The high cost of not training

One of the first things an organization tends to cut when revenues drop is their training budget. Training is considered an expensive expense, and by cutting this “frivolous” item the organization can reallocate its precious money to other more productive activities, right? Some organizations never had a budget for training or to provide professional development for their staff, so they saved a lot of money from the beginning, right?

It makes sense that a dollar saved in training is a dollar that can be spent on something else; however, numerous studies and statistics point out this egregious error in logic. With the recent austerity measures, the Fitial administration has also demonstrated a typical blunder that most businesses make when it comes to prioritizing the cost of educating and training its workforce. The $1.5 million hacked from NMC’s already paltry budget will have a greater long-term impact on the CNMI’s ability to wean itself from dependence on foreign contract workers and to compete globally.

If you suffer from the same shortsightedness and think you cannot afford the time and expense to train your employees, consider this:

– A Louis Harris and Associate poll states that among employees who say their company offers poor or no training, 41 percent plan to leave within a year. Of those that say their company offers excellent training, only 12 percent say they plan to leave.

– A four-year study by the American Society of Training and Development shows that firms that invest $1,500 per employee in training compared to those that spend $125, experience on average 24 percent higher gross profit margins and 218 percent higher income per employee.

– Just a 2-percent increase in productivity has been shown to net a 100 percent return on investment in outsourced, instructor-led training. (source: http://www.avat.com/training/trainingroi.asp)

Training and development is even more critical if your organization is experiencing problems with productivity, low sales, high turnover, or any other situation where your people are the key to the solution. If you reduce or eliminate training, it will only exacerbate the situation.

Laurie Bassi and Dan McMurrer had this to say at a meeting for the American Society of Training and Development: “Yes, firms’ investments in education and training do pay off. And if you only knew what firms were investing in education and training, you could significantly improve the performance of your portfolio. For example, a portfolio of firms (across industries) selected because they invest an above-average amount of training would have returned an average of 45 percent more than the S&P 500 index annually in recent years. That’s right—45 percent more.”

Besides these various studies, it has been our experience that the companies that invest in serious training programs for their workers are the most successful companies on island.

We were talking to one organization that is well known for a highly trained and motivated workforce, and they said that last year was their best year ever. They rewarded their large staff with a surprise bonus, which was greatly appreciated. I guess that someone forgot to tell them they could have saved a lot of money by cutting their training costs. We doubt that you could convince them to spend less on training their people, and to just hunker down until the economy improves.

In contrast, when students take the math and English placement tests at NMC, XX percent are ready to take college-level math, and XX percent qualify for English classes. In other words, the vast majority of high school graduates are ill-prepared for college and the workforce. The new NMC budget cut will mean higher tuition fees for students, cutting programs, etc.

So if your organization is thinking about making the mistake of cutting training and education programs, remember what Nobel laureate Professor Gary S. Becker said: “The most successful companies and the most successful countries will be those that manage human capital in the most effective and efficient fashion—investing in their workers, encouraging workers to invest in themselves, provide a good learning environment, and yes, include social capital as well as skills and training.”

Training is important for small and large companies, for government offices, and for every organization wishing to get the most for every dollar they invest. Does it pay to train your employees? It certainly will cost you if you don’t.

A study from Hackett Benchmarking and Research shows that organizations that spend $218 per employee on training have more than a 16 percent voluntary turnover, while companies that spend over $273 per employee have turnover of 7 percent annually.

(Rik is a business instructor at NMC and Janel is the owner of Positively Outrageous Results. They can be contacted at: biz_results@yahoo.com)