by Merlin Hernandez

Training expenditures need to be seen as strategic, channeled into internal client cost centers, and measured as an asset rather than purely as expenditure. This will reduce the perception of the burden associated with training costs, and avoid businesses trying to hedge costs by finding ways to avoid them, often at the expense of strategic goals, product quality, and delivery timelines. Ascribing a real value to the training may be challenging but a trained employee is a growth asset and needs to be seen as such through measurable benefits.

Before deciding on a training exercise, it would be important to have baseline and actual productivity metrics per employee to identify shortfalls. It is equally important to analyze current skill levels among targeted employees in order to select the most appropriate training. The training is worth much more than the attendant costs which may include wage rates, training fees, facility rental, supplies, refreshments, travel and lodging, if applicable, with about 10% added overhead/miscellaneous. Spread across the number of participants, we can get a sense of training cost per employee which may not be cheap.

Once those costs are assigned to individual cost centers rather than lumped under HR training, the figures are not so daunting. This is not some new-fangled way of fiddling with the budget but is a way to more efficiently measure and evaluate cost drivers at their source. Given that improving productivity is not just about improving output rates but also involves improved input of which training is a part, a more direct budgetary allocation for training offers better CVP efficiencies. Training (and research) falls under one of these strange hybrids –variable fixed costs – which place training needs as a variable cost within the particular department rather than a company overhead. It is a productivity improvement cost in relation to departmental needs and will vary from time to time. This approach will maintain lower operational fixed costs to keep contribution margins down and not inflate overall costs through higher overheads.

Fixed variable costs produce a more meaningful CVP analysis that can measure how cost changes affect productivity. The value of the training emerges from a cost-benefit analysis to which the productivity metrics can be applied for a comparison of before training and after training efficiencies. Metrics can be more easily measured and compared through the immediate lens of a department CVP. Improved metrics as a strategic imperative can then be more readily leveraged for enhanced resource capability  – an asset measure that supports greater readiness to assume risks.

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