Reprinted from first publication in My Project Management Expert.

Everywhere you look budgets for projects are being slashed. So is it absolute insanity to propose increasing a project budget to include training or is this something which in practice can reduce project risks, whilst increasing the profitability of the end deliverable?

Jim Prevo, CIO of Green Mountain Coffee Roasters Inc., understands the value of training, telling CIO News, “it’s a no-brainer for me that people, especially people in the incredibly fast-paced IT industry, need to keep honing their skills and learning new technologies and techniques.” He adds that “if your culture is one that naturally values people, then investing in them is as essential as breathing.” (CIO News, May 2007).

This certainly is an enlightened point of view. Many large organizations intrinsically understand the value of established, successful training and advancement programs for their employees. For instance, Amgen CEO Kevin Sharer has pushed hard for training programs even through the recent economic downturn. When asked if Amgen had made any cuts to training, Mr. Sharer told Fortune Magazine, “We have not cut anything in development. When I became CEO about nine years ago, we decided that executive development was profoundly important, and we run weeklong classes with case studies from Amgen’s experience, mostly things we didn’t do well, because that’s what you learn the most from. We haven’t cut back on that at all. Developing people is the future of the company.” (Fortune, 2009).

Yet, so many CIOs and project managers who face tightening budgets respond by shrinking training initiatives. It’s a long-standing and unfortunate criticism that when times are financially tight, training is the first budget to get cut and generally the last to be restored. This is particularly true today, with so many financial pressures causing organizations to look closely at every budget line item. In Finding Strategic Learning Funds I pointed out that the majority of organizations reported pressure to reduce or even altogether cut training expenses in 2007. Today’s project leaders need the tools and techniques to defend training budgets.

Is Training so Valuable?

Experts say that better demonstrating the value and return on investment realized from training would make it easier to defend organizational commitment to training programs. While it is certainly true that training requires time and capital investment, studies agree that the return is well worth it.

Executives wrongly fear, however, that the individual will take what they can get and leave the organization, taking their new knowledge with them. But in point of fact, an ongoing training program offers long-term benefits to the employee, increasing loyalty and a sense of achievement. In contrast, employees who don’t have training realize they are getting stale or falling behind the curve — they start looking for opportunities that will keep them sharper.

By offering training, organizations offer employees upward mobility, increased wages, potential for promotion, new challenges, and the promise of interesting new frontiers. Training programs also attract outside talent looking for clear growth paths and new opportunities. All of these benefits produce a greater sense of job satisfaction and ultimately lead to longer employee retention.

One of the other misconceptions about employee training is that it’s the individual, not the organization, which benefits from the training. Studies have examined the question of who benefits more from training, the employee or the company, and have found that the organizational benefits of training are extensive.

According to a study by Loewenstein and Spletzer (1998), “the effect of an hour of training on productivity growth is about five times as large as the effect on wage growth.” Research by Bartel (2000) also finds that employers “reap almost all the returns to company training.” Bartel’s study analyzed 10 large data sets and 16 specific case studies to determine return on investment in training programs. She further concluded that individual case studies estimated return on investment ranging from 100 to 200 percent ROI.

Steve Muench, PhD, asserts that “Training is one of the chief methods of maintaining and improving intellection capital. Because of this, an organization’s training can affect its value.” (Tech Transfer Newsletter, 2004). In fact, the market-to-book value of companies significantly correlates with training as a percentage of payroll according to Bassi and Van Buren (1999). In a Training Magazine survey of the top 100 companies with a focus on training, Pfizer ranked number one, spending 14 percent of its payroll on education and training. This was 10 percent more than the average of the top 100 companies combined and 13.1 percent more than the US average employer spends (Bassi, et al, 1996).

The simple truth in today’s information-intensive workforce is: Intellectual property is the defining differentiator of any organization. By enhancing its intellection property strength, an organization is contributing directly to its bottom line. Training programs increase employee skills and knowledge, enhance performance and efficiency, and result in increased profitability.

