Speaker 1: Learning and development is a vital aspect of any business, or it should be anyways. If your employees aren't learning, they're not growing. As a learning and development expert in charge, it is your responsibility to ensure that the company's growth doesn't stop at the workplace door. Which means ensuring the company pays for their training and development too. Hello and welcome to the L&D Academy's channel. My name is Irina and today we're taking a deep dive into L&D budgets. Creating an effective learning and development budget isn't as straightforward as simply allocating funds from the company coffers each year. That's because there are so many ways to use these funds effectively, and some being more effective than others. An L&D budget is a plan for the future. It's a way of making sure you're spending money on things that are important to you. It's also a way of ensuring that your business has enough money budgeted for training and development to continue improving. Having an L&D budget certainly has its benefits. A sound budget helps manage the L&D function by allowing you to make decisions based on numbers rather than a gut feel. It helps link learning to business priorities and monitor learning activities to take corrective actions where needed. It improves the allocation of resources for learning, communicates priorities to all interested stakeholders, identifies and eliminates redundancies in learning solutions, and it improves communication with management about what's happening in L&D and how it supports achieving business goals. But it doesn't come without any drawbacks. A fixed budget has a complex and at times confusing process. It takes time to create and ensure its validity. And also a fixed budget can be inflexible and not adapt to changing business requirements and environments. And it can also lead to more spending even when it's not needed. For example, some departments try to exhaust the budget before the end of the year so that the same amount is allotted next year. There are several considerations to think through when creating a learning and development budget. Before you even start contemplating how much money you'll be spending, you need to consider the current situation in the business, like the priorities, objectives, and the strategic direction, as well as the desired outcomes. In other words, what the business wants to be different in one, three, or five years time. You also need to consider the trends in the market and the expected changes. For this, you can check out the L&D Budget Stakeholder interview guide available in our resource library. There are also a few questions to answer, like what needs to be included, who will the budget affect or who's in scope, who are the stakeholders, and what is the process for the budget sign-off. You also need to know what is the configuration of the budget structure. Is it a profit center or a cost center? We have a YouTube short that explains the difference. The link is in the description below. Please note that this list is not exclusive, and depending on your organization or stakeholders, there might be additional things for you to consider. Let's review the methods for building an L&D budget. First, there are different approaches. The two most common ones are cost, or budget per employee, or program-based. In the first case, you allot a certain monetary amount per employee that can be spent on learning, training, or other development during that financial year. The decision-maker would be the employee or their manager. L&D would communicate the monetary allowance for the year, and then assist in registering or organizing the learning event for the employee. In a program-based approach, budgets are driven by company-wide learning needs that are met using custom or tailor-made learning and development programs. Examples of these include mandatory or compliance training, leadership and management development, team building, or even a library of online courses. In reality, most budgets utilize a mixture of these two approaches. Each business unit would be given a certain budget per employee, and in addition, they would have access to most, if not all, company-wide initiatives. Another method is to align to the business. If the business has a clearly defined strategy and priorities, the L&D budget needs to reflect those. The key question the chief learning officer or head of L&D needs to be able to answer which learning projects will help the business accomplish its strategic goals. In effect, this means that all L&D plans must meet the organization's operational and strategic goals, all programs should increase performance, be that in terms of productivity, quality, or time. Ideally, all learning initiatives should add value, either as increased revenue or a reduction of cost, and each program or initiative should have an associated cost, which is reflected in the budget details. Regardless of the approach to budgets that you're going with, each learning program or initiative has several costs associated with it. So let's take a look at the most common ones. First, assessment costs. These are all expenses for researching the learning needs throughout the organization, like time it takes staff, consultants' fees, software, and other vendors. You also have development costs, which are charges for designing a learning activity, a standalone program, a training course, or any other initiative. And again, examples here would include time of staff, consultants' fees, external vendors, learning materials, and so on. Delivery costs are all the charges for delivering and or facilitating a learning and development event. Once again, examples include time of staff or trainer or facilitator, materials, fees, travel, facilities, meals, and time of participants. Evaluation costs are the costs associated with measuring the impact of the learning intervention. And again, time of staff to develop an evaluation strategy is a good example, but so is the design of the data collection method and analysis tools preparing and presenting reports. Administrative costs are those associated with running the L&D function. Travel, lodging, and meal costs, as the name suggests, are all costs for traveling, accommodation, and food for facilitators and participants. You also have facilities costs, which are costs for the learning facilities, like a training room, hotel conference centers, and so on. L&D staff salaries and benefits are also a good example of a cost to be included in either the L&D budget or the HR budget. Learning and promotional materials are costs associated with creating, printing, and distributing any learning-related materials like handouts, workbooks, brochures, pins, posters, flipchart stands, and paper, markers, pens, badges, and so on. You might also have online learning costs. Basically, anytime you're providing employees with access to any online learning libraries, like online video courses, books, or universities, there will be an associated cost to it. Which brings us to the LMS costs. These are any expenses you need to account for setup and maintenance of your learning management systems. Finally, you might also have overhead costs. These are basically any additional costs not directly related to a particular initiative. I want to stress that some of these types of costs can be grouped together. For example, if you're planning a leadership off-site event, you could include travel and facility costs under the delivery, or keep them