The Training Budget: How to Plan and Account for Employee Development Costs?

Are all training needs successfully addressed and funded every time? This can be difficult, because in many companies, the training budget is set once a year—HR gathers the departments’ needs, creates an Excel spreadsheet, and sets the training budget, only for reality to quickly prove those assumptions wrong. New projects, changes in competencies, and urgent training needs arise that weren’t in the plan.

The L&D department strives to rise to the challenge and knows that to achieve business goals, the team must be trained. The problem is that it’s difficult to assess the ROI in the end. That’s why today we’ll share tips on how to plan a training budget, control employee training costs, and streamline the entire process across the organization.

What is a training budget, and what does it include?

The training budget covers all costs associated with employee skill development, both internal and external. Managing the training budget begins with organizing all categories of development expenses, which in most organizations can be divided into several main areas:

• e-learning courses – e.g., licenses, access to the LMS platform, production of training materials
• in-person training and workshops – e.g., trainer or training company fees, travel and accommodation for participants,
• certifications and exams – here, the training budget should account for exam fees, costs of certification preparation courses, and certificate renewal in subsequent years,
• industry conferences and educational events – e.g., the cost of tickets and logistics,
• development programs and corporate academies – e.g., the cost of preparing the development program, compensation for trainers or mentors,
• creation and maintenance of an internal knowledge base – e.g., costs of preparing training materials, maintenance of the platform for sharing materials.

As you can see, such an example of a training budget can cover a whole range of investments in competency development. We’ve discussed the categories; let’s see what’s next.

How to create a training budget step by step?

It’s best to approach the creation of a training budget as a process that begins with an analysis of competency needs and ends with ongoing monitoring of how funds are used. Below are five steps to help you manage this process effectively.

1. Training Needs Analysis (TNA)

The first step is to assess the organization’s development needs. Sources of data for analyzing training needs may include, among others:

• results of periodic employee evaluations,
• 360° feedback,
• team performance and business metrics,
• development discussions with managers,
• the 9-box Grid,
• new strategic projects or technological changes.

Thanks to this analysis, you will be able to distinguish individual training needs from systemic competency gaps that require greater investment in employee development.

2. Setting development priorities

The next step is to identify which development initiatives are most important to the organization. In many companies, training priorities are divided into:

• competencies critical to the implementation of the company’s strategy,
• the development of managers and team leaders,
• mandatory training (e.g., compliance or regulatory),
• the development of specialized competencies within teams.

This will help determine which training programs should be funded first.

3. Cost estimation

At this stage, it is important to take into account the cost of the training itself and all associated expenses. These typically include:

• the cost of the training,
• the cost of training materials,
• exam or certification fees,
• logistical costs, such as travel or accommodation.

4. Allocation of funds

It’s time for a step that can sometimes stir up strong emotions: it’s time to set the budget and allocate it across the organization’s various departments. Companies use several models for managing their training budgets:

• a central budget managed by the HR department,
• budgets assigned to individual departments,
• a per-employee training budget.

5. Budget approval and monitoring

The final step is for the board of directors or the finance department to approve the training budget. It’s a good idea to build in some flexibility, as new competency needs may arise throughout the year. Monitoring the use of the training budget on an ongoing basis will allow for adjustments to be made.

Why should you move your training budget from Excel to an LMS platform?

At the beginning of the year, managing training in Excel seems like a great idea—just plan the budget, enter the data, and you’re done. But if you work in the L&D department, you surely know that the file’s structure in January can look drastically different from how it looks in December of the same year.

In a spreadsheet, every change requires manual data updates, and training information is scattered across emails, notes, or other files. Managing corporate training requires ironclad discipline.

For this reason, more and more companies are moving their training budget management to LMS (Learning Management System) platforms. A training platform allows you to gather all training data in one place and automatically update expense information.

Excel vs. LMS for Training Management

The biggest difference between these solutions is the level of automation. In a spreadsheet, most of the work is done by an HR employee. In an LMS, many processes are automated, from registering training sessions and assigning costs to reporting on budget utilization. The employee searches for the data they need to do their job and works strategically, not operationally.

How do an LMS platform and a knowledge base reduce employee training costs?

Many companies find cost savings by designing training programs so that the same content can be reused multiple times and by a larger number of people. What features of LMS platforms make employee training more cost-effective than traditional models?

Internal knowledge base

An internal knowledge base is one of the simplest ways to optimize training costs. Training materials created once can be used by multiple teams and new employees.

Such a repository can include, among other things:

• recordings of webinars and internal training sessions,
• presentations and process instructions,
• e-learning courses developed by company experts,
• materials from conferences and workshops.

The LinkedIn Workplace Learning Report 2024 indicates that companies are increasingly developing learning models based on internal knowledge resources and the sharing of experience among employees. According to the report, as many as 89% of L&D professionals believe that actively building a learning culture—which includes internal company resources—is of paramount importance for the future of the organization.

Centralization of training providers

The LMS platform helps streamline collaboration with training providers. Centralizing providers within a single system enables:

• analysis of training costs by individual providers,
• easier negotiation of rates for larger volumes of training,
• comparison of training evaluations by participants.

