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<i>Dear Workforce</i> How Much Money Should We Budget for Training

May 4, 2006
Dear Computing:

There's no rule of thumb that companies follow in determining what to budget for training. According to a 2002 report by the American Society of Training and Development, which surveyed more than 375 major corporations, companies spend 1 percent to 3 percent of their total payroll on training. On a per-person basis, the average spent on training is more than $700 per year. At leading-edge companies, that figure doubles to more than $1,400 per employee per year. Viewed as a percentage of profits, training budgets represent 5 percent to 20 percent of total corporate profits.
Our research indicates that U.S. companies will spend about $60 billion on learning initiatives in 2005.
According to a report by the Society for Human Resource Management, training budgets should include:
  • Trainer salaries paid to internal training staff members
  • Seminars and conferences
  • Hardware, such as audiovisual equipment, computers, copiers, etc.
  • Off-the-shelf materials, including prepackaged materials in any format for e-learning (such as books or manuals)
  • Custom materials tailored to meet a designated training program
  • Facilities and overhead, such as costs for leasing a classroom/building
  • Outside services provided by outside consultants.
Another ASTD study indicates that, on average, companies spend nearly 21 percent of all training expenditures on outsourcing.
Two trends will reshape the training function. Both deserve your consideration as you budget. First, the outsourcing of learning activities will increase. Of the $60 billion expenditure noted above, about 65 percent will be allocated to outside vendors. Second, e-learning will become an even bigger element for delivering training. In 2000, expenditures in the U.S. on e-learning totaled about $2 billion, according to International Data Corp. The estimate for 2005 is $18 billion.
Most important, make sure you design a program that can immediately link training initiatives to specific corporate objectives. A 2002 study by Knowledge Asset Management and ASTD found a clear relationship between training expenditures per employee and company financial performance. Companies with above-average training investments posted a cumulative five-year return of 137 percent, compared with 55 percent for organizations with average or below-average spending on training.
Indeed, never has training been as important to companies as it is now. As you seek to convince your top management of this, be aware of the implications. With heightened training comes increased accountability and an expectance of innovation and the ability tomeasure training's impact. You need to be able to address that part of the equation too.
SOURCE: Tom Casey and Carey Guggenheim,Buck Consultants,, June 6, 2005.
LEARN MORE:Discuss training issues online.
The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.
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