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Training Reduces Turnover, Increases the Bottom Line

Dan Bobinski
November 2, 2006 -- By Dan Bobinski 

Too often companies view training as an expense. Some execs even see it as a waste of time and money. But the research is pretty straightforward, so letís consider a few key points.
First, according to the Emerging Workforce Study, in organizations where training is considered poor, 41% of employees plan to leave within a year. But in companies where training is considered good, that number is only 12%.
This means itís possible for companies to improve retention by 29% percent simply if they offer good training.
Thatís pretty substantial, but letís look at this in terms of dollars. The Society for Human Resource Management (SHRM) has published research that shows the average cost of replacing an employee is equal to his or her annual salary, plus benefits.
Where I live, the average annual cost-per-employee (including benefits) is about $34,000.  
So if I have a small business with ten employees, thatís a total salary/benefits package of $340,000 annually.
If my training programs are considered good, itís likely that one person is thinking about leaving this year, and it will cost me about $34,000 to replace him.  But if my training is considered poor, four people are thinking about leaving. If they do, thatís a net loss of three employees (one was going to leave anyway).
According to SHRMís estimates, replacing those three employees will cost me about $102,000. Yikes. But hereís the real problem: Itís not a line item on the budget, so I donít really notice it.
Training, however, is a line item on the budget. But the idea that training is an expense is truly a misconception.
In an informal survey of HR managers and business owners, I found that training dollars allocated per employee ranged from $675 to $2,000 per year.  Even if I were at the top end of that (costing me $20,000 for ten employees) and my training offerings were considered poor, I could increase retention by offering outstanding training programs that cost me $40,000 per yearóand I would be $62,000 richer for it just due to retention.
Itís counter-intuitive, but if these figures from SHRM and the Emerging Workforce Study are anywhere near true, even by doubling my training budget I can actually add dollars to my bottom line.
But retention isnít the only reason to invest in your employees. Letís look beyond and consider other gains achieved through training. Say an employee earning $10 per hour wants to improve his skills in Microsoft Excel, so he finds a class for $100. Employers who say ďnoĒ to paying for this would be shooting themselves in the foot.  
Hereís why: If the employee learns shortcuts that save him just fifteen minutes a day, his increased productivity pays for the class in just two-and-a-half months. And, as the employee continues at that new level of productivity, that $100 class gives the company a two hundred percent return on investment in the first year alone. Thatís certainly not a waste; thatís a pretty savvy investment.
Here are few more stats to consider:
According to the American Society for Training and Development, firms that train more than 80% of their workers are able to attract and retain employees better than competitors of similar size and purpose that donít invest in training.
According to the United States Council on Competitiveness, a 10% increase in employee training has a more positive impact on productivity than a 10% increase in work hours or stock options.
Hopefully all these research numbers can convince a few folks that investing in their workforce is truly a solid investment, not an expense.
But hereís a caution: If youíre looking to increase your training budget, donít just throw more money at it. Approach training like you would any other investment.
First, look at your current productivity/level of service, etc, and then determine where you want to be in the future.
Second, identify what kind of behavior change or additional abilities are needed by your employees so they can help the company achieve the desired results you identified in step one.
Third, determine the knowledge, skills, and attitudes needed for employees to be able to perform at the levels identified in step two.
Fourth, identify someone to provide or create training that will equip employees with the knowledge, skills, and attitudes you identified in step three.
Fifth, evaluate, and retrain as needed.
This all takes time, but, as I said, itís just like any other investment. Youíll want to make careful decisions and have clear goals in mind.
Bottom line, the research is in and training investments provide solid returns. Plus, as an added bonus, providing training gives you an edge over any of your competition that hasnít crunched these numbers yet.

© 2006 Dan Bobinski / Leadership Development, Inc. You may freely forward this information providing the text is sent as an integral whole and contact information for the author is included, such as using the text that appears below:
Dan Bobinski is a popular keynote speaker, a certified behavioral analyst, and the President and CEO of Leadership Development, Inc. He is also the primary author of Living Toad Free: Overcoming Resistance to Motivation. He can be reached at (208) 375-7606 [toll free: 888-92-COACH] or by Email at dan@leadershipanswers.com
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