3 Ways to Produce Training Budget Cost Estimates for L&D

Woman using a calculator to create training budget

Your training budget needs to be more than a shot in the dark, but how can you go about calculating it and producing an accurate prediction of your training costs?

Not only will those approving your training budget want to see some justification for your calculations, but your budget allocation plays a significant role in your overall strategic planning for L&D.

With that in mind, here are some tips for calculating and formulating your training budget cost estimates for the year ahead.

Accurately estimate your training budget and keep everything on track with this downloadable training budget template and tracker.

How to calculate an estimate of your training budget

There are multiple ways to calculate your learning and development budget. You might choose one or use a combination of calculations to estimate your overall costs.

1. Percentage of salary budget

On average, organizations generally spend anywhere from 1-3% of their salary budget on training annually. If this is the first time you’ll be calculating a training budget, this method is a simple benchmark to use.

This means your budget calculation will be as follows:

Training Budget = Annual Salary Budget x X%

After one year of this budget, you can reassess and see if it fell short of the mark before moving onto more detailed calculation methods.

2. Percentage of average employee salary in your industry

Another common way to estimate the cost of training for the year ahead is to use the average employee salary within your industry. 

The calculation will be as follows:

Training Budget = Industry Average Salary x No. of FTEs

This can be helpful if you’re expecting large fluctuations in staffing levels in the near future as you can easily adjust the calculation to take future hires into account.

3. Detailed breakdown of training needs and cost estimates

The above calculations are relatively quick and easy. You don’t need to source too much data and they provide a bit of leeway. However, they’re not likely to be 100% accurate, meaning you could easily end up underestimating the training budget you need.

The third most common way to judge the size of your training budget is to develop a detailed cost breakdown based on the initiatives you have planned and on past experience. This means taking into account your L&D employee costs, learning technology, external vendors, travel and expenses, etc.

Although this method takes the longest amount of time, it provides the most accurate estimation of your predicted training costs.

If you need some guidance or an easy-to-follow template, try this one.

Tips for training budget allocation

Once you’ve got a budget estimation in front of you, the next task is deciding how to divide that budget out. Some costs, such as the salaries of your L&D team members, will be set in stone. Others will require a little more flexibility.

So, here are some tips for creating a realistic budget allocation plan for your learning program.

Plan for all eventualities

Everyone has a plan until that plan is no longer viable. As the year progresses, a lot can change both internally and externally for your organization. Shifting priorities means your initial budget allocation is no longer optimal as time goes on.

So, plan for as many eventualities as you can when it comes to allocating your training budget. By leaving some wiggle room, it’s easier to adjust your allocations as needed throughout the year.

Expect the unexpected

Similarly, you can’t predict the unpredictable. But you can ensure your budget is prepared for anything that might be thrown your way throughout the year. As well as remaining flexible with your budget allocation, it’s a good idea to be prudent about it, too. 

Consider setting aside a percentage of your budget to cover unexpected shifts in organizational strategy or training needs. This will enable you to bolster training projects that become more expensive than expected and cover any initiatives that were not initially planned for.

Don’t forget content updates

While you might be focused on new learning initiatives when planning your training budget allocation, don’t forget that some of your existing training courses and content will need updating and refreshing throughout the year.

So, while calculating your budget and allocating it across different costs, include any predicted training updates as well as new initiatives.

Check out this on-demand webinar with award-winning learning measurement expert, Paul Leone, PhD.:
How to Measure and Maximize the Business Value of Training

How to maximize the impact of your training budget cost estimates

Unfortunately, no team’s budget is completely unlimited. Creating the biggest impact possible with your training budget means making the most of what you have. Here are some tips for maximizing budgets of every size for L&D.

Track every nickel and dime

Throughout the year, track how your cost estimates are measuring up to your estimates. Keeping a close track of your budget alongside your outgoings will help you prove your case for more resources for the next year. 

Develop robust learning measurement practices

When it comes to allocating a higher budget for L&D, the C-suite are most likely to be swayed by metrics that conclusively prove the impact of a learning initiative on the bottom line of the business. Although learning measurement is a time consuming and complex task, it’s worth its weight in L&D budget. Start by assessing where your measurement practices currently fall in The Kirkpatrick Model of training evaluation and make working your way up the scale a priority.

Focus on efficiency

Sometimes, it’s less about the dollar amount of your training budget and more about how your learning operations are set up to spend it most effectively. Spend some time on a total L&D audit to examine how your function could be working faster and more efficiently. You’ll soon find hours of time and large chunks of budget that can be saved with an operational upgrade rather than a higher budget. 

See how you can identify opportunities for efficiency improvements in your learning organization:
Free eBook – Less Waste, More Impact: Plugging Budget and Resource Leaks in L&D

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