Training budget for long-term development

It is difficult to attribute specific results to training. There was a disagreement between finance and human resource department on arriving at a training budget for a major company.

Before allocating the grant for training costs, management insisted on evaluating the benefits of training. This posed a great challenge to HR manager. How do we consider the training cost - as benefit or investment? How do we evaluate the training?

Usually, the money spent on training related more frequently to the company's profit and loss.
In the past, the allocation was not based on training need analysis. But this year, the company felt that the budget should have a rationale. They insisted on developing a strategic focus to HR expenditure.

The chairman also insisted on total re-organisation at the head office and wanted to focus on developing nationals for key positions. Hence, it became a real challenge to HR to prepare an integrated manpower plan - incorporating the re-structuring need - firing, hiring and developing.

Of course, the company needs a major HRD intervention across the group. There will be pain and pleasure which everyone must be willing to share! Some line managers opined that the training budget tends to be like a contingency, so allocation need not be fixed. It could vary and re-allocation can be done on a priority basis. But HR decided to go in for a reorganisation planning analysis and to re-structure the key positions to create a career path for young nationals. The training will be related to manpower development.

The training budget is less contingency vulnerable when return on investments approach is taken. The proposed training budget will correlate investments with specific programmes relative to the achievements of objectives.

For instance, the referred company management has decided to decentralise business units and each new business unit will have senior managers who will be groomed and developed under a prepared career succession plan.

So here a training plan become crucial and considered as an investment – a long-term plan. The return is obvious.

The strategy is promoting from within which will be cheaper than bringing in expensive expatriate executives.

It motivates people because the young trainees know they have career paths. But promoting from within works effectively if this company is prepared to put enough resources into management development – part of the training initiative and boosting budget.

Now the trend is moving even faster toward localisation. Despite the government drives to develop a competent local workforce, many private sector employers still import expatriate managers. In real terms, these managers may be expensive.

At the same time, they often have skills and experience no one from the local environment can match in-house. So, training young people over a period of time becomes mandatory for employers. The budget should be constructive and must cater to the needs of retaining experienced expatriate managers on contracts and developing young nationals on a permanent and continuous basis.

While preparing a training budget, the estimates should range from overhead costs, facilities, variable costs for programmes, retaining cost of contracted managers, and incorporating longer term development programmes.

Many finance managers consider training as an operating expense, which is true, but the career plan development expenditure is a capital expenditure and the training fund should be treated perhaps over a three to five year period as an investment in human capital.