De financiële impact van leren: een interview met Ajay Pangarkar

In our quest to explore ‘all things impact’ related to learning, we want to make sure that even the financial aspect of it is covered—and we know just where to look. There’s no better person to reach out to than a real expert on this topic, Ajay Pangarkar.

Ajay is an accountant by profession and a very experienced learning expert. He is a central member of the Canadian Accountants professional community and the ‘go-to guy’ within the learning community when it comes to financial matters. Ajay often shares his knowledge and experiences via many articles in learning magazines and websites, and his Linkedin learning modules are highly successful.

As an individual, he’s just an overall courageous and nice person, who shares his views openly and honestly. We simply knew we had to get in touch and learn from his expertise!

Ajay explains that it is important to understand how managers within organisations and finance professionals talk about costs. In this interview, when he refers to training professionals, he means both internal training professionals and external training providers. He prefers to use the word ‘training’ instead of ‘learning’ since this is how stakeholders refer to it, and for training professionals, it is important to understand the language of finance. By understanding relevant financial factors, training professionals can show the value and impact of learning more easily.

First of all, it is important to understand that every operational activity in an organisation falls under one of three types of responsibility centres: profit, cost and investment. By definition, training is a cost centre, which means it’s an operational activity that incurs expenses and costs but does not generate revenue from selling its goods and services. While training is a cost centre, it’s not alone. Organisational leaders assess many supporting functions as such, including accounting, HR, IT and even production. None is expected to deliver a profit, and neither are training practitioners. Instead, a cost centre’s activity and expenses indirectly contribute to the business’s overall ability to increase the bottom line by helping profit centres increase revenue or minimise costs.

Ajay explains that the C-suite will evaluate a cost centre’s performance based on how well that centre manages and applies costs. Training professionals often falsely believe other leaders within the business expect them to continually reduce expenses. Rather, smart business leaders will rely on cost centres like training to demonstrate how their expenses will positively improve operational performance. Leaders in every business line evaluate operational activities through specific financial lenses, and the training function is no different. As a training professional, you must demonstrate the training’s value as well as financial accountability for your efforts. The first tip is to develop your financial competence because that is the common language stakeholders speak.

Referring to training as a cost isn’t meant to be disparaging, which is how many practitioners tend to take it—it’s an actual accounting classification. Having clarified this, managers look at training in three categories and have different (financial) expectations related to that. It’s important for training professionals to understand these categories and how they are viewed from a financial perspective. Let’s take a look at each one of these categories in more depth.

Instances of non-negotiable activities requiring training

Ajay: “I’m guessing that my stating that business leaders and stakeholders consider training a necessity might just blow your mind. I’m also guessing some readers will probably be mumbling to themselves, ‘This guy doesn’t know my leaders!’ But stay with me. I’ll demonstrate why they do consider some training efforts a necessity. Most stakeholders recognise that their employees need to continuously learn, especially in the current environment. It’s true that there are many instances where stakeholders will try to make do without training, but they also know that there are instances of non-negotiable activities requiring training support.

Consider obvious requirements like bringing on and onboarding new staff, training employees on new equipment, methods or techniques, and the always-expected compliance training. I’m guessing you’re now seeing the necessity. In these instances, stakeholders will rarely require you to seek out their explicit approval or support; they expect these training tasks to be done. You don’t have to beg for funding to get these things done, though, mind you, at times, they may reduce your budgets, but they’ll never eliminate it.

I’m not saying you have a blank cheque to do what you want. Naturally, stakeholders expect you to make the best possible effort with the funds they’ve set aside. They expect you to maximise the budget and will adjust it depending on economic conditions (like more money during growth and a reduction during slow periods). The one thing they expect and will ensure funding for is ensuring all of this training remains relevant and current.”

Focus on performance metrics

“Here, the training necessity focuses on performance outcomes and not necessarily on financial expectations. Stakeholders accept (reasonable) justified costs for these training initiatives. What they expect is to have skilled employees who are able to perform in ways that eventually lead to positive financial outcomes like increased efficiencies, productivity and even revenues. So, your focus is on performance metrics, not on financial ones. Regretfully, these are often the training areas where practitioners become complacent. It’s not that they’re lazy; however, these elements are not the most exciting training activities. But just like a child’s formative years, onboarding new employees, while entrenching foundational knowledge, sets the tone, culture and future behaviour within the organisation. Let that weight rest on your shoulders.”