Communicating the Value of Training

So, how does a knowledgeable manager or director protect this valuable budget line item? The best way is to make a project business case that includes metrics on the value it provides to the organization.

Andrew Walker, a research director with Gartner Executive Programs, says that “Very rarely do [companies] look at whether they are getting value from these training programs. You can tell training is not valued if it keeps getting cut. It’s the first point of cuts for most finance people because no one is able to do a good business case to keep it in there. That sends a message to people that you don’t value training.” He went on to add that employee retention becomes a problem for CIOs who struggle to keep a training budget (CIO News, May 2007).

One very successful strategy to demonstrating the value of training is to tie training expenditure to project budgets. This creates a viable metric that can easily be linked to the financial bottom line.

As the project leader your bottom line is understanding the value of training and having strong evidence to back you up in order to preserve training budgets. This means developing a comprehensive training program that includes metrics and a support infrastructure that ensures the value of training is realized in the organization, and that the value is quantified in a tangible way.

Simply sending a few people to a class does not change the way an organization operates. That’s why creating a process that incorporates training is so key.

Measuring the Return On Investment (ROI)

Traditional measurement of training tends to focus on return on investment (ROI) metrics. It’s important to keep in mind the differences between the narrow financial definition of ROI versus the commonly employed ROI analysis which goes beyond dollars and cents. The financial definition of ROI is simply the “ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested.” (Wikipedia).

When analyzing ROI in the context of learning, however, the benefits are many-fold and reach deeply throughout a project and organization. Simply comparing the cost of training to a dollar figure representing value gained is elusive and, by itself, probably not that meaningful. Therefore, a complete ROI analysis must be very inclusive. It’s important to demonstrate that the investment in training has a clear relationship to tangible returns, such as performance improvement and increased market share, as well as delivering a concrete, bottom line dollar figure.

As Stephen J. Gill, Ph.D., an experienced training and performance consultant, points out: “In the employee training field, ROI has come to mean a comparison of all of the costs of employee learning to all of the impacts and benefits of the intervention, which can include employees retained, sales goals achieved, increased revenue, increased market share, job performance improvement, effective teamwork, customer satisfaction, employee engagement, etc.” (Gill, 2009; see also ROI Institute).

The Impact On Business Analysis

Impact on business (IOB), a method recently introduced by Blackboard, offers an alternative approach to ROI, focusing less on dollars and more on organizational improvement. Combining traditional ROI methods with impact on business (IOB) analysis presents a persuasive argument, and is an effective and valuable strategy in showing both dollars saved and the results of training. According to Timothy Hill, President of Blackboard Inc.’s Professional Education group, the majority of training offices measure intangibles such as training efficiency or employee reaction to training, but only one in ten businesses actually measure the impact of training on the business (Hill, August 2009).

He explains the difference realized when transitioning to an IOB model at Westinghouse: “A traditional ROI measurement determined that the online learning Westinghouse implemented reduced travel costs, and the access to online instruction saved the time and expense that would be required if face-to-face classroom instruction was the only option. By implementing an IOB model, Westinghouse could show that the new learning courses also had a noticeable impact on the business by improving student interaction and learning.” The IOB model starts with a comprehensive baseline that sets an organization up for measuring the impact of training. The basic model of an IOB-centric approach include these four, fundamental steps:

1. Understand business goals.
2. Re-engineer learning and development strategies.
3. Create tactics to deliver impactful learning.
4. Create a continuous learning environment.

According to Blackboard, the IOB model gives you the tools you need to “measure the impact of corporate learning on your organization by how it impacts three areas: behavior you want to develop or replicate, business goals and bottom line financial results.” You can learn more about IOB by requesting their whitepaper, “Looking for ROI? You’re Missing the IOB.” (Blackboard Professional Education Group, 2009).

Creating the Line of Sight

The most effective way to communicate the value of training up the chain of command is to tie the costs of training directly and clearly to its benefits, making a clear connection to profitability whenever possible. This creates a direct “line of sight” from the training investment to the organization’s bottom line. Rolled within this bottom-line figure there’s ample room to express overall benefits, such as employee retention and improved efficiency. Training budgets become linked directly to business profitability.

