General Estimating Policies - Training and Development

How much of the organization's total budget should be invested in T&D Activities? For normal operations, most organizations allocate between about 2and 4 percent of their total employee salary cost to T&D. World class organizations and those heavily dependent on human expertise (e.g., consulting,software development) allocate as much as 5 to 6 percent of their total employee salary cost. Of course, there are some exceptional circumstances. New plants will need much higher allocations for their first six months. When a totally new product or service is introduced, the allocation may double for anywhere from three to six months. Then there are unusual circumstances in which offices or entire plants may shut down for training. Plant start-ups, retooling,new product lines, installation of totally new processes or procedures, a new management team; all these might require training as a precursor to production. Shutdowns mean extremely high costs—100 percent during the training period. However, budgets are usually annualized, so the ultimate costs are more normal,though somewhat swollen.

The same thing happens when a distressed department uses organizational development(OD). The T&D manager should budget (or counsel the client to budget) at least five times the usual training allocation. After all, the major energy of the top-salaried people will be devoted to analysis of their mission, structures,processes, and relationships. It's quite probable that eventually all employees will become involved, so there are periods where redeveloping the organization,not production, is the focus. In this sense, the OD intervention is different from a shutdown only to the degree to which normal work continues.

Another unusual condition arises when an organization discovers almost too late that it has been neglecting its management development. It is not terribly rare for an organization or a department to discover that huge percentages of its management will be retiring within a very few years. The ensuing extra effort to train replacements demands extra budget allocations. The actual amount will depend upon the numbers to be educated and developed. It is not unusual, however, for such crises to require from five to six times the normal management development expenditures.


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