Budgeting for Training in the Enterprise

The Minister for Finance has walked the nation through the annual ritual we call “reading the budget”. The budget interpreters’ have been very busy helping us to digest it so that enterprises can act as appropriate.

The reality on the ground is that the cost of doing business is raising as competition gets more stiff thus forcing many small and medium enterprises to employ cost cutting measures. One casualty of the cost cutting efforts is human capital development through training. It is hardly news that in tough times training budgets come under pressure.

Yet, as every HR professional knows, the enterprise needs to keep developing staff if they have to stay, be motivated and continue improving performance. Forgetting about staff development for a year or two simply isn’t an option.The person responsible for developing a training budget in the enterprise has to demonstrate to senior management and directors that there is a link between employees’ educational proficiency and corporate earnings that can be actually measured using a return on investment (ROI) approach.

During periods of tightening budgets and rising competition coupled with major reorganizations many employees are asked to cover new and expanded roles which they may not be prepared for. It is at such times, when people are facing new challenges, that training and development programmes can play a vital role in helping them to succeed. If enterprises fail to help employees get to grips with the new challenges they are facing, it will ultimately affect the bottom line, both in the long and the short-term. There are many ways of continuing to develop your staff within a limited budget. However, there is no replacement for a properly funded, carefully constructed and professionally delivered training programme and most employees might be in need of that now more than ever for the SME sector in Kenya.

The process of budgeting for training starts with a complete needs assessment which requires access to the most accurate and relevant information on the enterprise’s present performance, problems and future plans. The quality of the training can be no better that the quality the analysis permits. Data collection can take the form of performance appraisal, questionnaires, interviews, discussions, brainstorming groups and observations. It would be more appropriate to undertake learning needs analysis throughout a whole organization but this would be a huge task which needs to be broken down into manageable chunks.

The analysis has to be done at organisational, departmental, occupational and individual level. The target of the assessment phase is to collect information to determine if training’s are required in the organisation so that the enterprise can then determine where the training is needed in the organisation, what kind of training is needed, what specific knowledge, abilities, skills, and other characteristics should be taught.
After the needs assessment is completed, it is a good idea to compare several implementation plans and to determine the cost of each so as to pick the most cost-effective plan for each need. The budgeting process is started by outlining the total cost of the training program and assessing the potential benefits for each training component to the enterprise.

The budget must fund training that is both in line with the organization’s requirements and adequate for the employees’ needs bearing in mind how many people need the training and the type of training that would benefit them. The budget can now be easily developed using an ROI approach and by comparing various scenarios to determine the most cost-efficient method of delivering a training program. This approach is more likely to win the support necessary to implement the human capital development programs.
We have clearly established that developing staff capability should not take a back sit due to budget cuts. What trainers, HR professional, Entrepreneurs and Managers of SMEs should do is to be more innovative in their approach to human capital development. Here are some ideas that should be considered in the course of budgeting for training in the enterprise:-

Prioritize training needs

As we have established, training budgets are usually the first in line for cuts and without doubt, some training can be postponed.The key is working out which training courses are essential, and which are merely desirable. Instead of making indiscriminate cuts, the enterprise must be clear on the critical success factors for the business during the lean times .For most SMEs in the current environment, priorities will be customer satisfaction and retention, process improvement in all areas to eliminate waste, reducing costs, improving customer service, and financial discipline which includes careful control of costs as well as accelerating and improving debt collection. Any training that contributes to these objectives should be a priority area.

Persuade employees that development is more than training

A mind shift as well as a culture change may be necessary. Employees resist taking added workload and multi-tasking during times of budget cuts. Job expansion which comes with added tasks and the requirement to multi-task is one of the most effective means of human capital development. Just consider how much value the enterprise can gain if the driver is enabled to sell and offer after sales service in an environment where he was previous only assigned the role of a driver. The training that will expand capabilities of individual employees to multi –task has to be included in the budget. The key is to get people to recognize that development is not the same as training. By building that culture it will be possible to do more with less. The whole idea is to get most employees to be intrapreneurs instead of being rent seekers.

Utilizing government subsidy

It has been noted that human resource development is an important facet in transforming Kenya into industrialization as stipulated in Vision 2030. Through an Act of Parliament , Cap 237 of November 2011, the government has transformed the Directorate of Industrial Training (DIT) into a semi-Autonomous Government Agency renamed National Industrial Training Authority (NITA) –www.nita.go.ke – with many mandates one of which is to subsidize industrial training. Organisations that subscribe to NITA will enjoy subsidies for industrial training of employees. Including the premium required to benefit in the training budget is the way to go. Ultimately participating enterprises will spend less of their funds in training budgets. It is a worthy the effort.

