Training costs money. Well designed and implemented training can cost lots of money. So who should pay the training cost?
Training centers operate in a myriad of ways, but it always comes back to either the center being a cost center or a profit center. Cost centers are organizational departments like Human Resources that do not earn revenue, with the company viewing the operation as a cost of remaining in business. Profit centers are revenue-generating elements of a company. Training centers that exist as profit centers are operated like small businesses. Even if they are expected to lose money, they typically have revenue targets. Training centers that operate as profit centers usually receive a much smaller operating budget from the parent company. These centers rely on internal revenue, external revenue, or a combination of both for additional funding.
The Training Cost Center
Historically, training centers have been viewed within corporate structures as a cost center. The training center is provided an annual budget, and in return is expected to provide a specific range of services to other departments or business units. On the positive side, the training center has a specific budget to work with. Management of the training center often function with a high degree of autonomy, and has a lot of freedom in providing internal courses. On the down side – once the budget is prepared, there is very little room to adapt to changing business needs without directly impacting other training, and inflating training cost.
As the economy has become more challenging, training centers have seen budgets cut to the bare minimum necessary for regulatory compliance. Other corporations have eliminated internal training centers altogether, outsourcing training to the lowest bidder.
Individual Business Unit Charges
Especially with larger entities, “pay for what you use” has become extremely relevant. In these models, the training center is set up as a profit center. The base budget usually includes the learning management system, training department employee salaries and benefits, and physical resources.
Beyond that, well – the training center has to conduct effective training to stay “in business”. Other departments or business units include an amount dedicated to training within their individual budgets, and how that money gets spent is typically at the discretion of the director or manager. An internal training center may actually wind up competing directly with external training providers for the manager’s training dollar.
This forces the training center to be accountable to the needs of the business. Training cost may be lower because the training center experiences market pressure and must deliver training efficiently. In some centers, the training center may serve as a portal to external training opportunities. In most cases, training cost is passed back to the individual student’s business unit.
The primary drawback to “chargeback” systems for training cost is that it requires additional administrative oversight. The corporation’s business and accounting managers may have to adapt. On the training center side, the learning management system should support this fairly common model (TrainingForce does).
In today’s competitive job market, some businesses are reducing training cost through the hiring process. With a large pool of potential applicants for even basic positions, employers are seeking individuals with specific skill sets that require minimal additional training. Employers are also increasing both the educational and certification requirements to apply for positions.
The result? A large number of students are now seeking training or certification in an effort to help them land an interview or position. One might think this is restricted to corporations, but it even affects government positions. The number of persons paying for and completing basic firefighter and law enforcement academies out of their own pocket has increased significantly. Historically, these academies were completed after an individual was hired.
Changing Thoughts on Training Costs: Case Study
A large call center requires new hires to complete 80 hours of training prior to entering the work environment. Turnover rates after completion of training were approaching 50% during the six month probationary period, primarily for work ethics issues (absenteeism, fraternization, etc.). Employees were paid an introductory wage during training, with step and merit increases after moving to the floor. A trial program was implemented, where new hires received a higher wage during training, but agreed to a payroll deduction for training. The net result was the same hourly pay for the employee, but the employee now perceived that they had invested in training and were more likely to be compliant. Turnover decreased significantly at the six month and twelve month marks.
Training centers that rely on a combination of revenue sources are becoming more prevalent. Many are also offering courses to the general public or other corporations to expand revenue. These hybrid centers gain revenue both from internal and external sources. This is especially true if a class provides a certification opportunity, such as IT, PMP, or Six Sigma.
In a hybrid center, management an be significantly more complex. A good learning management system allows a variety of pricing structures and payment options, in addition to cost and value tracking. For example, TrainingForce allows you to create multiple portals into the same data set. Using this, you can have an intranet portal for employees, and a completely different public-facing portal to promote revenue-generating training.
The Cost of Not Training
Good training is expensive to design and to conduct. New tools and rethinking how the training center operates can make training cost more acceptable in today’s business climate. The biggest risk of all is to eliminate training. Production decreases, quality errors, and resulting compliance issues can easily surpass training cost.