Prepared for the PHCC Educational Foundation by TPO, Inc.

Let’s open with this question: If you were offered the opportunity to invest $10,000 and get $100,000+ back in five years, would you make the investment?  Business owners who understand the value of training are making this kind of investment regularly and reaping the rewards.  Read on to learn the benefits of training and how to calculate the return on their training investment.

There are numerous reasons for conducting employee training in both large and small companies. Some of the most compelling reasons include:

Increasing efficiency and productivity, leading to increases in profitability
Supporting the adoption of new technologies and methods
Increasing innovation in strategies and products
Reducing employee turnover
Supporting risk management, e.g., training about how to prevent harassment or increase diversity
Increasing job satisfaction and morale among employees
Enhancing or expanding employee jobs skills to increase productivity
Motivating employees by showing an interest in their career

Your business can get the most out of your employees when they are focused, prepared, motivated and taught the skills that will help them achieve your business goals.  All employees can benefit from learning new skills.  When companies invest in their employees through training, employees feel better about themselves, they are encouraged to make a quality contribution, and they may be more willing to mentor and help others.

Training During a Tough Economy
During a tough economy, it is particularly important that small businesses continue to train their employees.  It is important to keep an eye on the long term value and return on the investment of training vs. the immediate costs.  To continue training while budgets are stretched might require a little bit of thinking out of the box, and working as a team to get the most out of your training dollars.  Here are a few ideas:

Industry associations and organizations like the PHCC Educational Foundation provide training for members, typically at a lower cost than for-profit training companies.

For example, the PHCC Educational Foundation supports industry training events, and offers its own webinars, live seminar programs and an Essentials of Project Management course.
Negotiate free training when purchasing or leasing equipment and try asking the equipment manufacturer if they would be willing or able to provide low or no-cost training on their product for existing equipment.

If your equipment manufacturer doesn’t provide training, contact the manufacturer’s director of sales to see if sales personnel can provide some introductory training for your employees.

If multiple employees need to be trained in the same or similar skills, send one or two employees for training with the plan to have those employees return prepared to train others.  You can also team up with “friendly” competitors to send an employee from one company who can then train a group of employees from both companies.

Retired workers with a deep base of knowledge and mentoring skills can be highly valuable to your training efforts. Utilizing these individuals can help your company receive good training at little or no cost.  Just be sure to pre-qualify each training session to ensure that current standards, practices and tools have not changed since the retiree’s departure from the work.

Your local association chapter or Small Business Administration may be able to help connect you to the right people. To find your local Small Business Administration, go to www.sba.gov/contactus. At a time when retirees are still very active and, in some cases have seen their retirement funds shrink, this can be a very beneficial and socially rewarding option.

Finally, many professional training organizations are feeling the effects of the economy, and may be open to price reductions depending on the number of employees you are willing to send to training.  You may be able to work out a mutually beneficial arrangement.

Preventative Training to Head off Lawsuits
While one major focus of training is to train employees to enhance skills and thus improve profitability, companies should also consider training to prevent issues that could potentially hurt the organization through a lawsuit or employment claim.  Issues that fall into this category include harassment, discrimination, and unfair employment practices.  In recent years, lawsuits have increased dramatically due to the number of employment discrimination and harassment cases.  In fact, employment lawsuits currently represent thirty percent of civil litigation.  One mistake can impact a small business significantly and quite possibly, permanently!

One way to combat against employment law challenges is to be able to show that you provide training to all employees.  Time and again, proactive training has shown to be helpful to a company’s legal defense should a harassment or discrimination case be brought forward.  Remember also that the costs associated with these cases are not limited to legal costs, fines, and penalties.  These types of cases also take a cost in soft terms because they can destroy the work environment as well as create anxiety, poor employee morale and low productivity. This is a price that will ultimately be paid by the employer.  All in all, fees paid for prevention training are always much less then the costs associated with harassment and discrimination claims and lawsuits.

Health & Wellness Training to Reduce Insurance Costs
If your employees are exposed to the public on a regular basis, you may want to consider two types of programs – customer service and wellness programs.   On the customer service front, your employees’ ability to represent your organization to your customers is critical.  You can begin by asking an experienced customer service trainer to observe your employees in action, report back their observations, and then recommend a plan to increase effectiveness in this area. Simple changes like asking permission to move objects to gain access rather than just doing it, or going one step further in cleaning up after a job can pay training costs back almost immediately in terms of new customers, customer satisfaction and customer retention.

Another aspect of training that few think about is protecting your employees by training on proper hygiene and reducing the chances of spreading germs.  Employers must evaluate their particular workplace to develop a plan for protecting their employees and customers, combining immediate actions and longer term solutions.  Provide employees with up-to-date education and training on influenza risk factors, protective behaviors like immunizations and instruction on proper behaviors (for example, cough etiquette and care of personal protective equipment).  For more information on providing training to your employees, you can go to www.pandemicflu.gov.

