Today’s economic customer makes it difficult for training departments to raise extra funds, much less normal operating funds. Departments often have to “get by” on the budget they have been given. But once you have a budget, no matter how big or small, you need to have an idea of what costs are fixed and what costs are variable.
Fixed training costs are simply what you can count on at any time. You will budget for these costs and can be confident that they will most likely remain the same. For example, the salaries of training staff are relatively fixed. When you work on your budget, for any length of time, you know if you will be able to add staff, which we will discuss in a moment. You will also know how much to budget for increases based on last year’s average. But on the whole, you can count on salary as a fixed element.
The equipment that you regularly use for training also has a fixed cost. In fact, much of the equipment used by training departments is bought and paid for at the same time. These items are everyday items such as copiers, computers, laptops, overhead projectors, LCD’s, screens, automatic whiteboards, and any other equipment that is routinely used in the classroom or in the administrative office. But do not forget that you will have to fix the cost of maintaining these items. Overhead bulbs and LCD screens are quite expensive and should be replaced with a manufacturer approved item. One way to fix these costs is to know how long these items last and to plan your replacements accordingly. One of the biggest shocks to the training budget is when all the LCD screens burn out at the same time, generating an expense that can add up to thousands of dollars.
Overhead is also a fixed expense. As a training manager, you know how much it costs to maintain your location or locations. These costs include paying rent or mortgage, expenses that accompany the locations, such as office supplies and paper, and also any income that comes from other departments or companies that rent space in a property building. You can also include utility costs as fixed overhead, but be careful when the weather turns extremely hot or extremely cold; One way to do this is to make sure your engineers install timed thermostats. Many organizations waste heating and cooling overhead on spaces that are empty overnight or over a weekend, so the training department can continue to prove itself by turning off utilities when not in use.
Finally, fixed or planned programs are also fixed costs. For example, if you know how many people will be in leadership development during the budget period, you can plan materials and outsourcing costs right away. The best thing to do with planned schedules is to stick with them unless changes are absolutely necessary.
On the other side of the budget, variable costs are the ones you’ll need to plan most carefully for. Do you pay usage fees for bandwidth or online courses based on the number of users? If so, this is a variable cost. You can view the average usage for the previous year, or you can simply purchase an advanced number of users for online courses to manage this cost. But don’t end up in the position of rejecting people.
The costs of your materials can also be variable. Think of programs that are not “fixed”, such as new employee training. You know what the organization’s turnover is, but can you anticipate big jumps in turnover? You also know the organization’s vision and business plan, so use it to plan the cost of your materials. One of the best ways to deal with this cost is to buy materials as needed and plan as you go. There is nothing worse than ending up with boxes of an outdated manual.
Finally, large variable costs can include mergers, acquisitions, expansions, and downsizing. You need to have an idea of where your organization is heading in terms of mergers or acquisitions, and plan your budget accordingly. But there could be unexpected changes, such as downsizing or expansions, that result in you having to shell out money to reconfigure the space or add staff.
Managing variable items depends largely on the type of budgeting system your organization uses. If the budgets are fixed, there is not much room for maneuver. But if your budgets are “mobile” budgets or “pro-forma” style budgets, you can manage money a little more easily as variable costs swing back and forth. For fixed budgets, the best way to handle variable expenses is to find ways to pay for them with fixed costs. When variables are presented to you, find out how the organization’s budget is managed and ask financial managers for help.
Now that you know which training costs are fixed and which are variable, you will be better prepared to manage money as problems arise.