Training Cost per Employee: Budgeting For Employee Upskilling

For your business to have any hope of long-term success, you can’t ignore investing in your greatest asset: your employees. This is where development programs bring a number of key benefits, including:

• Enhanced employee skillsets.
• Positive workplace culture.
• Employee loyalty and dedication to your company.

Despite this, according to a US Gallop poll, only 36% of employees are engaged in the workplace – largely due to a lack of professional development options. Whilst in the UK, government statistics suggest that 48% of organizations have not funded or arranged any training for their staff in the last year (2021).

But why is this? Well, for starters, without careful planning and strategic allocation of resources, training budgets can often go to waste – leading to a certain skepticism toward training costs and whether they are truly worth it.

Looking to optimize your training cost per employee?

You’ve come to the right place – as this article explores the significance of training budgets, their impact on employee lifetime value, and how businesses can set the right budgets to unlock the full potential of their workforce. So, let’s dive into how you can optimize your training investments and propel your organization forward!

Evaluating training requirements

Before you can even start planning or allocating a budget, the first step is to evaluate the training requirements of your workforce. You should try to follow an approach like this:

1. Conduct a comprehensive skills assessment: Assess the current skill levels and competency gaps of your employees to identify specific areas that require training. The aim is to uncover insights that will help you tailor training programs to address the specific needs of your staff.
2. Align training goals with business objectives: Make sure that the training programs align with your organization's strategic goals and objectives. This alignment helps assure you that the training initiatives directly contribute to improving overall performance and productivity.
3. Consider individual career development plans: Take into account the career aspirations and growth opportunities desired by individual employees. Styling training sessions as ‘professional development courses’ can boost engagement and enhance retention.
4. Analyze industry trends and technological advancements: Stay updated with the latest trends and technological advancements in your industry. Identifying emerging skills or knowledge gaps will keep your workforce competitive and adaptable to change.
5. Seek employee feedback: Gather input from your employees regarding their training needs and preferences. Conduct surveys or hold discussions to understand their perspectives and incorporate their feedback into the training budget planning process.

By carefully evaluating training requirements through these steps, you can design targeted and impactful training programs that effectively address skill gaps, foster employee growth, and align with your organization's strategic objectives.

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Defining the training budget

At this point, you should have a good idea of what you’re aiming to achieve with your employee training program. Now comes a very crucial step – to start defining the training budget you’ll work with.

This initial training budget will serve as a guideline for the size, scope, and pricing of the training programs you can adopt. At this stage, it’s important to involve your finance team and stakeholders in these discussions so as not to have any surprises further down the road.

You will also want to run aspects of it past your HR team and department leaders to check that it will be capable of addressing the training needs of employees effectively.

Now you’ve got an initial idea of how to start defining your budget and who should be involved, let’s explore how to develop your training program alongside the expenses and hidden costs involved.

Identifying and establishing training methods

You should start by considering the following to develop your training course:

Research and evaluation

Selecting effective training methods is key to maximizing the impact of your training initiatives.

There are 2 main angles you should bear in mind when approaching this:

• Learning Styles and Preferences: Everyone has different learning styles and preferences. Some may prefer hands-on practical training, while others may thrive in a more theoretical or visual learning environment. You should consider the diverse learning styles within your workforce and select training methods that accommodate these preferences.
• Technology-Enabled Training: With advancements in technology, there are various digital tools and platforms available to enhance training effectiveness. E-learning platforms, virtual reality simulations, webinars, and online courses provide flexible and accessible options for employee development. Incorporating technology-enabled training methods can be cost-effective and convenient, especially for remote or geographically dispersed teams.

Cost-effectiveness

To identify training methods that are cost-effective and financially sustainable, utilize the following strategies:

• Prioritization: Identify the most critical training needs based on your organizational goals and employee priorities – then focus your resources on these areas.
• Blended Learning: Incorporate a mix of training methods to create a blended learning approach. For instance, you could blend cost-effective online options with more traditional in-person training.
• Vendor Negotiation: When outsourcing training programs or working with external vendors, negotiate competitive pricing and explore volume discounts. You may find that conducting a comparative analysis of quotes from different providers can strengthen your bargaining position.

Calculating the training costs

When it comes to calculating the specific cost of training, careful planning and accurate financial forecasting methods are required. By following a systematic approach, you can allocate resources effectively and make sure that your training initiatives align with organizational goals.

