- Features | March 26, 2020
Spend to Save
Building a Budget for Professional Development
Creating an annual budget can be daunting for any business. Add to it the uncertainties that come hand-in-hand with the construction industry — like planning the right amount of funds needed to complete anticipated jobs while making sure employees get paid consistently and the business stays profitable — and it becomes an even more delicate balancing act. Still, contractors should try to make room for one more line on their annual budget for the professional development and continuing education of their employees.
Professional development, while maybe not as flashy as new equipment, can be a valuable tool for retaining employees and setting a company up for success. There’s also a chance that it might save a contractor money in the long-run.
DEVELOPMENT AND EMPLOYEE TURNOVER
Professional development can take a variety of forms, but it’s essentially anything that helps employees build their qualifications in and knowledge of their field. It’s also something that many contractors don’t include in their yearly budget. According to a 2019 survey of nearly 400 contractors by the Institute of Construction Management, only about 13% include professional development in their annual budget. Specific reasons for omitting it will vary from contractor to contractor, from believing that there simply aren’t enough funds to go around to it not being viewed as a priority. But what if investing in employees’ professional development could provide monetary benefits through employee retention?
It’s old news that employee turnover in construction is high, with rates around 21% across the entire industry. While some turnover is to be expected and happens in every field, the costs associated with losing valuable employees are significant. A 2017 report by Employee Benefit News estimates that it costs around 33% of an employee’s salary to fully replace them — not to mention the additional loss of familiarity with the business and its processes.
Given the high turnover rate, it would seem to make sense to invest less in employees. If they’re just going to leave, why spend the money on development? The truth is that, yes, scenarios like this can — and do — happen, but investing in professional development actually helps with employee retention. And while turnover can never be 100% avoided, but it can often be prevented.
Gallup research indicates that 52% of voluntary employee turnover is preventable. Unrealistic job expectations and working conditions contribute to turnover, but nearly equally as important to an employee’s decision to leave is a lack of professional development and growth opportunities. This is especially true for millennials, with 87% indicating professional development as a key factor for job satisfaction in a 2017 Forbes article. While it may not prevent all cases of employee turnover, offering professional development opportunities can be a proactive measure to increase employee satisfaction and keep them on board before they decide to take the leap to a new company.
THE COST OF TURNOVER
Let’s say a 50-person electrical company follows the average rates listed above. In that case, 21% — or 10 employees — leave by the end of the year. If those employees have a salary of $50,000 and it costs 33% of their salaries to replace them, the company is looking at a loss of almost $165,000. By retaining half of those employees — if 52% of voluntary turnover is preventable — the company would save around $85,500, exponentially more than it would’ve likely cost for professional development for all of those employees for the year.
INVESTING IN THE FUTURE
Beyond the potential to save money by reducing turnover, there are other benefits to investing in professional development. Having leadership vested in their growth builds trust between employees and managers, increasing overall job satisfaction and output. Happy employees are more productive — around 13%-20% more productive — than unhappy employees.
An extra benefit of developing employees internally is that contractors can cultivate the future leaders they need. Even if management positions aren’t immediately available, getting the proper training and development in place for employees who seem like a natural fit for these roles can help to both increase their job satisfaction and prepare them for an easier transition when those positions do become available. And for owners, they can save time and money when it comes to onboarding leadership.
BUILDING A BUDGET
While there’s no definitive answer for how much to budget for professional development and continuing education, there are a few methods that can help contractors narrow it down. Two common strategies are the percentage-of-salary method and lump sum amount.
In the percentage-of-salary method, an amount equal to a percentage of employees’ salaries is added to the budget. This percentage can vary, but between 1% and 3% is common. Using this method, the contractor from the earlier example would budget between $500 and $1,500 for each employee with a salary of $50,000 — much less than the $16,500 needed to replace any that quit.
In budgeting a lump sum amount, a contractor would allocate a set dollar amount in the budget for professional development. They can determine what amount is appropriate in a few different ways. For example, if there’s a specific conference they think would be beneficial for their employees, the amount set aside can be enough to cover the cost for those employees to attend. It might even be picking a specific topic or skill to highlight for the year — such as leadership, hiring practices or project management — and researching local courses or seminars covering these topics and using the funds to pay for enrollment costs.
No matter the strategy, it’s important to be reasonable when allocating professional development funds. The budget should adequately cover costs while still being a realistic amount to spend in a single year.
SPENDING THE BUDGET
Depending on their state of residence, it’s likely that some electrical contractors already budget for continuing education courses if they’re required for a license renewal, but professional development exists outside of mandatory education. Conferences allow contractors and employees opportunities to expand their knowledgebase in their field and network with other professionals. Joining a professional organization or completing relevant certifications can also be professional development. Some of these costs may even be tax deductible for both the company and the employee.
Don’t forget that office workers can benefit from professional development too. Conferences dedicated to their roles within the company can help reinforce habits and improve internal processes. Many software vendors also offer additional training to cover advanced skills or provide a refresher course on best practices — all of which can help to make their daily tasks easier while improving office efficiency.
Even if there’s not much to dedicate to a professional development budget, there are still cost-efficient solutions that a contractor can successfully implement. Using limited funds to create processes and materials for internal training and mentoring can increase employee satisfaction while improving the skills of the whole team. Likewise, setting up a curriculum for in-house development can help to build internal experts on a wide range of subjects, producing opportunities for cross-training at minimal cost.
For many contractors, budgeting for professional development might seem like an unnecessary expenditure. With profit margins as narrow as they are for most contractors, it makes sense to keep a tight hold on any allocation of funds, but professional development shouldn’t be considered unnecessary or included as an afterthought in a yearly budget. Even if the advantages aren’t completely monetary, contractors can quickly see returns in their investment. By nurturing and developing their employees, contractors make an investment not only in those employees but also in the overall success of their business.
Steve Antill is VP of business development at Foundation Software and Payroll4Construction.com, where he leads the charge for continual revenue growth, including new entry points into market to serve contractors. He invests much of his time building partnerships and relationships across the construction industry with contractors, CPA firms, associations and technology vendors. Over 20 years, he’s led more than 1,000 software selections and implementations for contractors of numerous sizes and trades. (800) 246-0800