Why L&D is NOT a discretionary spend – Answers to the Accountant

by 26 Sep 2012

In the second of a two-part series, Adrian Smith outlines a range of issues that support the return on investment of L&D initiatives and prove it's not discretionary spend.

We’ve all seen the situation where in difficult business and trading times the L&D budget is one of the first to be scrutinised and reviewed, where the learning professional is hard pushed to justify the L&D spend to the hard nuts in the business and where ultimately this budget is one of the first to feel the chop in part or even in full.

In a previous article we discussed a way of calculating ROI for L&D spends that met the accountants of the worlds requirements, but sometimes this singular approach, as valid as it is, is not enough to keep the L&D spend in place! Let’s talk then about a whole range of other issues that support the ROI concept and demonstrate that L&D spending is NOT discretionary spending.

In the ROI example we used we looked at a reasonably significant program that demonstrated a very positive ROI of 53.38% that easily met the investment criteria of the organisation as it would for most other organisations, particularly as the return takes place in months rather than years. We also noted that the ROI would be even higher if subsequent years’ productivity improvements were also accounted for in the calculation. We identified that the quantifiable L&D benefits accrue in two distinct areas – employment costs, particularly through improved retention, and the bottom line impact of productivity improvements through increased skills, and increased engagement with the role and organisation.



Total Program Costs/Investment


Program Benefits


  • Employment Costs - Savings from increased retention


  • Behaviour change/Improved performance in the role


Total Program Benefits


Return on Investment



This would seem to make an overwhelming case for the program to run regardless of the circumstances of the organisation….

But when ROI is not enough.  When they say “Yes, but …..”

Times are tough and it’s only training!

As far back as 1990 one of our definitive business thinkers, John F Cotter made the point that:

“Management is about coping with complexity… and good management brings a degree of order and consistency to key dimensions like the quality and profitability of products. Leadership, by contrast, is about coping with change. Part of the reason it has become so important in recent years is that the business world has become more competitive and more volatile.”*


This was written years before the Internet, before the explosion in social media, the increasing globalisation of our business world and the frantic rates of change in business and in life these days. There is no doubt that over the 20 years since Cotter’s observation was made the complexity, rate of change and volatility of the world we live in and do business in has accelerated exponentially, and therefore the capacity of the leadership cohort to conceptualise, deal with and lead change, and the capacity of management to deal with the complexities of business, particularly in down times, have never been more critical to the success of the organisation.

If this premise is accepted as valid, and how could it not be, then the L&D professional has only to make the connection between the organisation’s targeted leadership and management programs and the increased capacity of leaders to lead and managers to manage during difficult times. It is hard therefore for the accountants to say these programs must go or be delayed at the very time they are most needed!

Further, this training regime should also be able to measurably demonstrate an increased capacity to engage others and lead them through difficult times!

There will be no impact if we just stop it for a year!

Whilst there are as many definitions of employee engagement as there are consulting firms. There remains no doubt though that a critical element for employees giving their best, particularly their discretionary contribution is the environment they work in, their alignment to the values of the organisation, strength of leadership and particularly for Gen Y employees stimulating work and development opportunities. Slowing down training or even stopping it for a year sends messages contradictory to these drivers and must have a negative impact on engagement of HR staff, L&D experts, and of course the learning cohort.

So what? If the naysayers still need convincing then consider just one of the many, many published statistics on the impact of engagement in the workplace. We particularly like this one which is probably only going to strengthen as more Gen Y’s enter the workforce. Coffman and Gonzalez-Molina observed that:

Business units in the top half of employee engagement, compared with business units in the bottom half, have seen the following rewards:

- 86% higher success rate on customer metrics
- 78% higher success in safety
- 70% higher success in lowering turnover
- 70% higher rate in productivity**


There will be no impact if we slow it down this year!

Delays or reductions in training don’t get the productivity gains in the ROI calculation, and when times are tough every productivity gain is critical, particularly low hanging fruit such as training generates. If the ROI calculation is too theoretical or esoteric for the accountants, then perhaps refer them to a study of HR Measurement and Value undertaken by Becker, Huselid and Ulrich which is strong affirmation of the impact of training on business performance. Whilst the study looked at a range of factors driving HR value, of particular interest to us was that of firms measured for the bottom 10% training of new employees (less than 1 year) was on average 35 hours, and for experienced employees a measly 13 hours, whereas the top 10% of firms recorded 117 and 72 hours respectively.^ The connection seems obvious doesn’t it!

We need to spend our limited resources elsewhere!

If the accountants are not convinced by an ROI of over 53% and run the argument of needing to spend limited resources elsewhere they are not getting the reality that labour is one of those limited resources, and surely creating greater labour productivity in the short term is the most efficient possible use of those limited resources. 

Remember that the ROI measurement above was for the first year only and did not take into account the benefits of future years productivity gains and ongoing savings in employment costs!  How efficient then is training as an investment even when resources are limited!

Other costs are fixed; this is a discretionary cost so we can act quickly!

Yes, the accountants can act quickly, but speed does not necessarily mean a good decision!  Critically, in this situation we need to differentiate between training costs and investments in organisational development! 

This might sound like semantics; however, if we look at their respective definitions they are totally different concepts. Whilst costs are all about the price paid to acquire good and services directly or indirectly linked to generating revenue and hopefully profit this accounting period, investments involve the investing of money or capital in order to gain short and long term profitable appreciation in organisational value and returns

Investments have ongoing and increasing value, whereas costs simply go to the bottom line. The ROI concept reinforces this aspect of ongoing value creation, which by definition takes the discussion away from “costs”, a discussion that from a training perspective is hard, if not impossible, to win. 

Ultimately competitive advantage is derived from human capital and the appreciation of that capital is an investment in the business rather than an operating cost. 

But what if it still doesn’t work?

In the end, if after fighting the good fight you still come to “We have to make cuts across the board, so where do you want us to cut your expenditure?” what can you do?

We would suggest you work with the hard nuts and use ROI calculations developed in conjunction with them to prioritise programs and identify the highest impact ones that need to continue and which can be covered by the new expenditure (we refuse to say “costs”) limits. Any that fall below those can be picked up in future periods and any which do not meet an acceptable ROI level should go anyway!.

A word of warning!

It is our experience that the biggest hurdle is to convince the accountants of the world and line managers with bottom line responsibility that training and organisational development is an investment in the organisation and the future, rather than a current period sunk cost! Overcoming this barrier goes a long way towards proving that L&D is NOT a discretionary spend!


About the author 

Adrian Smith is a principal of Talent Mondial Australia (and an accountant) and can be contacted at adriansmith@talentmondial.com.au


*What Leaders Really Do by John P. Kotter as reprinted in HBR’s 10 Must Reads on Leadership, July 2012.

**Follow This Path by C. Coffman and G. Gonzalez-Molina, 2002.

^Becker, Huselid and Ulrich, 2000 – Survey of over 2,800 companies in the United States.