Here are the key metrics you should consider for an accurate cost prediction:

• Estimate the number of employees to be trained: Assess the number of employees who will participate in the training programs. This helps in estimating the overall budget needed to accommodate the training needs of the workforce.
• Research training options and costs: Explore various training providers, courses, and learning materials available in the market. Compare their costs and quality to make informed decisions that align with your budget constraints.
• Account for direct and indirect costs: Consider all the direct costs involved in training, such as course fees, materials, and trainers' fees. Additionally, factor in indirect costs such as employee time spent on training, travel expenses, and accommodation if necessary.

Keeping track of your company’s expenses can be an arduous (and expensive) process, which is frustrating if you’re working in competitive markets such as the UK or US. To get around this, leverage applications such as payslips software and accounting software to be able to analyze your payrolls in the context of the rest of your expenses and make better business decisions. 

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Sorting budget considerations and restrictions

No employee training course will be perfect – you’ll always have to balance the development needs of your staff with the financial realities of your budget.

So as you develop your budget, try to keep these aspects in mind:

Recurring training programs and certifications

Allocate a portion of the budget for regular training programs and certifications to provide a continuous skill development. For example, setting aside funds for an annual leadership development program or providing ongoing certification courses for IT professionals.

One restriction that may arise is the unavailability of resources and expertise – such as a lack of certified trainers in your region. To overcome this issue, you may want to explore partnerships with online providers or invest in upskilling your internal staff to become certified trainers.

Contingency budget for unexpected training expenses

Set aside a contingency budget to account for unforeseen training needs that may arise. This could include unexpected industry changes, new technology implementations, or specialized training requests from employees.

The main restriction in this area is the unpredictability of training needs. This is especially the case if you employ people in different countries, where there might be differences in what training is mandatory or which qualifications are or aren’t recognized.

The best advice here is to adopt a proactive mindset and anticipate the necessity to pivot your strategy. That’s why so many businesses use an ERP cloud computing solution, as it offers an oversight of all your business’s workflows and data. Having access to real-time data is crucial for creating a contingency budget that accounts for the unexpected. 

Justifying budget allocation with ROI

Return on investment is perhaps the most important metric for calculating training cost per employee. To conclusively measure ROI, you’ll need to identify relevant key performance indicators. For instance, you could track the before-and-after performance of your sales reps by measuring the effect of a training course on their lead conversion rate.

Of course, it’s not always straightforward to measure the direct impact of training on financial outcomes. In addition to pre- and post-training assessments, you could also leverage employee performance evaluations and feedback surveys to gather data and demonstrate the positive impact of training sessions.

Implementing budget-saving strategies

To further cut back on your expenditure, why not try exploring these options to get the most out of your budget and to foster an effective learning environment:

• Embrace peer-to-peer learning: Encourage employees to share their expertise through lunch-and-learn sessions, mentorship programs, or knowledge-sharing platforms.
• Encourage self-paced learning: Promote self-directed learning initiatives where employees can access online resources and pursue individual skills development at their own pace.
• Optimize training delivery methods: Consider blended learning approaches that combine online modules with in-person sessions to maximize training impact while minimizing costs.
• Utilize online learning platforms: Explore cost-effective online learning platforms that offer a wide range of training courses and resources.
• Seek external partnerships: Collaborate with industry associations or educational institutions to access discounted training programs or certifications.
• Evaluate training materials: Review and repurpose existing training materials to avoid unnecessary duplication and reduce costs associated with content development.

Budget adjustments

Developing a training budget and strategy is not a one-time occurrence. After all, it’s inevitable that your employee’s needs will evolve as they learn on the job. As such, it’s essential for you to address emerging requirements to maximize the impact of your training investments.

To stay on top of this process, you should set aside regular meetings for the following:

• Monitor your training effectiveness: Value-for-money is the name of the game in employee training programs. Make sure to continuously track your KPIs to gain a clear picture of your most effective training programs and their impact on employee outcomes.
• Review and adjust your budget periodically: Over time, the need may arise to reallocate resources based on changing priorities, emerging needs, and evolving market dynamics. As such, you should always have an action plan in place for your training programs – i.e. which ones are the main priorities, and which could be dropped first?

Final Thoughts

Optimizing your training cost per employee is crucial for unlocking the full potential of your staff and driving long-term organizational success.

No matter what approach you choose—from leveraging an external training agency to adopting e-learning courses—the core aim remains the same: to upskill staff and encourage them to stay with your business for the long term.

To get the most from your training programs, regularly review your training materials and make sure they are aligned with strategic objectives. Embracing this mindset will empower your business to remain competitive, enhance employee engagement, and enjoy sustainable growth.

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