The Coming Labor Shortage

Manufacturers are about to run into a big problem: the loss of skilled labor. For the last three years, the demand for skilled trade workers has sky-rocketed.¹ As time goes on, the demand for welders, electricians, machinists—you name it—will only increase.

Right now in the US, 53% of skilled trade workers are 45 years and older and 18.6% of are between 55 and 64 years of age², i.e., quickly approaching retiring age! (Contrast that with the general labor force, where only 44% are over 45, and 15.5% are 55−64.2)

As the numbers go down, the demand goes up, and it’s a simple economic fact of life that it’s going to be a lot more expensive to hire, and more difficult to retain, the skilled labor manufacturers need.

So What Do We Do?

How do you combat the loss of skilled workers? The answer is fairly simple: rather than getting into bidding wars over scarce skilled trades, give your current staff the specialized skills you need them to have. Training is a long-term investment in your team, enabling your employees to be as productive and efficient as possible. It has the added benefit of helping you recruit and retain your staff, because employees who are developing long-term career goals experience greater job satisfaction.

Give your current staff the specialized skills you need them to have…

Moreover, through training, specific skills can be acquired by multiple employees, otherwise known as cross-training. This way, if one person leaves the company, another employee will have the necessary knowledge to fill the gap. Think of cross-training as diversifying your investments, a safety net for your company’s overall efficiency. An employee competent in multiple roles is a more productive, satisfied, and valuable member of your company—one who will be more likely to stay on.

How To Measure The Success Of Training

Manufacturers who decide to invest time and money into training employees need to know if it’s working. Managers making the decision to train need to be able to see how the costs compare to the benefits, and they need a concrete way of measuring the success of training programs in order to know that they are valid business tools that justify their cost. Moreover, only by measuring the success of training programs can you improve them, so that they are as efficient and productive as possible.

There are two aspects of training that need to be measured. To begin with, it’s critical to measure the monetary success of training. When calculating forecasted costs, companies should take into account both direct costs (such as consultancy fees, hotels, meals, flights or gas, etc.) and indirect costs.

Indirect costs are costs that the company would have incurred anyway, even if the training hadn’t taken place, such as the salaries of in-house personnel that teach the program, and cost of physical in-house space set aside for the training. They are still costs related to the training.

Maybe more important are the effects of training on staff, since employees are themselves part of the long-term investment. How did they respond to training? Positively or negatively? How many long-term skills did they acquire? And most importantly, are they performing more efficiently? After training, are there fewer complaints, more sales, and more output? If so, then the training was successful!

ROI & Forecasting Costs And Benefits of Training

ROi on staff training A more concrete way to measure the success of training is through your ROI or “return on investment” of training. Return on investment is defined as a measure of the monetary benefits obtained by an organization over a specified period of time for a given investment in a training program. Essentially, it’s the extent to which the benefits of training exceed the costs.

So how do you forecast your costs and benefits?

Forecasting And Measuring Costs

First, let’s consider the costs that will be associated with the training. These include:

Developmental and Promotional Costs: Developmental costs include how much it costs to design and develop your training program if you do it in-house, e.g., the costs of in-house program design, any necessary travel days, etc., or the costs of hiring outside trainers. Promotional costs include the cost of promoting the program to your employees, such as posters, brochures, etc.

Costs of Administering & Completing the Training: These costs include the time taken by the training department to administer and complete the program. These costs are typically measured by the hours of administration spent on each employee. They also include the cost of materials and resources needed to administer the program, materials such as books, manuals, etc. and resources such as training rooms, equipment used, etc.

Opportunity Cost of Training: This is perhaps the most significant cost to consider. While an employee is going through training, he or she is not adding to the company’s overall production, but is still being paid. These opportunity costs can be the most expensive aspect of training.

Measuring The Forecasted Benefits

Next, forecast the benefits of training:

Labor Savings: Labor savings come into play when less effort is needed to achieve the current levels of output. Properly trained workers are more efficient. Savings are realized by reducing the labor applied to each job, not by utilizing more time to achieve further output.

Productivity increases: The flip side of labor savings is productivity increases. Trained employees can achieve additional output with the same level of effort. Examples include higher levels of skill leading to faster work or higher levels of motivation leading to increased effort.

Other income generation: In some jobs, it may be possible for new income to be generated as a direct result of training. This can be a productivity increase, but income generation can also be seen through other means, such as sales referrals made by non-sales staff or a new product idea leading to successful product launches.

Calculating Return On Investment

Once you know both your costs and your benefits, you can calculate your ROI—a compelling way to justify training to management. The formula is simple:

% ROI = (Total Benefits / Total Costs) x 100

Another way to calculate ROI is to calculate your payback period. A payback period is simply the length of time it will take before the benefits of training match the costs of training itself.

Payback period = Total Costs / Monthly Benefits

The payback period is a powerful measure. The lower the figure (e.g., the shorter the period), the more management will be encouraged to invest in training.

Making ROI Work For You

Managers often claim that their people are their greatest asset. Yet developing ‘human capital’ through training is still widely perceived as an expense and not an investment. It’s time to turn this notion around. Make ROI work for you: begin to analyze your training programs as if they were capital investments—using techniques like ROI—and change attitudes of those who claim that training is only an expense.

At Simutech, we’ve seen the benefits of skills training time and time again.

Simutech’s Troubleshooting Skills Training System™ is designed to help manufacturers weather the skilled electrical trade shortage by training staff in electrical troubleshooting skills in a safe, simulated environment, in a cost-effective way. Having trained staff on hand who can safely troubleshoot electrical problems radically cuts costly plant downtime. Factor that into your ROI and you’ll see that training is indeed an investment that pays off.

 

Sources:

¹ Manpower Group. (2015). Talent Shortage Survey.
² Joshua Wright. (March 7, 2013). “America’s Skilled Trades Dilemma: Shortages Loom As Most-In-Demand Group Of Workers Ages.” Forbes.

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