I am currently studying my CIPD and in my module, 'Managing the Training and Development Function' I have to discuss whether my organisations Training and Development Deaprtment operates as a cost or profit centre. We actually operate as a cost centre, however I am really struggling to find any books, journals, websites etc that talk about cost and profit centres. Does anyone have any ideas?
Rachel Dodsworth
4 Responses
lack of books tells a story…
Hi Rachel
Interesting assignment!
It strikes me that the lack of books on the topic suggests a reinforcement of the notion that training departments, and perhaps training in general, are seen by organisations as a cost, not an investment – something that takes from the bottom line, not adds to it.
Perhaps this is why training seems to be one of the first things to be cut when conditions get tough.
In the few training depts I have come across that claim to operate as a profit centre, you find that they are required to at least meet their operating costs by cross or internal charging.
This isn’t really being a profit centre. It’s really being a cost centre because there is no overall net contribution to the bottom line – it just appears as a cost on another department’s budget!
To my mind a true profit centre will make a net contribution to the bottom line as a result of training activities.
How is this achieved? By making sure before any resources (time & money) are allocated that the proposed training activity is the result of clearly defining the performance improvement required, the root cause analysis to identify with some certainty what is behind the current underperformance, and well-crafted solutions to close the performance gap.
Performance in this context can be any measurable thing, from obvious activity/operational/financial ones to less obvious behavioural ones, though you will find from the root cause analysis that behavioural issues will have a financial impact somewhere, allowing a good determination to be made of the benefits the training will bring to the bottom (and other!) lines.
Good training design practice will help identify training delivery and development costs, and so an overall net contribution can be determined – irrespective of any cross or internal charging.
Might I suggest you look at http://www.5boxes.com/main.php?page=what_it_is_process
I’m sorry I can’t suggest any books or research per se.
Good luck!
Regards
The Elusive ROI!
Rachel,
I’d like to echo the previous comments posted on this subject. Cost & Profit Centres I believe relates to whther the team is a cost to the operation or not.
Traditionally, return on investment is the one level of Kirkpatricks evaluation model that little energy is applied to. As perviously stated, if the correct TNA is carried out and the net benefit identified before training, the correct objectives can be built that will drive the content and the whole will fill the required gap.
ROI is not an optional extra, if the other evaluation measures use operational measures already in place it should be easy to identify the cost benefit training has provided to the business.
For instance and simplifying it hugely; If Joe Bloggs can only build 4 widgets per shift that bring in £10 profit, the organisation makes £40 profit per shift. If after training Joe Bloggs can build 10 widgets per shift, the organisation makes £100 profit. Training has provided £60 profit (less any costs to run training).
Hope this illumionates and helps.
Kindest
Frank
Cost or profit centre?
There is an alternative title – “investment centre”! This is really what training should be about – investing in the capability of the organisation.
But some practical advice from my own experience. I believe it is not helpful to have a department that should be strategically supporting the organisation as a profit centre. It focuses the mind of the department on the wrong things. Everyone likes to proudly display how much profit they are making – but the way to do this will be at the expense of learning. You will go for maximum “bums on seats”, trainer utilisation, popular programmes etc – and may get a long way from what the business actually needs.
But then there is the question of charging. I believe that anything that is startegic and crosses department boudnaries (such as culture change, undertanding strategy, new processes, HP assuessments – things which would not be derived from the business goals of any particular unit – these should be funded centrally and be “free” to participants. Whereas all training that benefits individuals or teams in a unit should be paid for. My sugegstion here is to position the fee at a market rate (so they know the value they are getting) and then “discount” for internal purposes whioch brings the price to a breakeven level for the department. You can use different levels of discount – with e.g emerging country operations getting benefit.
If of course you also are selling training externally you will want to make a profit. But don’t mix them in one department. If you do, the profit motive will take over as dominant and internal learning will suffer.
These issues are covered in my CIPD book “Creating a Learning and Development Strategy”
Good luck!
Andrew Mayo
Cost and Profit Centres
In training a cost/profit centre mans to me that you are evaluating what is happening from the start of the proces – identifying needs – through objective setting, through producing the learnig events to supporting the implementation of the learning. Costs for all of these processes – who does them, their time and money, cost of provision etc etc – are relatively (!) straightforward. Identifying the value in monetary terms, i.e. real ROI is MUCH more difficult and in many cases impossible. But if the required objectives are met = ROI. Book: I suggest ‘Understanding the basics of R- On I- in Training’ Patricia Pulliam Philips, Kogan Page (20020) She is the wife of Dr Jack Phillips the U.S. Guru of ROI.