Estimating the Costs Associated With Skipping Employer-Based Structured On-The-Job Training

by Dean Prigelmeier, President of Proactive Technologies, Inc.

It should go without saying that if the employer has no deliberate strategy to train workers for the tasks they were hired to perform, the employer will probably never realize the maximum output possible from a worker. Multiple workers operating under-capacity can create exorbitant, and unnecessary, costs to the employer – bleeding from profits and often leading to sweeping and irreparable reactions from management as they try to “fix” all but the obvious.

The effect of worker capacity on any business strategy is the least understood of factors, but one as important as innovation, process improvement and zero defect strategies. After all, fundamental to each of these strategies is the worker’s ability to competently carry the intended actions to maximize those efforts efficiently.

Employers need to seriously consider the human factors, not ignore them and focus on everything but this. After decades of neglect, supported by workforce development institutions that have no tools to address this stage of worker development and often unknowingly promulgate distractions in their efforts to claim they do, management has come to simplify the human factor into a cost that can be easily eliminated or replaced by a lower cost alternative in another location. Lacking in this reaction is the underlying fact that moving operations to lower-wage labor markets with even more need for training (e.g. new challenges such as language, culture) only appears to be adding to profits short-term; the same problems exist, but the lower cost of labor makes it more tolerable even if greater challenges to worker performance now exist. As wages rise, these challenges become more pronounced and management becomes more critical.

Total Cost of Ownership formulas, such as the one used by the Reshoring Iniative, try to capture the hidden and overlooked costs of off-shoring operations, with labor challenges being one factor considered. But even so, the factor’s significance is understated.

Here is a simple formula for estimating the cost/benefit of a worker’s contribution to the organization for consideration:

Assumptions:
1. An average U.S. technical worker with an average annual wage of $40,000/year including benefits;
2. The employer has the work to justify the addition of another worker at full-time employment;
3. The expected return on worker investment (“ROWI”) to be derived from the worker is 3 times the average loaded wage/year. (Note: This rate varies on the critical nature of the job classification, the types of activities the worker will be involved in and the work’s anticipated added value to the process for which the employer derives value). One can apply these calculations as modified for jobs that concern them.

Expected ROWI = $40,000/year x 3 = $120,000/year

Now assume the employee encountered no structured on-the-job training materials, no trainer, or was not allocated time for quality one-on-one training and, therefore, only mastered 50 of 100 critical, required tasks of the job classification = 50% of the tasks.

$120,000/year ROWI x 50% = $60,000; representing a loss of ROWI of $60,000/year

Reaching a 50% level of job mastery does not happen right away in an unstructured worker training setting. It is not uncommon to find that mastery of 50% of the job might take 2 -3 years to accomplish and then stall-out there – especially in companies rapidly expanding and adding workers faster than they can absorb them or companies that are rapidly innovating and changing the job “out from under” the worker. So:

Year one = 25 % job mastery; ROWI = $30,000
Year two = 35% job mastery; ROWI = $42,000
Year three = 50% job mastery; ROWI = $60,000

                                                                                                   Total = $132,000

So, after three years the employer might be under-realizing ROWI for this one worker by $228,000 (i.e. $360,000 three-year realizable ROWI – $132,000 actual ROWI) with these assumptions. Multiply this by 10 new employees, and the amount is $2,280,000 in diminished cumulative return on worker investment. It is understandable why the accounting department starts to see labor as cost rather than an investment with these results, and (as instructed) looks for ways to lower these “costs.”

Now consider the amount of scrap, rework, worker errors, lack of standardization between shifts and service errors that occur as a result of unstructured training (or by workers who learned the tasks incorrectly) that subtracts from any gains in ROWI during the first years as the worker “self-teaches” and “learns by trial and error.” If the workforce isn’t trained to full job mastery, they are less able to assist the employer in the innovation of new products and services that would help the employer capture, retain and enlarge market share by “organic growth” (i.e. not by mergers and acquisitions). If the worker does not respond well to unstructured training and is “washed out” after a few months, the process is reset and the costs accumulate further. These factors all add to the loss of unused capacity and, in drastic cases, may flip a diminished ROWI to an actual a cost that drains from the other operations of the company.

This scenario represented above is far more common than one might think. Take a look at your own operation. Pick out a crucial job classification and apply these formulas to reveal how well your organization is training its workers. Is your organization “actively” training new workers to maximize their value or “passively” hoping that they will train themselves? Do you know which tasks your workers don’t know how to perform or how to perform well?

No matter how well the local educational system develops the core skills of the prospective worker – including STEM skills (Science, Technology, Engineering and Math) – the employer is the only one who can train each worker to perform the tasks unique to the employer. And with the expected upcoming reductions in federal workforce development dollars that will lead to a disruption to even core skill development, any efforts currently underway in the local community to assist in core skill assessment, remediation and general skill development might be threatened.

When Proactive Technologies, Inc. sets up a structured on the job training program for an employer, this accelerated transfer of expertise™ approach is a deliberate, concerted effort to shorten the time needed for each worker to master each task, reach full job mastery and to maintain that level of job mastery through any type of change. Higher ROWI is realized faster and the maintained at a higher level. The worker is treated as seriously as any other business strategy input or investment.

After a complete job/task analysis – as explained in a January, 2017 article appearing in the Proactive Technologies Report entitled “Tips for Establishing Your Company’s Training Strategy – Practical, Measurable, Extremely Economical and Scalable” – the first priority is to take inventory of each worker in the job classification to determine which tasks of the job they have had a chance to master. Each incumbent worker is then driven to full job mastery, just as each new-hire is driven, through structured on-the-job training.

Furthermore, instead of taking 3 years to drive a new hire to 50% job mastery, structured on-the-job training can reduce that to 1 – 1 ½ years; higher ROWI realized faster. Structured on-the-job training, if done right, creates an infrastructure that ensures training matches any written processes (or establishes standardized process where there are none) which supports compliance with ISO9001:2015/TS16949/AS9011D quality programs and facilitates process improvements as a result of LEAN. Safety compliance is also supported. And, once the program is set up, the “cost” of training each additional worker declines.

There is really no good reason for an employer not to setup a structured on-the-job training program. There is even less reason not to take a look at what the approach can offer.

Learn more about the Proactive Technologies’ PROTECH© system of managed human resource development  for the accelerated transfer of expertise™.  Find out why this approach makes economic and practical sense.