprises. However, the training hours are higher for larger enterprises than mid or smaller-sized companies.
- Industry type: Certain industries require a more specialized type of in-depth training, which can eventually shoot up the L&D budget. For example, the budget changes vary from industry to industry as per recent data:
- Skill sets needed: An increased scope of training and purchases in new technology is creating a skills gap. Employees need to be trained in newer skill sets to bridge the gap and drive operational efficiency:
- Training method deployed: If L&D leaders are under the impression that virtual training is here to stay, they should consider the following statistics:
In terms of training delivery, around 56% of respondents wish to return to classroom training while maintaining remote learning. Clearly, understanding the learning format is a critical component when drafting the L&D budget.
Remember that there are numerous types of learning formats to account for, such as on-the-job, classroom training, simulations, and so on.
- Training technology and platform: Without understanding the type of learning technologies to be leveraged, organizations will experience budget issues such as cost-overruns and miscalculated expenses. To create an accurate estimate, L&D professionals need to include the type of learning technology the program will need to drive a more optimized and efficient style of learning that aids learner comprehension and knowledge retention. Some common learning technologies being used by organizations include:
- Training outsourcing: Another critical cost element in the L&D budget is training outsourcing costs. Here's a snapshot of the diverse categories/segments organizations typically outsource depending on their current requirements and existing L&D infrastructure:
The lesson: An impactful and learner-centric L&D program typically comprises direct costs such as infrastructural costs, logistics, staff salaries, costs related to training material, vendor and consultant spending, and technology/platform used, among others. For reference, here's a handy list of direct expenditures organizations typically incur:
Aside from this, organizations also need to factor in indirect costs, which may occur in the background but are equally important to the establishment of an L&D program. These include the following:
We will explore what these are in the following section.
Top 4 Intangible Costs to keep in Mind When Determining Your L&D Budget's Worth
1. The 'Time-Effort' Cost: L&D Success = Organizational Success = Increased ROI
Granted that planning, creating, and running a robust L&D program can drain your L&D team of valuable time as well as effort. However, it is worth the investment, as your L&D program's success is directly proportional to the individual employees' as well as the organization's growth. Here's what the data tells us:
According to research by Statista, 76% of GenZ and 61% of millennials view learning as the key to success in their career:
The lesson: L&D leaders need to understand that the time and effort that goes into creating an L&D program is well worth it as it helps the employees, as well as the organization, grow. The happier the employees, the more committed they will be to their work. This will invariably boost productivity and help pad up the company's bottom line. This is probably also why 33% of L&D professionals reported an increase in the learning budget (as of March 2020).
2. The 'ROI' Cost: Program Investment = Business Impact = Satisfied, Loyal Employees and Stakeholders
The second most important tip L&D managers need to keep in mind when determining an L&D budget is to understand how they will measure the efficacy of the training program and its impact.
The need of the hour is to chart out relevant Key Performance Indicators—or KPIs as they are commonly known—that directly impact the program cost and output. In addition, L&D professionals should also understand the extent of learner usage of the training program to see if the training costs are being justified (or not).
To understand the impact of your training budget, ask yourself the following key questions:
- How much is your cost per learner as compared to the industry average?
- Does your training program align with the business objectives and individual employee needs at scale?
You can then follow these best practices and steps to create an ROI-driven training review system:
Step 1: Identify key factors that matter the most to your employees, managers, external stakeholders, etc., with respect to learning metrics. The learning team should focus on creating program objectives and link them to the broader business goals.
Step 2: Collect real-time feedback from learners to understand the strengths and weaknesses of the program. You can convert the data into monetary values and non-tangibles based on the learners' feedback. Identify the cost-related 'blind spots' and calculate the return on investment.
Step 3: Act on relevant feedback to build a learning program that capitalizes on the inputs received and paves the way for happier participants.
The learning: Creating a comprehensive and robust ROI measurement mechanism in place is the key to gauging and justifying your program's budget to your internal and external stakeholders. In other words, think about linking your L&D investment to your business objectives—another hidden 'expense' professionals should account for, or else, it can cost your program (quite literally).
