How can you calculate the cost of training?

As we move closer to 2023, the need to strategise and budget for Learning and Development (L&D) in the new year grows more imminent.

The lack of tangible results is a common barrier to leaders developing a strong budget for L&D. A recent report from DeakinCo. showed more than half of businesses surveyed wanted better evidence of the benefits of training. The difficulty of proving the financial benefit of training often contributes to leaderships’ reluctance to invest in training.

So, how can you calculate the cost of training, to move forward with a L&D strategy in 2023

There are 3 ways to think of the financial benefit of training:

1. Return on Investment
2. Value of Retention
3. Value of Investment

1. Return on investment

In March 2022 DeakinCo. released the results of a study claiming that for every $1 spent on L&D per employee, additional revenue increased by $4.7. The cost was calculated as both the cost of training and time away from the employees’ roles. These results mirrored similar studies, with results varying from $3 to $8 per dollar invested (p.35).

2. Value of retention

For the DeakinCo. study referenced above, researcher’s divided organisations into tiers of organisations who valued L&D differently. Advanced learning organisations were those organisations that saw the value of L&D and prioritised it in terms of strategy and investment. Laggard organisations were those who invested the least in L&D. They found that retention rates in advanced learning organisations were far higher than laggard organisations. The attrition rates in laggard organisations were 1.8 times higher than advanced learning organisations (p. 36).

The cost of staff turnover is high. Recruitment fees, lost productivity and retraining, may it be formal, the onboarding process or on-the-job training by line managers and colleagues, need to be considered. These costs need to be offset against the cost of L&D which, research shows, increases retention.

The results of Peopleconnexion’s PNG 2022/23 Salary Survey suggest the desire for growth opportunities is high, with 77% of professionals wanting clearer development opportunities, and 63% wanting more skills’ training. This suggests that the PNG businesses that invest in L&D are far more likely to attract, and retain, top talent.

3. Value of investment

Another way of viewing the returns on training is by calculating the Value of Investment. This takes a longer terms approach when considering the return on L&D spend. Just like an investment grows and matures, so the investment in your people will provide dividends in time.

Consider the employment market in PNG:

• there are billions of dollars’ worth of investment in infrastructure – which can’t go ahead without the labour required (both in AUS and PNG);
• PNG’s economy is set for massive transformation with key Mining, Oil & Gas projects (P’nyang LNG, PNG LNG, Pasca Project and Wafi-Golpu) to progress throughout the next ten years;
• the Mining, Oil & Gas sector relies on expatriate skills as well as local;
• Australia is in the same skills shortage-situation with an estimated deficit of almost 100,000 skilled workers for upcoming infrastructure projects.

L&D is not an immediate solution. As we navigate a continuing skills shortage – there is no immediate solution to the talent shortage. An L&D strategy that invests in and leverages your current human capital to develop the skills needed in the future must be seen as part of the long-term solution to the skill shortage.

For information on our TNA offering, visit our website. To talk about conducting a TNA, you can schedule in a session straight to our Principal Training Consultant, Gary’s calendar via the link here!