Online courses

Most SMEs have hired the technically savvy generation Y. This group of employees are more at home learning on their computer than in the traditional class room or conference hall. Because of time pressure on these workers it is not always feasible to release them from their work stations for training but at the same time learning and staff development is central to the growth strategy of the enterprise. Entrepreneurs and managers of SMEs have to become more innovative and creative about how to deliver training’s. Online courses are very useful because staff can do these from their own desktops and laptops at a time that suits them.The enterprise has to provide the computer equipment, connectivity and suite of courses. The courses can be bought off the shelf, developed in-house or more effectively by subscription from on-line providers. This effort will no doubt work well even in low budget environments.

Train at existing facilities

In times of plenty, training sessions are held out of the country or in exclusive locations with the country. While such prestigious venues have aesthetic value and make employees feel valued by the employer, they remain out of choice when low budgets are at work. When budgeting for training it is important to check that most funds are not committed to travel, subsistence and accommodation. As a basic characteristic training venue should have the following attributes:
• Easy access
• No noise disruption
• Ample security
• Good ambiance, lighting and sitting facilities.
• Good catering and convenience services.
• Electricity supply and training facilities.
The large part of training cost goes into getting everybody together thus it makes sense to use existing facilities if everybody is already together and the facility has most of the above attributes. These are important aspects when budgeting for training.

Internal knowledge sharing

Rather than paying external experts to come in, share the knowledge that already exists within an organisation it would be preferable and beneficial to use internal resources. It is amazing how much training material can be amassed in a business. Internal delivery is often overlooked, but can be highly rewarding for both trainees and trainers. Developing coaching and mentoring schemes that ensure continual professional development rather than one-off classroom based programmes is very possible if the enterprise looks in the right places and it will surprise all by finding the experience and enthusiasm to operate such schemes internally. Most of the successful trainers in different fields discovered their talent while involved in such internal knowledge sharing platforms. If it has worked before, why not try it in your enterprise and reduce the budget outlay.

External knowledge sharing

There are human capital capabilities that can be addressed by looking for opportunities outside the enterprise, i.e.at the suppliers, customers or just a neighboring business.Where the enterprise has the necessary contacts in such organisations and it is established they are dealing with similar issues it is possible to consider opportunities for employees to do a job swap or spending time in the other identified enterprise to learn new ways of doing things or new way of thinking. Such considerations are important when budgeting for training

Volunteering

Encouraging employees to take up challenges and responsibilities in society is one way they can grow their skills and experience thus encouraging them to take on worthwhile activities outside of work such as becoming a member of a school board, sporting events organizer or joining a charitable organisation is gainful to the organisation. Such engagements allow them to learn key skills that employers always need, such as problem solving, people management, planning, organisation and communication. Such a strategy will impact budgeting for training

Encourage reading

One good old-fashioned and very inexpensive method of building knowledge, which is largely ignored in today’s business world, is reading. There are plenty of ‘how to’ books. Admittedly it can be time-consuming and it doesn’t replace the hands-on experience of a course, but it is certainly cheap. The internet is the new custodian of information and it will be useful to allow staff time and resources to tap into that vast pool of knowledge. Budgeting to stock a library at the workplace is a worthy consideration.
In conclusion we agree proper training and development should be considered an investment and not a cost to the enterprise, it should generate a return within a reasonable time and largely pay for itself. It will only do this if it is well-planned and co-ordinated within company objectives. Training towards a well-defined performance target, say “to reduce the accidents by 2% over the next year”, will yield a far better result than ad hoc training administered because it was budgeted for or just proposed by a provider.
A fairly constant percentage of the enterprises’ income should be devoted towards training. Most well run SMEs spend between 2 – 5% of their total payroll as the training budget. The upper end of this scale may seem extravagant, but training as intensively as this pays very large dividends via profits, customer service and staff stability.
As a rough guide, 70% of the training budget should be spent on the top two-thirds of the pyramid. This is because training is specialized and far more expensive at management level than at the lower levels, and usually requires the services of external resources. The remaining 30% of the budget still represents sufficient money for an excellent standard of general staff training because skills training can be mass-produced and largely handled in-house at this level.
Would such an approach resonate budgeting training in your enterprise? Let us know.

Wahome Ngari is the Chief Executive, Citadel Consulting Ltd.