What are Learning and Development budgets?
Learning and Development (L&D) budgets typically include program costs (content design, program delivery, and program operational costs), certification and higher education programs for employees, and salaries and expenses of employees.
For an organization’s training programs, there are several costs to consider such as resources for the design and delivery of the program, required learning technology, and the types of training the firm will allocate resources to develop.
As stated by McKinsey, L&D has 5 strategic roles in an organization:
- Attract and Retain Talent: Gone are the days of staying with the same company for a lifetime. Today, workers stay for as long as they can add value to an organization. Workers are more in charge of their personal and professional growth than ever, thus, offering to train talent contributes to employability, productivity, and retention.
- Motivate and Engage Employees: Research shows that lifelong learning contributes to happiness. The most important way to engage and motivate employees is to provide them with the opportunities to grow and develop skills within their chosen career path.
- Build an Employer Brand: Brands are becoming one of the most important assets of an organization as it depicts a great deal about the company’s success. Organizations that invest in L&D can develop a positive reputation as an “employer of choice”, which is important when competing for talent.
- Create a Value-Based Culture: L&D can aid in building a value-based culture and sense of community in the firm. This is particularly important as workplaces become increasingly virtual and remotely dispersed.
- Develop People Capabilities: Knowledge can become outdated or more commonly forgotten, consequently, reducing the value of the organization’s human capital. Human capital requires ongoing investment in L&D to be valuable, which can be provided in the form of new learning and relevant work experience for talent.
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So how much did businesses allocate in 2018?
According to Brandon Hall Group, in North America, the average firm allocated $7,420 for their spend per learner per year. However, this figure ranged depending on the size of the firm and the job role of the learner.
When looking at L&D budgets based on organization size, the spend per learner was smaller the larger the organization size was. Large-sized firms spent $780 less than medium-sized firms, and $1776 less than small-sized firms.
L&D budgets allocated based on the job role of the employee varied based on seniority.
Per learner per year, senior employees and mid-level employees were allocated the most at $9,427 for senior-level employees and $9,036 for mid-level. This is significantly more than individuals which had $3,812 allocated per learner per year on average. In between, is supervisors and high potential individuals which are allocated similar amounts.
How did organizations spend their budgets in 2018?
In 2018 how did organizations actually allocate their budgets for L&D?
We can look at this in two different ways; by resource allocation or by training type.
By L&D Resource
If we look at L&D budgets split by L&D resource, you can see the full breakdown of allocations here:
The top 3 resource allocations were human capital, technology, and content development.
It isn’t a surprise that human capital places as the number one cost for firms, in fact, human capital was allocated 42% of the organization's L&D budgets. The majority of the allocation is used for the firm’s internal staff (27.9%), however, there was still a significant part of the allocation used for external staff like consultants (14.3%).
Content development can be time-consuming and may require knowledge from experts in the industry. As a whole, content development on average is allocated 32.8% from L&D budgets. To break it down, internal content development was allocated 15.6%, whereas, external content procurement and development was allocated 17.2%
As blended learning and online training are increasing in popularity, firms are spending more on learning tools/technology, placing as the third-highest allocation of L&D budget resources (20.1%). On average, firms spent more on tool development internally (11.6%) rather than purchasing from a tool vendor externally (8.5%).
By Training Type
If we look at L&D budgets split by training type, you can see the full breakdown of allocations here:
Providing training programs that further your employee’s knowledge helps with the retention of employees. There are so many different types of training firms can offer, and it really should be tailored to the type of business and industry. However, there are common training programs that organizations can offer to their employees. The most popular in 2018 were:
- Technical Skills: In 2018, organizations in North America allocated 18.1% of their L&D budget to Technical Skills training. Technical skills often require training to learn, and experience to master. Technical skills training should aim to develop the abilities that are required to complete tasks that need specialized knowledge.
- Leadership: Leadership training is important for both current and future leaders. Leadership training should aim to expand the capacity for an individual to perform leadership roles. In 2018, organizations in North America allocated 17.1% of their L&D budget to Leadership training.
- Compliance: Compliance training is important for all individuals of an organization. In 2018, North American organizations allocated 11.1% to Compliance training. This type of training refers to the process of educating employees on rules, regulations, policies, and procedures that apply to their day-to-day job.
- Team Development: Teams are a key tool in the workplace and a source of motivation for employees. In 2018, North American organizations allocated 10.1% of their L&D budgets to Team Development training. Team development training includes the whole team (even managers). It aims to improve team cohesion and develop happy high-performing teams.
- Product/Service: In 2018, organizations in North America allocated 9.9% of their L&D budget to Product/Service training. Product/Service training involves educating sales and other professionals about the organization’s product/service. Without knowledge, your team can’t sell!
- Soft Skills: Soft skills (or often called people skills and emotional intelligence) are defined as the ability to interact with other amicably. Soft skills can be more difficult to develop than hard skills at the time but well-rounded, highly-developed soft skills can be absolutely invaluable to a business. In 2018, organizations in North America allocated 9% of their L&D budget to Soft Skill training.
If your firm currently doesn’t offer these types of training, it may be something to look at developing for your 2020 training programs.
With a greater shift towards online learning, we saw the average, small-sized organizations (>1000 employees) allocated $9,546 for their L&D tech budget. On the other hand, medium-sized organizations (1000-5000 employees) allocated $55,651 on their L&D tech budget.
Learning and Development budgets are significantly important to the way a business conducts training. It can be tricky to work out how much you should allocate, to begin with, or how to spend the allocation. However, by benchmarking yourself against other leading organizations can help to encourage optimal spending of your budget.
To view the full infographic here.
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