Budget time. Once a year, many training managers can be found in an office conference room, drinking excess coffee, reviewing mountains of data and trying to prepare the next budget. The budget process doesn’t have to be dreaded. Using four simple steps, a training manager can greatly reduce the stress of preparing an annual budget.
The training budget serves two important purposes. First, the budget should be a realistic projection of the cost to attain specific training goals. Second, the budget serves as the standard against which to moniter financial performance throughout the year. As the management team decides where to allocate increasingly scarce resources, the budget becomes a tool for making difficult decisions. The process is an opportunity to educated senior managers and others about the training center and its programs.
1. Use Program Budgets.
Often, training center managers think of budgets only as a tool for senior management. Budgets are also an excellent tool within the training department. Create a budget for each program developed or offered. Meticulously track revenue from the program. If training is conducted at no charge, evaluate and assign value to business or process gains that can be directly attributed to the program. Tracking the value of your training is a critical function of your learning management system.
Revenue and Value
Revenue and value represent two totally different concepts within the training center. Revenue is the amount of income a program generates through charges for classes, registrations, reservations, instructors, and equipment. This income can be through actual fees, in the case of a for-profit center or a center that conducts both internal and external training. Income can also come in the form of department chargebacks. Value represents how much a specific training activity or resource is worth to the company. Just like revenue, value can be assigned to an overall program, on a class-by-class basis, or even on an individual basis. Assigning value may seem difficult at first. For example, how does a workplace safety program have measurable value? Most insurers grant a discount for compliant workplaces, especially if training is part of a comprehensive program. A simple web search can provide hundreds of ideas on how to assign value for different types of programs.
In order to determine accurate information on the return of the investment, the cost must be known. Consider the cost of the instructor, program materials, and location. Are there costs associated with the students? What is the hourly rate per attendee? Is someone having to cover their work during class? Are the students attending being paid overtime? Even using a company-owned room has an associated cost. Again, your learning management system should allow for tracking of costs associated with specific classes or resources.
Evaluating the impact of training is central to the budget process, and takes many forms. Budget time is a perfect opportunity to educate others about the role of training and its impact throughout the company. Any budget or other request for funding should include information on how the proposed program(s) help the company reach specific business goals. Some training centers provide a document similar to an annual corporate report, outlining programs and highlights. Although there should be statistics, use the documents to convey both the subjective and objective value of training. Remember that institutional knowledge is a valuable company asset. Training expenditures, as a percentage of payroll expenditures, has a direct correlation to corporate value. 
Being able to demonstrate a positive return on the investment in training is always beneficial. Studies vary, but the majority of training programs produce a return of at least seven percent . Don’t hide underperforming programs. Point them out, and identify changes as a result of the evaluation. Each class or training offering should include a financial review. Instructors, staff members and others should be aware that training has a financial component. An instructor who takes an extra 30 minutes for a class of 20 people earning an overtime rate is having a significant impact on the return on investment for that class. Classes that deviate from an expected return should be flagged and the underlying cause identified.
3. Use Budget Tools
What tools are available for the training manager? Your learning management system should have the ability to measure revenue, value and cost and produce reports accordingly. You should also be able to export this data so that it can be used in conjunction with your budgeting or accounting system. Some training centers use web service calls to automatically exchange information with financial systems. For example, TrainingForce can send information to Intuit’s Quickbooks. Larger organizations may deploy complex enterprise solutions to manage the entire budgeting process. Larger companies may allocate a budget initially, then reallocate periodically throughout the year based on spending patterns or other business factors.
Use the tools you have available on a daily or weekly basis. Although much of the specific budget information may be confidential, keep others within the training center aware of performance relative to specific goals. Monitoring training cost using your learning management system frequently; senior management will appreciate knowing about issues in advance. If you know travel costs have increased by 15 percent, you can give your manager a heads-up and adjust future training plans to reduce travel.
4. Avoid Workarounds.
Pressure on training departments to perform continues to increase. A common perception of the budget process is that you have to spend everything allotted each year; doing so helps ensure you maintain or increase funding the following year. Some managers have found creative ways to manipulate the budget process. Two of the most common workarounds are the “save and spend” and the “slush fund”. By following the first three steps, a manager should be significantly more comfortable with the current and future budget; no workarounds should be necessary.
Workarounds are detrimental for two reasons. First, they typically result in the purchase of goods or services that may not really be needed. Second, they hurt the department and manager’s credibility. Both of these practices can be identified pretty quickly and often result in a more difficult, extended budget process.
Don’t Save & Splurge
Let’s say a manager has been frugal for ten months, and is presently ten percent under budget. In the final two months, the manager spends the amount saved in order to end the year in a budget-neutral position. This save now, splurge later approach is easily identified by financial managers. Often, managers use the “splurge” principal to buy items for the upcoming budget year out of a fear the budget will be reduced.
Don’t Create Slush Funds
Especially in larger organizations and municipalities, a manager may be tempted to set up “slush funds”. These are expense categories or budget items that appear legitmiate and are easily justified, yet are rarely or never used for the original purpose.
For example, a department uses cordless tools. The tool owner’s manual calls for the tool batteries to be replaced every two years to maintain optimal performance. A budget item for “battery replacement” is created and approved and funded at $20,000 per year, with a plan to replace 50% of the tool batteries. However, the tool batteries actually perform well for much longer than stated and only $5,000 per year is used for that purpose. The manager uses the expense category to fund other purchases that may not otherwise have been approved.
Both of these practices are fairly common, but defeat the purpose of the budgeting process.
It’s About the Money
Businesses exist to manufacture a product or provide a service of value in return for a reasonable profit. Training in the corporate environment exists to help management meet that goal. As long as your training is aligned with the company’s business needs, management will usually make every effort to provide funding and tools for training.
By keeping a close watch on the budget and using the tools available to you, next year’s budget process will be much easier.
 Bartel, AP (July 2000). Measuring the Employer’s Return on Investments in Training: Evidence from the Literature. Industrial Relations, 39(3), pp 502-524.
 Bassi, LJ and Van Buren, ME (1999). Valuing investments in intellectual capital. International Journal of Technology Management, 18(5/6/7/8), pp 414-432.