Operational efforts

“The more exciting part of developing training initiatives is when it involves major business and operational efforts. You know what I’m talking about. It’s the training initiatives you develop as part of operational efforts, such as new product introductions, market expansion, purchase of new technology and equipment and the implementation of new processes or methods, to name a few.

This is where stakeholders focus on those intimidating financial calculations, and we begin to hear the phrase Return On Investment, or ROI. Now, this ROI is not “training ROI;” remember, stakeholders never measure the financial ROI of cost centres. This ROI is all about measuring the efforts or the project’s financial return or project ROI. Your stakeholder’s financial “questioning” applies to all project costs, with the objective of maximising project ROI through cost reductions.”

Project training cost

“Okay, so what relevance does this have to training? I won’t bore you with the details, but your training contribution is a “project cost” as is every other operational support requirement. Simply put, they’re not measuring the ROI of your efforts but rather assessing the relationship between the project training cost with the expected value it contributes to the overall project. Even when the project is expected to deliver a positive ROI, they’ll still come and ask you to reduce your costs. What they’re trying to accomplish is to further improve the ROI by minimising valueless activities.

Please be aware that this is not personal; they’re asking that of every operational project cost. It’s your responsibility to offer an honest assessment of the training effort and look to reduce costs without undermining its expected contribution. If you can’t, then dare to say ‘no’ with a valid reason. In leader-speak, a positive ROI is about maximising cash inflows (the revenue or cash the project is expected to generate) while minimising specific internal activity costs, all the while maintaining the value expected from the project. Their goal is to maximise project profitability or ROI, not the ROI of the internal costs.”

Learning technology

“There is some really interesting and innovative learning technology available, like yours at aNewSpring. So, it comes as no surprise that practitioners would like to get their hands on these, only to get a solid “no” from their stakeholders. It seems like these stakeholders are always saying “no” and never want to spend any money. Well, that’s not entirely true.

Stakeholders are always looking to buy, or rather invest in, necessary operational infrastructure, and are willing to spend the money if there’s a case to do so. A possible reason they keep rejecting your requests is that you didn’t present a clear business case for the purchase. Here’s why having some financial literacy is exceptionally useful.”

Costs vs expenses

“First, please respect that your stakeholders possess formal business and financial education. This education isn’t necessarily up for interpretation, as with many learning concepts. They learn early on the clear delineation between costs and investments. There’s even a difference between costs and expenses. In short, an actual training activity—you know, the training itself—is considered a one-time expense. Whereas the supporting requirements, your learning infrastructure requirements and what stakeholders call assets are seen as long-term investments. Naturally, stakeholders financially evaluate each of these differently. When you’re working on an investment proposal for learning technology, always work together with people from the Finance and IT departments.

Training professionals should acquire some basic knowledge and create basic literacy on these financial topics; they don’t have to be experts. Sometimes, they ask me ‘How do I get this literacy?’ If so, I’m always a bit surprised, a training professional asking about how to acquire basic knowledge. There are so many good learning resources available on the basics of Finance, and a lot are available for free via YouTube or massive open online courses (MOOCs).”

The opportunities for training providers

“I think all providers need to stop focusing on selling a product. The COVID pandemic has catapulted training to the top of the priority list of leaders. Changes occur so fast and people have to adapt so there is so much change, and change brings the need for learning. Leaders know this and have concerns around it. So talk with leaders about their concerns and not about your product. Be sure to focus on them and solve their problems. The COVID pandemic also influenced how we think about technology, and we had to use it all the time to get our work done.

So, if you as a training provider use good technology to deliver your solutions fast, you are blessed now with great opportunities. If you can also provide analytics and data that you can connect with the organisation’s performance framework, you might be able to show the direct impact of your training, and that will give you a competitive advantage.

Another opportunity for training providers is, like I said before, to focus on all stakeholders at a client’s organisation. Don’t just focus on the Learning department. Of course, the Learning department is a major stakeholder when it comes to decisions related to training and learning technology but not the only one. Be sure to include other stakeholders like department managers who have the actual problem you’re trying to solve, and the Finance and IT department. And if they are not included in the conversation at first, ask for them! I do this all the time. There is an old saying that my mentor taught me: ‘Sell them what they want to buy, not what you want to sell’.”