As small businesses are always faced with growing medical costs, research has shown that wellness training can help with long-term answers for keeping employees well in the first place.  Worksite wellness is a great investment in your employees, the cost is often very little, and the impact this investment can have on your bottom line is beneficial.  Encouraging wellness and accident prevention off the job can also make a difference at work. Some companies record not just on the job accidents but also off the job accidents to raise safety awareness. Your health insurance carrier or broker is a good resource for materials on developing healthy habits. Wellness training is shown to reduce absenteeism, medical claims, employee turnover, and it improves morale and productivity.  In this economy, with small businesses continuing to streamline their resources, anything that improves productivity can have a large impact on your business’s profitability.

Return on Investment
Although there are many reasons to train employees, one of the most significant reasons is the positive impact on the company’s bottom line.  The cost of investing in training consists of the actual dollars spent for training courses or personnel, plus the cost of time spent by employees away from their jobs.  By measuring the impact on processes, productivity or company profits before and after training, and then comparing these to the costs of the training, a company can determine its return-on-(training) investment, or RO(t)I.

Measuring the impact on processes, productivity or company profits is an important first step.  It sounds complex, but in most situations you can take just simple measurements before training begins.

In many cases you are specifically training to improve a process or learn a new and improved process.  In these circumstances simply ask the question, before and after training, how much time did this process take?  If the training is to improve quality, measure the impact of poor quality – did it take more time to do or did it require time to fix?

Remember always to measure anything that has to do with time by employee’s salaries, supervisory time required (or not, after training!) and add to all of these costs the overhead associated with employee time (taxes, benefits, etc.).

When you know these numbers, you can quickly and easily determine your RO(t)I by using the calculation below.
(total benefit – total costs) = ____   X 100 = % RO(t)I
total costs

ROI Example
An example might be useful.  In the PHCC Educational Foundation’s Essentials of Project Management Course, owners, project managers, estimators and lead foremen learn how seemingly minor choices and actions can make large impacts on company profits.

Let’s say that our example company decides to send a project manager and lead foreman to the Essentials course.  The costs for them to attend the course include the registrations, travel and sleeping rooms, plus their salary, benefits, payroll taxes and overhead for the time they are attending.

Two class registrations total: $3,400
Travel to the course & sleeping rooms total: $2,000
Salary, benefits, taxes & overhead for four days for two attendees: $4,800 ($75/hr)
Total Training Costs: $10,200

Is $10,000+ more than you expected?  Recognizing the true costs of your employees’ time is a key factor in smarter decision making.  It should also add urgency to the goal of improving employee productivity through training!

The two employees have now returned from Essentials course armed with dozens of productivity improving strategies.  They implement a few of these strategies on their projects and manage to get an additional 10 minutes of productivity each day from each field employee.  Getting an extra 10 minutes a day is a 2% increase in productivity.

This company has a dozen field employees, working on average 300 days a year on projects.  We’ll say that the average wages, benefits, payroll taxes and overhead rate for these field employees is $40/hour.  That equates to $1.13 million in labor costs.

Apply your 2% savings to $1.13 million and you’ll find a savings of $23,000.  With an effort to maintain these productive habits, the savings rack up each year, for a 5 year total savings of about $115,000.  For simplicity’s sake, we’ll plug those numbers into our ROI formula, but remember that the PM and foreman will also be realizing gains as projects get completed faster and open their time for managing additional work.

Our formula:
(total benefit – total costs) = ____ X 100 = % RO(t)I
total costs

One Year:

($23,000 savings – $10,200 costs) = 1.25 X 100 = 125% RO(t)I
$10,200 costs

Five Years:
($115,000 in five year savings – $10,200 costs) = 10.27 X 100 = 1,027% RO(t)I
$10,200 costs

Which brings us back to the question asked at the beginning of this article: If you were offered the opportunity to invest $10,000 and get $100,000+ back in five years, would you make the investment?

Of course the RO(t)I of training in preventative areas such as harassment and employment violations speaks for itself.  Consider the costs of a lawsuit caused by a simple and innocent employment mistake.

Getting the Most Out of Your Training Dollars
Aside from calculating your RO(t)I, there are several actions you can take to ensure you are getting the most out of the training you provide your employees:

Before you embark on any training program, employees should be told up front how they will be expected to use the training on their jobs.

Provide coaching on the job after the training to ensure that the training “sticks.”

Require participants to apply what they have learned on the job.

Ensure the work environment supports using the newly acquired knowledge or skills obtained during the training

Managers should set expectations that the new skills will be applied and the employee documents how they apply
them.

Tie learning to strategic and operational objectives.

As a business owner, your goal is to encourage a high level of performance and skills from each employee, ensure employees are communicating the company’s marketing message and mission, while also providing an employee-friendly environment which increases productivity.   Many of these goals can be met through investing in your employees through valuable training programs that will be appreciated not only by the employee, but also your customers and your bottom line.

This content was developed for the PHCC Educational Foundation by TPO, Inc. (www.tpo-inc.com). Please consult your HR professional or attorney for further advice, as laws differ in each state.  Employment laws continue to evolve; the information presented is as of January 2010.

The PHCC Educational Foundation, a partnership of contractors, manufacturers and wholesalers was founded in 1987 to serve the plumbing-heating-cooling industry by preparing contractors and their employees to meet the challenges of a constantly changing marketplace.

If you found this article helpful, please consider supporting the Foundation by making a contribution at http://www.foundation.phccweb.org/invest.