On a cursory level, if a training budget on a given project is, for example, 10% of the overall project cost, then presumably 10% of project outcome can be attributed to the training expenditure. You can also tie corrective cost directly to the investment needed to fix a problem. According to Jamie Allen of Exsell Training Solutions, Ameriquest identified that improperly completed time cards were resulting in an estimated ten million dollars in losses annually. After initiating training to educate employees, a program that cost six million dollars, the annual loss was reduced to $52 thousand in one year, a direct ROI of 160%. (Allen, 2010).

The first step toward a comprehensive program is understanding business goals. In order to demonstrate a concrete value in training, that training must clearly align with and contribute to the objectives of your business as a whole. This can mean that training programs will address time-to-market issues by making project teams more efficient; introduce new skills required for a project; enhance customer understanding or internal communication, thus better aligning teams with business goals; or introduce better risk management techniques, thus reducing incident of mistakes and getting to market faster. The important thing to remember is that training needs to tie in to organization goals. Track that alignment as the first step toward creating a line of sight, from cost through to benefit.

Next, once your business objectives have been identified, your training program can be re-engineered to create an effective learning and development strategy. Far too often, the potential benefits of training programs, workshops and coursework are lost to the organization because there is no support framework in place to make sure the knowledge is retained and put into practice. A simple example is ensuring that trainees who receive hands-on instructions for a given tool or software will have that tool or software available for use after the training. Furthermore, practice is not enough. The results must become measurable and repeatable to ensure an organization’s willingness to sustain the program. This means instituting a training program that includes a support framework and monitors its results.

This is why it’s important to design a process around your training program. Training that actually adds value must have three critical phases: First, the training need is discovered and planned for. Second, the training itself takes place. Finally, and most important, is the follow up: The process must provide reinforcement to the trainee and transfer of knowledge to the organization, as well as metrics to gauge the impact of the training. Without a process, and the support framework it provides to the trainee, there is no way to know the outcome of training or to oversee its application. This means having the infrastructure in place to ensure the continued practice of what the trainee has learned. Ongoing training programs are also extremely valuable: Continued short-term exposure to training workshops tend to be more effective than a single, longer session. This allows the trainee to absorb information at a slower pace, reinforce it through application, and then return for more advanced knowledge. Certification programs also reinforce knowledge acquisition by setting goals and testing to ensure the information has been fully absorbed.

Work911 has a few excellent indicators of a well established training program: “…training that adds value tends to be integrated with other management systems. That is, training decisions and actions are carried out with reference to performance management systems, strategic planning processes, and career development initiatives. Training must be managed so that it is planned, and deliberately and clearly linked to workplace outcomes.” (Work911, 2009). Stated more simply, training in a vacuum is not going to accomplish anything.

On-site training workshops and comprehensive, hands-on process improvement programs that incorporate training elements are the most effective tools available to ensure that trainees, and the organization, fully employ the new knowledge. These programs typically involve an initial assessment to determine organization weaknesses and risk areas, target specific training and process improvement needs, and deliver a very specific program consisting of training, workshops, hands-on application, and some form of monitoring or “health check” over time to ensure the knowledge continues to be properly, and consistently, applied. A successful program must create a continuous learning environment, where learners acquire knowledge and hone their skills after the learning event is finished.

Developing a complete program addressing these fundamentals sets up the organization to measure ROI, or the value of the training program, in wonderful and explicit detail. It’s the fundamental step in creating a direct line of sight from training program, through its costs and down to the company profitability and bottom line. As Jack Phillips, chairman of the ROI Institute, and Holly Burkett, Principal of Evaluation Works, point out in The Business Value of e-Learning: “An accurate ROI calculation of an e-learning program requires data collection at four levels: reaction, learning, application and impact. The impact data is isolated from other influences and converted to monetary value. This monetary value is then compared to the cost of the e-learning program. The result is an incredible ROI study.” (Phillips & Burkett, 2007).

