Wednesday, April 7, 2010

Training: How to Calculate Cost vs. Benefit?

Naval students learn Japanese aboard Aircraft Carrier Stennis. Canner Street Consulting specializes in teaching English to foreign students.

In hard economic times companies commonly look at training as a cost-cutting opportunity unless it is mandated, for example, professional education in such industries as law, accounting, insurance, and so forth. If there is no compelling link to business survival, cutting back on training is common. This is a relatively easy decision because there seldom is a backlash or adverse impact except upon those who lose their jobs. But there can be consequences:
• highly experienced professionals providing an important bridge between management, staff and operations are lost
• company culture and its collective intelligence may lose vigor
• breaks in the continuity between learning and operations may affect quality, uniformity and marketing, especially with multi-site operations
• learning curves, often unmeasured, break down
• morale is adversely affected
• quality may slip, and
• rebuilding will be costly.

Nevertheless, cuts have to be made; there is no reason for them to be poorly made.
As fuzzy as things might get in any organization, every organization understands its core business and the needs of its clients and customers. The questions to be asked when making choices are:
• What training remains essential to our fundamental business purpose?
• Within our training, are there operations that can be set aside for the duration?
• On a line basis, what costs can we reduce without compromising quality?
• Can we reassign and retain our best people to ensure we maintain our training core?

There are ways to reassign costs and in the process reduce them dramatically. Except for most hands-on training, for example, training machinists or phlebotomists, training costs can be cut dramatically with an investment in learning technology. Technology will eliminate jobs, no doubt, but it will not destroy the essential core.
Another option is to look at job growth within training during the good times and ask, “Do we have positions that grew from “want” rather than “need” and are they necessary? You may already know that answer. In fact, that is a question that should be asked of every department. Unless you are bound by contract, this allows and opportunity to rid yourself of the poor and non-performers. This approach may result in diminishing returns if you are bound by contract.

Research conducted some years ago showed that up to 40% of training cost in any organization is unnecessary. There are several reasons for this.
• it may be untimely, either too early or too late in the employee’s development
• it may be irrelevant, that is, it has been accomplished “on the job”
• the cost exceeds the benefit, and
• it may be outdated, that is, out of step with present realities.
Peter Drucker is often quoted: “If you think training is expensive, try ignorance.” Cutting back on training does not suggest that ignorance will emerge. What Drucker is implying is that training is an essential activity in any organization. How it is managed, how it is undertaken, and what it costs determines how well it meets your needs—and cost may be the least of the problem. Any organization, in good times or bad, should be assessing its training regularly in relation to:
• design
• delivery
• effectiveness, and
• cost.

Some years ago, a large utility was experiencing very high turnover and excessive error ratios with its data entry staff. The cost of both, in time and money, was staggering. A new manager stepped in and hired a consultant to look at the problem. The consultant put a program in place that assured almost faultless data entry and reduced turnover to less that 3% annually. The consultant understood two things:
First--tools supporting learning have increased learning effectiveness extraordinarily
Second--designing and delivering training excellence requires that we understand how people learn.
Canner Street Consulting understands both and brings decades of experience to its work. If you decide to look at your training for any reason, including a start-up, we are ready to help. Our minds make a difference.