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The L&D Function: Cost Sink or Profit Center?


Imagine a company that treats its learning and development programs as a profit center. Training managers are responsible for their own budgets and must ensure that revenue not only covers expenses but also generates a tidy profit. Every program would have to show that it contributed to the bottom line of the training fiefdom. Some argue that L&D functions should be treated as profit centers, saying it would force them to be more "business focused". That's an admirable goal, but a terrible way to achieve it. Let's explore some of the problems with this approach. First, it's difficult to measure success or failure. Profit is, after all, the difference between income and expense. More often than not, there is no income to plug into the equation. How does one generate or account for money from anti-bullying training? Sure, money may be saved if there are fewer lawsuits, but how does one count the money not lost? It's not easy or straight forward. Other forms of training, such as Microsoft Office instruction, have more measurable savings, but it's just as impossible to count that as revenue. Of course, both programs offer Return on Investment (ROI), and I'm all for measuring that. (In fact, my book Training Evaluation Toolkit deals extensively with how to measure ROI.) ROI, however, is not the same as profit. Some proponents of treating L&D as a profit center regard the money saved by training in-house as "internal revenue". After all, it's less expensive than sending employees outside the company to be trained. There are several problems with the argument, including the fact that cost savings are not revenue. And it's certainly not profit by any definition of the word. Second, it's a disservice to the organization to treat training as a profit center with the goal to reduce costs as much as possible. A particular program, for instance, may cost more to run internally but offer more value to the enterprise. In addition, outsourcing the program could result in instructors leaving the company. Of course, the dollar cost of a specific program needs to be one of the factors considered. It should not be the primary or only factor. Managers need to think about other non-monetary costs as well. If L&D is to become a profit center, why not other departments too? How about the quality assurance, engineering and finance departments? Managers there might raise their eyebrows just as I'm doing here. They would ask about how expenses will be cross-charged and what key performance indicators might look like. It makes perfect sense to me to make training and all L&D functions business focused. My articles and books have argued that point for years. And, if you are an external consultancy providing L&D services, then obviously you're in business to make money. It's a different story inside organizations. When L&D is treated as a profit center internally, its focus shifts from the common good and overall improvement of the organization to how it will make the next dollar to justify its existence. Supporters of the profit-center mentality will end up with the opposite of what they wanted to achieve: An L&D function that's focused on business - its own - at the expense of the whole organization. References Converting From a Training Department to a Profit Center Can Training Become a Profit Centre?

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