A Quick Cost/Benefit Analysis of Employee Training and Development
“What’s worse than training your workers and losing them? Not training and keeping them.”
We have written before (see this article, for instance) about how organizations sub-optimize their employees’ rate of contribution. One reason you lose employee productivity springs from the idea that every employee intrinsically understands how to do his or her job, or is smart enough to figure it out fairly quickly. “On the job training” ends up meaning “figure it out yourself – take initiative!”
What a colossal waste of time and money this mindset is!
Granted: Most people are bright and interested enough to understand their new job, and can figure out what it takes to succeed in the position. But the organization wants a sharply sloped learning curve, and seeks new hires that quickly start to contribute. Companies that want “quick learning curves” but also adopt the “figure your job out on your own” mindset have imperatives that are sharply opposed to each other:
- New hires left to their own devices after a brief onboarding period take longer to get up the learning curve, and will make more mistakes that could interfere with the productivity of their entire team, and other teams.
- New hires that are not actively engaged in corporate culture might learn the darker sides of it first (unhappy folks are quick to share their perspectives), reducing the new person’s overall engagement, and delaying that fast start.
Why would you sub-optimize this bright, new addition to your staff by leaving her to her own devices in your corporate jungle?
Let’s examine the core idea in Zig Ziglar’s quote above: Training is not a “nice to have” HR activity. It is the critical path to unlocking greater contribution from all the talented people you hire. Let’ see how this could work financially (you can take this to the CFO and he or she will understand it.) Step through a logical calculation of what a more active investment in training and development could mean for a typical newly hired middle manager.
- Cost to hire mid-level manager: $130,000, including first-year salary of $100,000, benefits of $15,000 and another $15,000 in recruitment/onboarding costs
- Annual investment in training to hone technical and leadership skills: $5,000
- Benefit reaped by raising contribution from this employee 10%: $10,000 annually
- Benefit reaped by retaining this employee two extra years: $15,000 (saved recruitment/onboarding costs)
- Benefit gained by 10% improvement in productivity of his or her team: $7,500 per employee (because your investment makes the manager a better leader) Assume four people: $30,000 annually
- Annual benefit to bottom line:
- Manager productivity: $10,000
- Team Productivity: $30,000
- Savings through retention: $15,000
- Total gain through improved contribution per employee: $55,000 every year!
That’s a nice return for an annual $5,000 investment in good, sustained leadership development.
(10x ROI, if you do the math.)
Why don’t more organizations aggressively training middle managers to be transformational leaders? The numbers seem to argue in favor of it, and it could become a great competitive advantage for those that do:
- Get more contribution from managers, and those they lead.
- Attract better candidates from outside, once this improved “employee brand” starts to circulate in the marketplace.
- Keep talented people from leaving, as they are more emotionally engaged in their work.
A 10x return on investment seems to make development of your human assets a priority worth fighting for!
Do you need more ammunition to sell the value of sustained employee training and development? Call us for more data to support your pitch to senior management to make human development a high budget priority.