This line of sight carries value from the training investment to the business. According to Hedda Bird, Founder and Director, ROI Academy, “This process links the relative impact of the training activity’s skills, knowledge and competencies to the organizational goals.” She adds that, “There are a number of techniques that can be used, but initially we recommend a simple weighting of relevance. The weightings are accumulated up the line of sight from bottom to top. The end result is a diagram indicating how the skills, knowledge and competencies of a training program impact each level of the line of sight. Finally, by entering the financial value of the organizational goals at the top of the line of sight, the weightings are transformed into relative values at each level.” (Bird, 2008).

One of the most important things to remember when designing a comprehensive training program: It must be connected to business goals, and these goals must establish a quantifiable benefit to the business. Making the connection “up the line of sight,” from training costs, to skills and competencies, to work processes, and ultimately to organizational goals (and thus, financial benefit) is the ultimate goal.

The diagram below provides an example. Let’s say your company has established new market goals that will result in five million dollars revenue. Furthermore, let’s say that your department or business unit is going to be responsible for several components, roughly valued at one-fifth (20%) of these new goals. Now, a few key performance indicators (KPI) have been established, and there’s a big one: Get to market in less than six months. If you can do that, it’s going to give you a big advantage over your competition. That KPI alone is worth a good 30% of the total picture, and another KPI (let’s say some unique feature) is worth another 20%. Combined, these KPI’s represent 50% of the overall revenue goal — if you don’t get to market in six months, or you don’t have this feature, you fall to second place and your huge lead is gone.

In order to do it, you’ll need to work faster and deliver a number of key tasks. Without these tasks, only about a third of the market goals can be met — thus, the tasks have a 66% relevance to the KPI’s. Finally, the training program that’s going to make all this possible is a big one: Without it, about a third of the planned tasks won’t be possible, or won’t get done on time. Hence, the training program is 35% relevant to the project tasks.

The bottom line: If you start at $5,000,000 and do the math “down the line of site,” you’ll find that the training program is worth about $85,500. Now it’s just math — if the program costs less than it’s value, it’s a good deal: In this example, the training costs $30,000, so that gives an ROI of 285%.

Even though training may seem like a luxury expense — especially in tight financial times — it is in fact the most sure, reliable investment an organization can make. It all comes down to tangibles, and as Andrew Walker pointed out to CIO News, it’s not difficult to achieve: “Is the help desk giving better help than before its staff was trained?” Walker said. “Most IT organizations are doing customer surveys anyway. Include a question that looks at whether learning opportunities are impacting customers. It isn’t too difficult. Then look to continually improve on that because then you’ve got a process in place. It’s not so hard to do. It just never seems to hit the top 10 of CIOs’ important concerns at any time.” (CIO News, May 2007).

Organizations that are “training challenged” must learn to do things differently. This includes delegating authority along with responsibility, being inspirational to employees, building trust and improving communication — all of which are direct benefits of a comprehensive process that incorporates training. When senior leadership embraces “process”, then all elements of the process, including training, will be regarded as an investment with specific goals and measurable, tangible outcomes. Training becomes strategic and the process demonstrates how to measure its success.

About the Author

Mr. Zacharias J. Beckman has 25 years experience working with technology-focused clients from the Fortune 500, Government, and private and public sectors, including Xerox®, the Los Angeles Times, the Los Angeles County Sheriff, NASA, and the Department of Defense. Mr. Beckman specializes in Global Project Management and Program Management, successfully addressing the challenges of outsourcing and distributed development. He is also a published author and has developed coursework for Cross Cultural Teams, Program Management, Project Management, Risk Analysis, Software Quality Assurance, Project Methodology and more, and runs the widely read Rational Scrum blog.

About Hyrax International LLC

Hyrax International LLC is your Global Project advisor. We address the challenges of outsourced projects and distributed teams, provide oversight, and make sure your project is done on time and on budget. On average our clients reduce their budget 40% with our best in class guidance, and we’ve never missed a deadline. Hyrax International LLC • http://www.HyraxLLC.com • 805-669-8493 • information@hyraxllc.com • 2629 Townsgate Road, # 235, Westlake Village, California 91361