Precise control of training costs

The LMS system will allow you to monitor the use of the training budget in real time. Each training course can be assigned to a specific department, project, or employee. HR will gain a complete picture of where development funds are being allocated.

And investments in development will only continue to grow—the Future of Jobs Report 2023, prepared by the World Economic Forum, indicates that more than half of employees will need to be retrained or have their skills upgraded in the coming years. This makes it all the more important to streamline training budget management and utilize tools that allow for controlling costs and measuring the effectiveness of development initiatives.

The application and approval process – how to avoid bottlenecks?

Many companies streamline this process by implementing a structured training request and approval workflow. This helps avoid situations where an employee sends an email requesting to attend a training session, the manager (doesn’t) respond after a few days, and the HR department manually enters the information into a budget spreadsheet.

Why is this beneficial?

• For the employee, this means a simple application form. Instead of sending emails, the employee fills out a short form in the system. This ensures that all requests go into a single system and don’t get lost in email inboxes, while the L&D representative receives organized data on planned training expenses.
• For managers, it means quick, data-driven decisions. Since the process takes place within the system, managers can immediately see how much training budget is still available for their team. They can also perform batch operations, such as approving multiple requests at once.
• For HR, it’s an automated workflow. Instead of manually gathering training information from various sources, requests, training costs, budget report updates, and an archive of employee training information are all in one place.

How do you measure the effectiveness of your spending (ROI)?

One of the most commonly used models for evaluating training is Donald Kirkpatrick’s model, which involves analyzing outcomes at several levels.

Level 1 – Participants’ reactions

The most common approach here is to use short surveys administered after the course or workshop has ended. At this stage, you can gather information regarding:

• the quality of the training,
• the usefulness of the knowledge shared,
• the teaching style,
• and the training materials.

However, while such an evaluation is important, it does not yet reveal the actual impact of the training on the participants’ work.

Level 2 – Knowledge and skills acquired

The next step is to verify whether participants have actually acquired new skills. To this end, companies use methods such as:

• post-training knowledge tests,
• practical assignments,
• short competency exams.

These types of solutions are particularly popular in e-learning courses, where the LMS system can automatically assess participants’ results. And that’s not all.

Level 3 – Changing Work Behaviors

The most important factor for the company is whether the knowledge gained during training translates into daily work. At this stage of evaluation, the following methods are used, among others:

• workplace observations by managers,
• developmental discussions with employees,
• and an assessment of progress several months after the training.

Level 4 – Impact on Business Results

The final level concerns linking training activities to company performance. Depending on the area of business, these may include, for example:

• increased sales,
• improved customer service,
• shorter project completion times,
• and a reduction in operational errors.

With this data, the HR department can demonstrate that the training budget translates into profit and prepares employees for future challenges in the job market.

The Most Common Mistakes in Training Budget Management

Often, the problem isn’t a lack of funds for employee development, but rather the absence of a coherent training management system. What most often stands between an organization and effective management of its training budget?

No budget reserve

One of the most common mistakes is planning without accounting for unforeseen needs. It is more than certain that new projects, technological changes, or regulatory requirements will arise over the course of the year, which may require additional training.

Lack of ongoing monitoring

In many companies, training expenses are not reviewed until the annual summary is prepared. In such situations, it is difficult to respond quickly to changes and make decisions about budget reallocations.

Ignoring cheaper training alternatives

Another mistake is focusing exclusively on external training. Yet similar developmental results can often be achieved through e-learning, internal mentoring, and knowledge-sharing programs between teams.

Such solutions offer two key advantages: they foster employee development at a lower cost while simultaneously strengthening the organization’s learning culture.

The complicated training approval process

If signing up for training involves numerous emails, forms, and a long wait for a decision, some employees will simply give up on participating in training. And if they do go through the process but their request gets stuck somewhere along the way, their skills won’t improve—only their frustration will.

Lack of alignment between the budget and strategic responsibilities

The biggest mistake in managing a training budget is failing to align development initiatives with the company’s strategic direction. The World Economic Forum notes that as many as 44% of employees’ skills will need to be updated by 2027. Budgets are not unlimited, so it is crucial to plan their allocation by taking a broader view—considering the company’s needs and industry trends.

Need help managing your training budget? Hire HRcode

If you want to reduce the operational workload on your L&D department, focus on strategic planning, minimize the likelihood of employees missing training sessions, and simplify training accounting—discover HRcode. Our LMS will allow you to:

• organize training data,
• streamline the request and approval process,
• monitor budget utilization in real time.

Want to operate more efficiently? Let’s talk about HRcode.

Bibliography:

https://learning.linkedin.com/content/dam/me/learning/en-us/pdfs/workplace-learning-report/LinkedIn-Learning_Workplace-Learning-Report-2023-EN.pdf;
https://www.weforum.org/publications/the-future-of-jobs-report-2023/;
https://www.kirkpatrickpartners.com/the-kirkpatrick-model/.