separate. To ensure you're doing this right, consult with someone from the finance department about the budget process. Now let's move on to the L&D budget stakeholders. The learning and development budget is part of the global budget, and this means that people from all over the organization will want to be involved in creating and approving it. From our experience, we recommend that you consider and involve some of these stakeholders. First and foremost, the business leaders. If learning and development programs don't align with business goals, they won't be effective. Business leaders can help ensure this happens by providing insights into how learning contributes to their company's bottom line, and vice versa. Another important group of stakeholders are the HR business partners. HRBPs are good at identifying opportunities for skill building across various departments since they're already working on employee retention and engagement issues with their teams on a regular basis. Next, as already mentioned, is the finance department. If training is going to cost money, and it most likely will, you'll need funding approval from the finance department before you start spending big bucks on new courses or programs. Another very useful insight the finance department can provide is the budget preparation guidelines. They know the best way to prepare it and how to ensure it gets approved. You also need to consult the Chief Human Resource Officer. The CHRO usually approves the overall budget and gets the final sign-off. And let's not forget the L&D staff. There might be variations between what the Chief Learning Officer, the head of L&D, and the L&D team do. Their tasks usually include reviewing the strategic plan based on cost allocation, engaging with business leaders and HRBPs to understand the business's learning priorities and needs, collecting information to inform the budget from previous year's budget and highlights from business leaders and HR business partners, estimating costs, prioritizing the learning initiatives to be included in the budget, assessing cost-saving opportunities, identifying and eliminating redundant learning requests, and presenting and getting feedback on the budget from stakeholders. There might be some additional responsibilities that L&D staff do, so make sure to align these with your manager. Now let's talk about collecting information to inform the budget. Budgets must be informed by valid and objective data rather than a gut feel. So here's some data you can consider that will help you inform your budget. Your first point of interest is the previous year's budget. We have a super handy year-to-year budget analysis template in our resource library. Link is in the description. Take a look at the organizational and functional learning needs, the strategic and operational plans, the financial performance of the organization, what are the major operating issues and concerns, customer satisfaction data can also be very useful in this case, any sort of engagement or job satisfaction reports, management and employee 360-degree feedback summaries, succession plans, and any specific projects currently in progress. Once you have a good idea of your company's priorities, it's vital to ensure that your L&D initiatives align with these expectations. While there is no one-size-fits-all approach when it comes to prioritizing L&D initiatives, here are some questions that can help guide your thinking. What do employees already know? It's essential to start by assessing current employees' knowledge and skills and how they can contribute to the company's success. Are they aware of their role in the company and do they understand how they contribute? What capabilities will increase the organization's chances of reaching its full potential or accomplishing its strategic goals? And what projects or areas are currently in focus and how will that change in the future? Once you've created a budget, it's important to evaluate its effectiveness. Evaluating a budget will help you understand whether the process works for everyone and is understood by all stakeholders, what needs improvement to make it more effective or efficient, and how well the project delivered on its goals and objectives. Some specific actions we recommend to assess the process effectiveness are soliciting stakeholders' feedback and documenting all lessons learned. And of course, review those lessons the next time you're preparing the budget. Monitoring the budget is one of the most critical parts of the process. It is necessary to ensure that your budget is meeting the needs of your business while also ensuring that you are achieving your goals. There are a few ways in which you can monitor your budget. First, regularly check the status of each item in your budget against their corresponding costs and benefits. This will help you identify changes in timeframes or resource requirements for each item, which may affect the overall project performance. Another thing you can do is create a checklist for reviewing all projects within an entire department or a specific section of the organization. This includes reviewing key elements such as cost estimates and financial reports to determine whether there are discrepancies between what was originally estimated and what actually occurred. Comparing actual costs against predicted ones throughout the year ensures there aren't any surprises later down the line. An important thing to do is to report the budget status to all business leaders and other important stakeholders as often as possible. This creates transparency and trust in the process, and it also allows a certain freedom of decision for business leaders. Our expert advice is to also quarterly compare actual costs with the budgeted ones. Revise the budget often to reflect business and market changes. Share ongoing L&D performance with HR business partners. Include things like the estimated versus budgeted amounts and the return on investment. Your role doesn't end with finalizing the budget and getting it signed off. Take into account how you can guarantee the budget's ongoing performance throughout the year if you want it to be truly successful. Here are a few suggestions from our end. Regularly update the budget to reflect the quickly changing nature of the business environment. Throughout the budgeting process, look for opportunities to reduce the time it takes to create the budget and spend more time supporting the business in meaningful ways. Also, keep everyone informed of the budget's performance. Share it with all major stakeholders, and that includes your HR business partners, business unit executives, managers, and direct reports. The most important thing to remember is that your L&D budget is a living document. It will change as your business changes, so it's essential to ensure that you're continually evaluating how the budget impacts your organization and making adjustments where necessary. If any significant changes are happening within your company, such as hiring new employees or restructuring departments, consider revising the L&D budget accordingly so that you can make the most of it. And this is it for this beginner's guide to L&D budgets. If you enjoyed it, please consider liking and subscribing for more content like this. And let us know in the comments below what other L&D topics you would like to learn more about. Also, check out some of our other videos on the channel. Thanks for watching, and good luck with your L&D budget.