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How to Get Your L&D Budget Approved
By Patti P. Phillips, Ph.D., and Jack J. Phillips, Ph.D.
This article was originally published on October 18, 2021, on ChiefLearningOfficer.com.
THE STORY BEGINS:
The post-pandemic period brought on new challenges for many learning and development teams. Some will have little resistance to getting a budget approved, while others may face serious difficulties. This article will explore key areas to consider when seeking approval of the L&D budget.
We have been fortunate to work with many organizations as they prepare for this process. We have heard many chief learning officers discuss the budget process even during the current situation.
The Basics
As a starting point, it’s best to review the budget process, which is usually organized by the finance and accounting team, often with representatives from the L&D function. A budget is submitted, sometimes negotiated, and then approved for the next year. Here are a few issues that set the stage for the budgeting process.
Reality check. It’s helpful to review the status of L&D in your organization. Our surveys conducted during webinars in the last few years indicate a somewhat disappointing status of the L&D function. For example, many L&D leaders and team members see much of learning as a waste. This is the scrap learning concept, where a large percentage of the individuals who attend programs do not use what they have learned. Also, the type of data that executives want to see, usually at the impact level, is rarely discussed and reported by the L&D team. Most L&D groups do not have data that shows they are making a difference โ they do not have data that shows participants have used the learning and that there is a corresponding impact.
At the same time, executives often see learning as a cost and not an investment. If this situation permeates the organization, it makes it more difficult to get the budget approved. To be clear, executives appreciate the value of learning in spite of this reality in an organization. They know learning is important to grow and thrive, but they would like to see a better connection between the learning expenditures and the business. This is not the same with many other budgets. Executives can see the connection between marketing budgets and sales, the production budget and actual production, or the quality budget and quality measures. With this backdrop, it’s important to approach the budget process proactively.
Assumptions. Typically, the budgeting team will provide the assumptions from which to make the budget. The assumptions may involve the priorities of next year, the expectations for next year, and even the economic and competitive environment. Assumptions can also have specific forecasts of what to expect.
Format and instructions. Yes, this is a bureaucratic process. There is a format, and there are instructions. Although itโs fundamental and basic, we must follow those formats. Nothing irritates a budget team more than ignoring the budget presentation guidelines. It’s usually a simple process to follow what’s needed. Although it may appear cumbersome โ it’s necessary.
Justification. The part that often concerns budget presenters is budget justification. When you are asking for a large sum of money (several of our clients have L&D budgets more than $1 billion), there will often be a request to justify these expenditures. Justifications requests donโt always spell out exactly what they need, rather, they present data showing that the request is needed. It’s left purposely vague because sometimes they don’t know, and this provides you the freedom to show the value of what you request.
The former CLO for IBM once shared an interesting story with us. He said that when he faced his first budget approval, he was advised by some of his colleagues to have data: โNo longer can you just talk about the number of programs and the number of people and the topics that you plan to address. You need to have data about the results that you expect or you have experienced.โ
This approach puts it in the right perspective with the executives. Otherwise, they see many people and programs and they see costs.
Influencing Factors for Needed Budget
Several factors will influence the actual scope and magnitude of the budget. These six issues are important to consider as the budget is developed and submitted.
- The environment in which we are operating will influence the budget needed and the budget requested. Things have changed, situations are different and they will continue changing in the future, so the budget pitch must be in the context of the perceived environment.
- Some organizations are in a growth period, and this is an important factor in setting the budget. Other organizations are in a holding period with little or no growth, and this will also have an effect.
- In some cases, it is helpful to compare the requested budget to what was approved last year or based on the proposed spending per employee. Benchmarking can help, and executives love benchmarking. These comparisons could be tricky if things have changed dramatically. In extreme cases, some organizations require zero-based budgeting and ask for justification for each individual program. The key is to have a credible basis for the requested amount.
- Some L&D is absolutely necessary. For example, new employees must be trained, and when new systems are implemented, employees will need to be prepared to operate those systems. Compliance programs are necessary, and learning is a big part of compliance.
