From the course: Setting and Managing Realistic Expectations for Your L&D Program

Budget requirements

- When starting up a new L&D organization, there's always one big question, how much is this going to cost? To answer the question of cost, you must start with a realistic budget. You've got to have a handle on all of your costs before you can build an effective justification. You'll need to consider personnel costs, expenses, technology, overhead, department allocations, all kinds of costs. I've found the best way to ensure that you aren't missing any costs is to enlist the help of someone from your company's finance department. They can be invaluable for building a realistic picture of what it will cost to run the L&D organization, and inevitably, it will be more than you think. Once you have a handle on all the costs, focus on the benefits or value of having properly trained employees. This is the cost justification. These numbers justify the cost of the L&D initiative. It's what L&D will bring back to the organization or it saves the organization over the long term. In some instances, justifying costs is relatively easy. If you estimate that an L&D initiative will reduce manufacturing defects by 10%, then put a dollar value on that 10%, and use that as justification for the training. Or if you think the initiative will increase sales by a certain percentage, use that increase as a number to help with the justification. In some cases like compliance training, it becomes a little more difficult. Compliance training is mandated, so it's not returning money to the organization, instead you are potentially avoiding future costs related to possible fines, or issues that arise out of not complying. In one instance, a US federal court awarded a huge settlement to an employee who did not receive adequate safety training. The employee sued for hospital costs and emotional damages, resulting in over a $3 million settlement. In today's litigious environment, the probability of a company getting sued for an employment practice violation is very real. Other L&D efforts like leadership training can be even more difficult to measure and justify, but thinking through and documenting the process of how the training contributes financially to the organization will be helpful when the budget talks roll around. No matter what, training budgets always seem to be challenged, and typically the first to be cut in tight times. Don't expect your initial budget to increase, and in fact, executive support often waxes and wanes when it comes to L&D efforts. What you can do is to run the numbers to you always are able to account for your costs, and justify what you do by pointing to the financial benefits of your L&D efforts.

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