How to Budget for Leadership Development

Most business leaders know talent and leadership development are important, but when budget time comes around, too often these areas get little or no funding. There may be confusion about where the money should come from or whose budget it should reside in — human resources or  individual departments — or it may just not rise to priority status among the many other things the company is planning to do in the coming year. Whatever the reason, it’s a mistake not to include leadership development in the budget every year.Strong leadership is essential to every organization’s continuing success and without an ongoing investment in leadership development, organizations risk diminished performance and an inability to meet challenges that arise. They also risk not having a successor in place when a key leader retires or leaves to take a new job. To make sure your organization provides leadership development each year, it’s important to include it in the annual budgeting process. Here’s how.

Understand Why Leadership Development Is Essential

Understanding the importance of leadership development can help you make the case for including it in the budget and securing enough funding to make it happen. For example, high-potential employees who are developed into leaders can help build the organization, achieve business goals and engage other employees. This translates to bottom-line profits and increased shareholder value.Professional development opportunities are also a factor in employee engagement and retention. When employees see the company is investing in their future, they’re more likely to be engaged and to stay instead of looking for a better opportunity elsewhere. When great employees do leave, turnover leads to overworked staff, lowered productivity, lost knowledge — and, in the end, increased training costs.Leadership development is an important part of any succession planning your company does, as well. Succession planning identifies high-priority employees who may someday step into leadership positions and then go on into C-level positions at your company. Having a strong development program ensures you’ll have the leadership to meet your business goals not just a year from now, but several years from now.

Create a Leadership Development Strategy

Leadership development should mesh with your overall departmental and company-wide business strategy. How much you spend, what you spend it on and who receives training all need to be taken into consideration when building a leadership development strategy.  Ask yourself these questions:

• What do we need our leaders to be able to do so we can have a high-performing team, create bench strength and prepare for the future?

• What specific leadership skills will the organization need to get the greatest return on investment?

• How will these skills help maintain the organization’s competitive advantage?

• What’s the best way to help our organization’s people learn new leadership skills?

• Do we have the training resources we need in-house or do we need to work with outside consultants?

Look at Other Costs

Although individual employees might not receive the same amount of training, most human resources departments compute the cost of training an employee by dividing the total cost of the company training by the total staff headcount, as found on the Society for Human Resource Management calculator.According to the 2014 Training Industry Report, businesses with less than 1,000 employees spend on average $1,238 per person. In contrast, mid-size companies employing between 1,000 and 9,999 people generally budget $819 per person, while larger corporations with more than 10,000 people set aside around $903 per person.  But when we’re talking specifically about leadership development, those rules change. Leadership development typically includes providing next-level classes, coaching or key experiences that add value to the development process. These leadership costs can run the gamut from being no-cost inclusions in a key company event to sending someone to Harvard Business School.So when it comes down to it, the actual amount you spend on leadership development is “it depends.” It depends on your company’s overall strategy, how an individual employee’s potential can affect that strategy, and how much work it takes to get the employee ready to step into a new role. Understanding your organization’s business strategy will help ensure you get the right leadership development for the right people.Unsure about how to set a leadership development budget? Contact us for help.Success Labs is a leadership development and management consulting firm in Baton Rouge, Louisiana. For more than 25 years, our expert team of consultants has worked with hundreds of companies to explore their business potential and improve their company and cultural performance. Contact us to get proactive about your people strategy.