- The delivery of L&D influences the budget request. For large-scale implementation, virtual learning is usually less expensive. But for small groups, virtual learning may be more expensive.
- The image and reputation of the learning and talent development team are important. When executives see the way the L&D team functions in the organization, this could influence the budget approval. Is L&D known for delivering value, capturing value and reporting value? Are they perceived as a great business partner? Are they professional, capable and responsive? Having key operating executives comment on the effectiveness of this team during the final budget approval process is extremely helpful.
Value Add: Working the Value Chain into Your Budget Pitch
It helps to bring in data along the value chain. The value chain is the five levels of outcomes: reaction, learning, application, impact and ROI. The data collected from when the same programs were previously conducted can be used, if available. With this, you are suggesting, โWhen we previously offered this program, these were the types of results we achieved at this level.โ
If the data are not available, perhaps you have been able to conduct a pilot project in preparation for a full-scale implementation in the next budget cycle. Then you are suggesting, โBased on the pilot, these are the types of results this program is going to deliver.โ
Absent previous program data or data from a pilot program, you can suggest, โThis is the type of data we will be collecting on this program and reporting to you, and here’s our target for that data.โ This approach is convincing to executives because you are making a statement of what you plan to collect and show them, which is not a normal part of the budget pitch. The data you present along the value chain helps you to gain traction. Let’s look at some examples with different levels.
Reaction. Most organizations collect reaction data for almost 100 percent of their programs. Although there are many important reaction measures, the two most powerful reaction measures would be, โI intend to use the content of this program, and I would recommend this program to others in similar roles.โ
The last item is the net promoter score, which executives appreciate and support. Perhaps, it’s best to focus on that measure. Then, for this program, you are saying, โThis is the net promoter score we have achieved previously and expect to do so again this time,โ or โThis is what we have been able to achieve with our pilot,โ or โThis is what we will be measuring and targeting for you.โ They understand this.
Learning. Most executives don’t care so much about knowing what people have learned. Some learning measurements are critical, and they are usually related to issues like compliance.
To be in compliance sometimes means that employees must know something and prove it through a testing process. So, you can say that to be in compliance, the percentage of individuals in compliance is a measure of the acquisition of learning, and, โHere’s what we achieved previously, or in a pilot program or the percentage we plan to achieve.โ There could be other important learning measures for major new projects, new products, new culture or new systems.
Application. Executive attention will perk up when you move to application because this means employees are actually doing something. Although application is short of the impact that they desire, it is important.
For example, employee engagement usually involves level 3 data, behaviors. Connecting a learning program to engagement scores can be powerful. Again, reporting what has been accomplished previously in a pilot program, or what the target will be from the planned program, will be key.
Another example is the customer service that the organization delivers. This may be reflected in an NPS for the organization or in customer satisfaction if there is a set of behaviors driven by the program. Again, presenting the score for using these skill sets would be good for what you have accomplished, have achieved in a pilot, or expect for this year.
Now that there are many hybrid and remote working employees, maybe you want to ensure that teamwork and collaboration are quite high. A new program will drive those measures, based on previous experience, a pilot or an expectation.
Impact. This is what executives want to see โ connecting major programs to specific impact. Some programs are implemented to improve a particular measure, such as retention, sales growth, customer loyalty or productivity. Any program that can be connected to these measures gains attention.
Again, you will report what this program has accomplished previously, from a pilot program or is expected next year.
ROI. Your budget presentation time would be a great time to suggest, โHere are projects that we plan for an ROI evaluation to show you the value that these programs are delivering compared to their cost, using a standard ROI calculation.โ A small number of very expensive, high-profile or strategic programs that attract management interest should be selected. These programs are ideal for an ROI study, and they often represent major soft skills programs.
So, there you have it โ some of the best tips from experienced professionals who have faced the daunting task of developing budgets, even in tough economic times. The budgeting process is a work in progress, and you continue to get better at it. The key is to do the best job you can to connect the requested funds to value in the organization.
