Chapter 2

Training and Development as

an Investment
Training and Development for the Hospitality Industry
First Edition
(354T or 354)

© 2002, Educational Institute

 Competencies for
Training and Development
as an Investment
1. Explain how training is an investment in an organization.
2. Differentiate the budgeting process for training in today’s
organizations from the past.
3. Identify the variables to consider when calculating the
costs of training and the costs of not training.
4. Describe how training directors develop cost-benefit
analyses for training and development activities.
5. Explain how training directors calculate an ROI (return on
investment) for training and development activities.
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 Labor Shortage Factors
Demographics
  Competition from better paying industries
 

  Low perception of service culture

  Perceived lack of education needed
  Perceived lack of advancement opportunities

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 Absenteeism Causes
Management’s insensitivity
  Management’s lack of response to the critical
needs of employees
  Low morale, prompting lack of motivation
  Low morale, causing increased levels of stress
  Low morale, causing increased accidents and
illnesses

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 Turnover Rates
Hotels 60 to 240 percent
 Restaurants 100 to 300 percent
Clubs 75 percent
Retail grocery 35 percent
All U.S. businesses 12 percent

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 Reducing Turnover Through Training
Increased job satisfaction
  Involvement in corporate culture
  Involvement in decision making
  Information about their jobs and the organization
  Organizational stability
  Predictable work environments

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 Types of Turnover Costs
Separation costs
 Replacement costs

Training costs

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 Recruitment Costs
Advertising
 Management’s time in selection
Application forms
Testing
 Interviewing
Reference checks
Management’s time in hiring decisions

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(continued) 8
 Recruitment Costs
(continued)

Maintaining legal advice

 Management’s time working the floor filling in
Human resource knowledge
Record keeping

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 Times to Increase Training Budgets
During the first six months of operation
 At the introduction of a new product
At the introduction of a new system
During a period of increased growth that results
in increased hiring
 When implementing management development
programs

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 Elements of Proposals
 Clear
Concise
Professional
 Organized
Objective
Complete

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 Types of Costs
 Labor costs  Pre-program costs
Materials costs Follow-up costs
Delivery costs Indirect costs
 Replacement costs  Cost of cost analysis
Overhead costs Opportunity costs

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 Standard Costing Practices
 Use a systematic approach
Consider the entire life of the project
Start accumulating costs early
 Know when to estimate a cost

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 True Training Costs
 Labor
Materials
Delivery
 Other

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 Other Costs
 Replacement
Overhead
Pre-program
 Follow-up
Indirect
Cost of cost analysis
Opportunity cost
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 Indirect Costs
 Maintenance
Support services
Equipment
 Depreciation of equipment
Repair of equipment
Custodial
Utilities
Telephone

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Use of training space
16
 Intangible Costs of Not Training
 Opportunity costs
Development of ineffective training

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 Sources of Benefits
 Guest comments
Time cards
Check-in-time efficiency data
 Rooms cleaned per hour data
Plate waste analysis
On-the-job accident reports
Employee turnover rates
Employee absenteeism rates

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Other productivity records 18
 Cost Savings Areas
 Labor
Materials
Equipment

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 Intangible Benefits to Training
 Increased guest satisfaction
Increased employee motivation
Increased employee achievement
 Employee recognition
Employee interest
Employee responsibility
Reduced tardiness
Reduced alcoholism
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(continued) 20
 Intangible Benefits to Training
(continued)

 Reduced unacceptable behavior

Reduced drug abuse
Increased potential value of the employee
 Increased payback to the profession
Increased level of advancement

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 Benefits of Cost-Benefit Analyses
 Calculate whether a program is financially beneficial
Determine whether a program is worth its cost
Demonstrate return on investment
 Help justify the program to top management
Identify what priorities exist in developing training
Determine whether training will be the solution to the
problem
Determine if benefits are consistent over time
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(continued) 22
 Benefits of Cost-Benefit Analyses
(continued)

 Avoid inefficient training methods

Produce better objectives and goals
Define clear goals and objectives
 Identify overly costly training methods

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 Cost-Benefit Analysis Steps
1. Calculate costs
2. Calculate benefits
3. Calculate results

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 Measuring the Impact of Training
 Profit
Productivity
Performance

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 ROI Tools
 Cost-benefit analysis
Cost-effectiveness ratios
Cost-feasibility analysis

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 Measurements of Effectiveness
 Dollars
Time
Productivity
 Injuries per month
Rooms prepared per hour

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 When NOT to Measure
 Performance standards are not clearly defined
Training problem is not clearly defined
It is uncertain that the performance problem is a
training problem
 It is only a performance problem of the person doing
the job
The problem is not worth trying to fix
Nothing would change in workplace performance
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