3. The 'Content Quality' Cost: Project-specific Courses = Better Learning = Direct Impact
The third 'cost' that organizations should analyze is the quality and relevance of training content. Let's look at an example to understand this well. For a second, consider this scenario:
Your product team is struggling with an issue and has brought it to the L&D team's attention. Would it be wiser to create a customized training program that specifically caters to that issue, or would you rather build programs on topics that may be trending but are not directly linked to your organization's immediate needs?
We'd opt for the latter.
You can add a tangible element to the end result of the training program. For example, when building the course, think about the increase in sales/revenues that the learning initiative should bring to the table.
By comparing the expected benefits of the L&D program, you can measure the ROI and costs of the training.
The lesson: When it comes to nailing the content of a training program, it is advisable to create content that's customized to your organization or even the learners' pain points. This will not only engage employees better but will also directly help the business roll out successful products.
To understand whether the costs are being justified or not, the managers can measure the direct savings in cost as a result of the learning initiatives and better product delivery.
In simpler words, understanding the 'business value' of the program can help select the right mix of training courses and topics. Finally, as a thumb rule, managers must assess the training costs in terms of the organizational benefits and/or results.
4. The 'Learner' Cost: Learner Engagement = Deeper Learning = Positive Outcomes
The fourth intangible cost element that L&D managers need to incorporate within their L&D budgetary strategy is understanding the levels of learner engagement throughout the training life cycle.
Assessing levels of learner engagement requires L&D professionals to analyze the program from three critical touchpoints:
1. Technology: Advancements in technology are driving greater student learning, participation, and collaboration. They also empower learners to gain a contextual and diverse understanding of the topic at hand. To drive greater engagement, your L&D budget must include cost investments into next-gen learning tech platforms such as OTT, customized learning management systems, immersive technologies such as Robotics, IoT, Virtual Reality, Augmented Reality, gamification, etc.
2. Learner habits and preferences: The on-demand learners of today crave instant gratification—even when it comes to learning. Their preferred content format is bite-sized micro-learning content. They want engaging, interactive, and immersive learning experiences at the click of a button. They also want the option to choose from a plethora of platforms, accessing contextual content as they hop from their smartphone to their iPad to their desktop. Furthermore, they want a mobile-first learning experience and want access to anytime, anywhere learning.
3. Remote, self-paced learning: An extension of the previous point, learners today want self-paced learning in the comfort of their homes. This is why integrating remote learning as an important component of your L&D program is instrumental to driving higher learner adoption rates.
The learning: To make the most of your L&D budget, managers need to spend time understanding what can drive a deeper form of learning. They need to assess learner habits, preferences, likes and dislikes, etc., to lay the foundation for a more meaningful and personalized form of learning. The training programs must:
- Focus on problem-solving, critical thinking, etc. instead of being text-heavy and too theoretical in approach
- Constitute content that is easily digestible and follows an instructional design approach to make it reader-friendly
- Be visually driven and factually accurate to ensure up-to-date learning
Over to You
To determine the true cost of your L&D budget, it is critical to factor in the direct and indirect costs of training. Any budget worth following is actually a culmination of tangible and non-tangible factors related to program training.
Leveraging this approach will help get a clearer and more accurate understanding of the ROI of your Leadership and Development training programs. It will also help you to plan your short-term and long-term costs in an optimized capacity.
To wrap up, apart from the direct costs involved, here are the top 4 intangible strategies to consider when creating an L&D budget:
1. The 'time-effort' cost: Invest in the required time, effort, and energy to build a successful L&D training program, which can eventually lead to organizational success.
2. The 'ROI' cost: Measure the training program efficiency by analyzing the business objectives/goals achieved as a direct result of the learning program.
3. The 'content quality' cost: Build content that caters to your reader's pain points to drive an efficient learning process and one that can positively impact the brand's output.
4. The 'learner' cost: To drive learner engagement levels, read about the learner's habits, preferences, etc., and drive deeper learning.
Integrate these costs within your L&D budget and make every penny invested work harder to give you better returns—in terms of happy learners, satisfied stakeholders, and program sponsors. Moreover, on the upside, getting management buy-in for future learning programs should become easier with this approach. Thoughts?
