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Training Cost Per Employee
 

   12/1/2006
 

The role of employee training and development is becoming more important as companies are increasingly relying on the knowledge, skills and abilities of their human capital to drive firm performance. According to the SHRM Employee Development Survey Report, the top three methods that are used most frequently for employee development are generic training (84%), cross-functional training (80%) and leadership training (71%). 1 Since training is a major component in enhancing employee competencies, tracking the training-cost-per-employee metric helps determine the investment in training at an individual level. This metric can be computed by dividing the total training cost for an organization by its headcount. 2

Training cost per employee

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Total training costs
Headcount

In 2004, the average annual expenditure per employee increased to $955 after remaining steady at $820 over the previous two years. 3 When calculating the training-cost-per-employee metric and comparing it to organizations that are similar, it is essential to know what specific costs are included. The table below presents five cost factors to be taken into consideration when computing total training costs.

Training Costs

  • Development costs (e.g., salaries and benefits of personnel, equipment).
  • Direct implementation costs (e.g., training materials, technology costs, facilities, travel, equipment, instructor’s salary and benefits).
  • Indirect implementation costs (e.g., overhead, general and administrative).
  • Compensation for participants.
  • Lost productivity or costs of “backfilling” positions during training.

Source: U.S. Office of Personnel Management. (2000). A guide to strategically planning training and measuring results. Washington, DC: Author.

Organizations commit to training for different reasons, such as improving product quality, introducing technology to gain operational efficiency, reducing errors, etc. Yet capturing the training cost per employee is only the initial step in quantifying the value of training. From there, it is necessary for HR professionals to analyze the effectiveness of training by identifying operational results, if any, that training had on employee performance. To more completely evaluate the return on investment of training, HR professionals must work with department managers to determine the effects of improved employee performance on business results. For example, if recent training improved employee performance by reducing the amount of errors that assembly technicians made when assembling a product, it may be possible to quantify the amount of time that quality control technicians saved in reworking products before they are shipped to customers. Tracking this metric may also facilitate the budgeting process. For example, based on an established record of training cost per employee, HR practitioners can estimate the expenses involved in training new hires. In addition, by comparing training cost per employee with similar organizations, HR professionals may find the data helpful in justifying training initiatives for their organizations, because developing the skills of their workforce is one way that organizations can enhance their competitiveness in the market. An illustration of this can be seen when call-center employees are provided with in-depth customer and conflict resolution training. Such training provides call-center employees with additional skills to positively resolve customer complaints, which, in turn, creates a loyal customer base that will likely purchase products from the organization in the future.

For more information on human capital metrics and to learn how the SHRM Customized Human Capital Benchmarking Service can take your HR department to the next level, please visit our Web site at www.shrm.org/Research/CustomizedBenchmarkingService/Pages/default.aspx or call 1-800-283-7476 ext. 6366.

Endnotes

1 Esen, E., & Collison, J. (2005). Employee development survey report. Alexandria, VA: Society for Human Resource Management.

2 Society for Human Resource Management. HR metrics toolkit.

3 Sugrue, B., & Rivera, R. J. (2005). State of the industry: ASTD’s annual review of trends in workplace learning and performance. Alexandria, VA: American Society for Training and Development.

Disclaimer

This article is published by the Society for Human Resource Management (SHRM). All content is for informational purposes only and is not to be construed as a guaranteed outcome. The Society for Human Resource Management cannot accept responsibility for any errors or omissions or any liability resulting from the use or misuse of any such information.

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