The 4-Letter Word Learning Practitioners Hate Most...Cost!

09/10/2018

What comes to mind when you hear ‘costs of eLearning’? Not surprisingly, many people get a negative feeling. They equate it with reducing or eliminating something. So, it’s not surprising that learning practitioners cringe when leaders refer to them as a ‘cost’ center.

When leaders refer to you as a cost, they’re not trying to disparage your efforts. They’re categorizing you based upon how your budget is allocated. Let’s define each type of financial center and explain how the learning function applies to each one.

Defining 'Cost Center'

A cost center is a business unit that incurs expenses or costs but does not generate any revenue or money from selling goods and services for the company. Learning is a classic example along with accounting, human resource, production and IT departments.

Leaders evaluate the learning function’s performance based on how well costs are managed. Practitioners immediately think that they have to reduce costs. But managing costs also implies how well you’re using the money to positively affect performance. This is referred to as a cost-benefit relationship.

Your primary role is often to onboard new employees and support the knowledge needs for existing staff. These items are costs and don’t generate any revenue when you support other departments. That said, without learning support, the organization wouldn’t be able to function effectively.

Defining 'Profit Center'

A profit center incurs costs but also earns revenue by selling its goods and services to customers. Managers of profit centers are evaluated on their ability to control costs, as well as their ability to generate revenue and profits in their departments.

Rarely is the learning function considered a profit center. But there are instances when some successful internal learning initiatives are sought after by external sources. General Electric is known for their management development programs. It’s so well respected that competitors request GE to train their future managers. This successful internal employee development program has become a profit center for GE.

Typically, companies that sell learning are the only ones considered profit centers.

Defining 'Investment Center'

The investment center also incurs costs and earns revenue. But it also controls the investments that it makes to earn profits for its department or division.

For example, GE’s management development program is probably structured in two parts; one part as an internal function—their cost center—and the other as a profit or even an investment center to sell the program.

Depending on how successful GE’s external learning division becomes, if it’s an investment center it’ll operate independently from the main company. This new learning division would control their costs, revenues, and investments allowing it to be an independent and autonomous business.

Now that you have an appreciation for how your leaders categorize internal business activities, you don’t have to cringe when they call you a cost center. Embrace the cost center label but also appreciate how your cost affects other internal activities. Show how your learning costs justify the benefits of your effort.

Last But Not Least

If you enjoyed this article and want to learn more about how you can do the same for your company, please contact us. We'd enjoy hearing from you.

Also, please visit our recent LinkedIn Learning (Lynda.com) eLearning courses "Gaining Internal Buy-in For eLearning", "Increasing Engagement with Elearning Programs" and "Train-the-Trainer" course designed for both recent and seasoned trainers. Watch for our upcoming 2018 LinkedIn Learning (Lynda.com) course, "Fundamentals of Corporate Learning".

When it comes to what leaders expect, don’t always believe what you hear. Recognize how leaders perceive the role of training within the organization and what they expect. They know training is essential, but it’s up to you to prove them right.

By Ajay Pangarkar, CTDP, CPA, CMA

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