(Step 3) 3 Steps to Building a Smarter Training Budget - One that Gets Approved by Executives

Step #3: Build a Smarter Budget

This step in the process assumes that you already know how to follow the basic steps required to research and build a budget including:

• Setting targets
  
• Aligning incentives
  
• Developing action plans
  
• Allocating resources
  
• Coordinating plans across key functions and stakeholders
  
• Monitoring, adjusting, and controlling finances
  

Once you have built the first draft of your training budget based upon what is most important and most urgent to the business, it is time to do some quick benchmarking and analysis to see where you stand.

• 1. ROI: Is the Value There?
  
  Remember the value equation from the first step? [Value = Benefit – Investment]
  
  Now is the time to put it to the test. If you have done your homework, you should be able to assign specific dollars to both the anticipated benefits and costs to come up with a value that both you and your key stakeholders agree upon. The value must be greater than the associated risks and greater than the value of comparable projects in order for it to still make sense.
  
  
• 2. Transfer of Training: Have You Accounted for Adoption and Impact?
  
  Now that you are focusing only on initiatives with quantifiable value to your key stakeholders, it is time to allocate resources in your budget toward the second and third phases of the Training RAI™ Model: Adoption and Impact.
  
  
  In order to ensure success, it is imperative that you set aside ample resources to help ensure on-the-job adoption of the key skills and knowledge that your initiative is designed to address. Depending upon the specific solution, this may include budgeting for items such as skill gap assessments, individual development plans, leadership overviews, action learning assignments, manager coaching, mastery sessions, tools and job aids, process improvements, performance metric enhancements, and measurement. While costs for these areas can vary widely, a good rule of thumb is that, done right, they should cost 3-4 times the cost of your foundational training program.
  
  
• 3. Benchmark: Are We Getting a Good Deal?
  
  While you need to make sure that you are comparing apples to apples, this is where benchmarking can come in handy by providing guideposts and potentially pinpointing problems that you may not have considered.
  
  Be careful that you do not get carried away however. In order for benchmarking to be meaningful, the metrics should link directly to the objectives of the project and serve as data points in your decision making process. Remember, every situation is unique. With that said, here are a few tried and true training metrics that you should consider to see how your budget assumptions compare:
  
  • Average cost per training hour
    
  • Average annual training investment per employee
    
  • Training investment as a % of payroll and a % of revenue
    
  • Average amount spent annually on learning technology
    
  • Total training investment
    
  • % training administration and % training delivery costs
    
  • % in-house vs. outsourced learning
    
  • % live vs. online learning
    
  • # internal training staffers per learner
    
  • Internal staff to training spend ratio
    
  • Average # of formal training hours per learner
    
• 4. Approval: Can You Articulate Your Budget in a Way that Makes Sense to an Executive?
  
  Now that you have confirmed the relative value of your initiative, included all of the associated costs to ensure adoption and impact, and benchmarked your budget to others, it is time to articulate your plan and budget in a way that makes sense to an executive.
  
  In addition to bringing to bear the political, communication, and change management skills typically required to influence both up and down, now is the time to:
  
  • Link your plan and budget to what an executive cares most about by constructing a concise and compelling value statement. Your value statement must simply and logically link your plan and budget directly to your executive’s key business issues, strategies, and goals in both strategic and financial terms. This is about connecting the dots between what your stakeholders need and what you are recommending - keep it short and simple.
    
    
  • Articulate your value statement, high-level plan, and budget in 15 minutes with no more than 7 slides. The key is to stay focused on the executive, your stakeholders, and the business. Use the Training RAI™ Model to help keep your focus.
    
    • (1) Present State: What is happening now? What are the past performance trends? What are the negative consequences of not implementing your solution?
      
      
    • (2) Relevance: What key priorities are your plan and budget addressing that the executive cares most about? How do you know that closing skill and knowledge gaps will address those issues? What is the financial impact?
      
      
    • (3) Adoption & Impact: What have you put in place to ensure that the company gets the desired results? How can you demonstrate that it will work?
      
      
    • (4) Desired State: What are the financial benefits to your plan and budget? How does it impact revenues, expenses, profitability and cash flow?
      

In Conclusion Smarter training budgets are about relevance. If you want your training plans to make a difference and if you want your training budgets to get approved by an executive, you should make sure that you can clearly:

• 1. Identify the priorities of an executive and your key stakeholders
  
  
• 2. Link your plan and budget to their most pressing concerns
  
  
• 3. Articulate your solution in a way that resonates with what is most important to an executive, their boss, and the company
  

Training plans and budgets done any other way have a high propensity to fail, get cancelled, and perpetuate the negative perception that many executives have about training and HR in general.