I find it remarkably sad that ‘training’ departments within organizations continue to pump out bricks and mortar classes as their sole approach to learning instead of shifting to a formal, informal and social mix. As I’ve repeatedly stated, formal classroom sessions are important, but they don’t have to be the only thing offered to the employee base, and they don’t have to exhaust the entire budget.
Perhaps it’s because they (the ‘training’ departments) aren’t looking at it from a budgeting perspective.
Here’s a hypothetical situation for you. Imagine if there was a company in a service industry with the following details:
- Company Payroll (7500 FTE): $675,000,000
- Learning Staff Payroll (50 FTE): $5,000,000
- Non-payroll Learning budget: $5,000,000
- Total Learning budget: $10,000,000
- Staff ILT Learning Days (10 days per FTE): 75,000 days
- % Learning Investment on Payroll: 1.48%
- Opportunity Costs of ILT Days: $28,125,000
- % Learning Investment + Opp Costs on Payroll: 5.65%
- TOTAL Learning Costs: $38,125,000
This is a very typical situation for organizations today where (thanks to ASTD) benchmarking learning investment as a percentage of payroll is the norm, and anything between 1% and 2.5% is considered acceptable.
I also believe that any full-time learning related headcount should be attributed to the overall budget number.
What usually doesn’t get reported, however, is the amount of time, in terms of opportunity costs, we add to the mix when the staff are away ‘learning’ in a classroom. In the situation above, I estimate the traditional 2 weeks of training (or 10 class days) as a standard for every employee in the company. After factoring in the opportunity cost of being away you should then begin to gauge 
what it really is costing the company in terms of a percentage of payroll, in this hypothetical case, 5.65%.
But what’s really interesting, in my estimation, is how many organizations devote roughly 90% of their real budget to formal learning, leaving 10% for the non-formal pieces. (obviously in contradiction of many studies that suggest we, as corporate citizens, learn 80% of the time in non-formal settings)
If this were the case, then we’d see a breakdown as follows for our hypothetical situation:
- Learning Costs Breakdown (with opp costs)
- Formal $34,312,500 90%
- Informal $2,668,750 7%
- Social $1,143,750 3%
- Learning Costs Breakdown (without opp costs)
- Formal $9,000,000 90%
- Informal $700,000 7%
- Social $300,000 3%
That is, we’re spending over $34m on formal learning, if factoring in headcount to develop/deliver/coordinate, travel, opportunity costs and outsourced contractors, training firms, etc.
That’s a fair bit of money for what amounts to marginal return.
Alright, so what if we shifted things such that 60% of the budget were devoted to formal events, and 40% to non-formal scenarios such as informal and social learning? And, what if we reduced the ILT capacity to 5 days per year versus 10? And, if we are making such bold claims, wouldn’t we naturally be reducing both the amount of T&E expense required for such a prediction … and … the amount of full-time people required to deliver formal training internally?
Well, in our hypothetical example, here is what could happen:
- Learning Staff Payroll (40 FTE): $4,000,000
- Non-payroll Learning budget: $5,000,000
- Total Learning budget: $9,000,000
- Company Payroll (7490 FTE): $675,000,000
- Staff ILT Learning Days (5 days per FTE): 37,500 days
- % Learning Investment on Payroll: 1.33%
- Opp Costs of ILT Days: $14,000,000
- % Learning Investment + Opp Costs on Payroll: 3.41%
- TOTAL Learning Costs: $23,000,000
We’ve reduced the staff by 20% and taken out $1m because we’re not formally teaching as much anymore. In fact, we’re not teaching as much by roughly 50% because we’ve shifted our model from 90% formal to 60% formal and 40% non-formal, thereby freeing up the internal staff to focus on informal and social learning versus always developing and delivering formal training.
Secondly, we haven’t reduced the non-payroll learning budget, but we’ve been able to shift T&E dollars towards infrastructure needs of social learning … and … our vendors are now part of the equation, so when we pay them for service, we pay them for formal, informal and social learning service not just ‘bums in seats’.
With the shift, we can see the following breakdown:
- Learning Costs Breakdown (with opp costs)
- Formal $13,800,000 60%
- Informal $4,600,000 20%
- Social $4,600,000 20%
- Learning Costs Breakdown (without opp costs)
- Formal $5,400,000 60%
- Informal $1,800,000 20%
- Social $1,800,000 20%
What have we done? We’ve reduced the overall costs of ‘training’, including opportunity costs, by roughly 40% and we’ve shifted the learning model from a 90% formal ILT construct to one that embodies the spirit, passion and vision of Learning 2.0: a formal, informal and social learning paradigm.
We have not cut out formal ILT, but we’ve decided the old model had way too much of it, for low return.
It’s a win-win for everyone, including executives, shareholders, the learning team, vendors and of course the employee population.
I’m certain there are detractors out there, but I’d nonetheless love to hear from you whichever side of the fence you are on.
