Let’s role-play a little bit. It’s time for the annual budget review and you are preparing your budget defense for CEO and CFO review.
In contrast to the past, you have been doing some analysis and you are prepared to show that investments in learning and development return more than twice as much to the firm as investments in new buildings and equipment. How do you think the CEO and CFO would react?
Let me answer with my guess about would happen: They would sit up in their chairs and say, “Show us!” They would ultimately ask for more information. Why? Because one of the biggest challenges for the C-suite today is to find better investment alternatives than building more buildings or buying more equipment, as tangible assets are not the engine of value creation in the 21st century global economy.
But is the budget review scenario implausible? Yes — not because of what the CEO and CFO would do, but because we in the learning industry do not conduct the analysis and present the evidence. What stops us?
For the most part, we do not think of our training and development budget as competing with capital investment budgets for buildings and equipment. But they do because the C‑suite is all about comparative advantage.
When we fail to show why our budget requests are more valuable to the firm than alternative investments, we are at the mercy of guesses — ours and the finance manager’s. This is not a good place to be.
So, if we agree that having the evidence on the comparative value of learning and development budgets/investments is important, the next question deals with the creation and presentation of the evidence.
We can anticipate some of the questions the CFO will ask:
1. What business impact are you measuring to show the learning and development investment creates the value you are representing? For better or worse, investment decisions are compared using financial models.
To be in this C-suite conversation, we ultimately have to arrive at a measure of the financial impact. There are ways to do this, but they require some innovation combined with prior agreement from the senior management team about what to measure. For now, let’s assume that an agreement on what to measure has been reached.
2. This sets the stage for the first thing the CFO is going to say during the budget review: “OK, I get that you are measuring the impact on the agreed business outcome, but how do you know that the impact is a result of learning and development and not something else? There are a lot of other things going on here besides your learning programs.”
This is true, and the only way to answer this is to conduct the original analysis in a way that separates the business impact of the learning program from everything else that is going on. The way to do this is to design the experiment in a way that separates the impact of the learning from the noise, or everything else.
In statistical terms, this noise is called the error term. The error term captures the effect of everything else in one term of the analysis.
So, the answer to the CFO’s question is: “We know the impact of learning because it is statistically significant relative to everything else that is going on (the error term).”
3. The third issue in this budget discussion is: “How much does the analysis cost?” And the answer to this question is 3 to 5 percent of the budget.
In the end, being able to answer these questions will illustrate to your CEO and CFO the comparative value of learning and development programs
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