Sound investment – not heavy costs

Low completion rates have helped brand Modern Apprenticeships as a failure
and prompted a Government rethink. But one engineering company has calculated the
impact of apprentice training on its bottom line – and the results are
impressive. By Elaine Essery

Does a £9,000 return on an investment of £34,000 over four years seem like a
good deal? K Home Engineering thinks so, which is why it is committed to apprentice

Each apprentice makes a £9,000 bottom line contribution at the end of his or
her four-year apprenticeship, according to a cost/benefit analysis carried out
by engineering director Peter Kay.

K Home Engineering is a multi-discipline management and engineering design
company offering a range of services worldwide. It employs engineers in the
mechanical, electrical, instrumentation, civil/structural and process
disciplines. It is ISO9001 accredited and won the Queen’s Award for Export Achievement
in 1998.

Apprentices are taken on as trainee design engineers and follow a common
first year at Emta’s Cleveland Training Centre with day release to college for
a Btec course. The cost of the first year, approximately £6,500, is met by
Teesside Tec, leaving the company to foot only wage and National Insurance
costs. K Home also qualifies for a levy rebate of £3,600 from the ECITB for
each technician trainee completing their first year training.

During their second, third and fourth years apprentices specialise according
to their discipline, embarking on NVQ Level 3 in the company and continuing day
release up to HNC. An NVQ registration fee of £250 is payable by the employer
in the second year, along with college fees of £500 per annum in years three and
four, in addition to employment costs.

As they learn on the job, apprentices make a contribution to the business.

"I analysed time sheets and used ten years’ experience of training
apprentices to estimate what our apprentices contribute to the business on
average," Kay says. "In the second year 20 per cent of an
apprentice’s time is recoverable as a CAD operator/technician. That goes up to
40 per cent in the third year. In the fourth year 25 per cent of time is
recoverable as a CAD technician and 25 per cent as a CAD draughtsman as they
become capable of taking on higher level work."

The analysis shows a break-even point after around two-and-a-half years
between what an apprentice costs and the income he or she generates.
Thereafter, income generation outstrips costs so by the end of the training an
apprentice will have earned an estimated £43,000, while the training will have
cost around £34,000, yielding a bottom line benefit of £9,000.

100 per cent retention

But short-term cost recovery is not the only reason K Home maintains its
apprentice training programme. It does so to overcome a shortage of design
engineers in the area and to fill a void caused when major Teesside
manufacturers ceased to train technicians ten years ago, says Kay.

"It would be disastrous for us not to take on apprentices," he
says. "We are losing 30,000 engineers a year in the UK through natural
wastage and people going abroad and we are only putting 15,000 back, so that
leaves us with a deficit and employers are unable to recruit."

Kay takes on board the argument that companies spend time and money training
young people only to see them leave, but he says, "If everyone adopted
that attitude we would get nowhere. We all need to contribute to the

The company has not experienced the problem of apprentices failing to
complete their training, and has a completion and retention rate of 100 per

It puts its success down to careful selection and thorough training which
enables apprentices to contribute to the business progressively and see the
career opportunities it has for them.

Kay undertook the cost/benefit exercise mainly to demonstrate the financial
advantages of apprentice training to other engineering employers and to
encourage them to step up their own training efforts.

The company is founder of the Tees Valley Engineering Partnership (TVEP)
which aims to improve the quality and quantity of engineering training in the
area. Helping smaller companies is one of the aims of TVEP. "We are all in
this together and it is in all our interests to support training," he

Changes ahead

In February Education and Employment Secretary David Blunkett announced
major changes to boost apprenticeships, including an extra £30m to train
250,000 young people next year.

National Traineeships are to become Foundation Modern Apprenticeships
(FMAs), leading to Advanced Modern Apprenticeships (AMAs) in a bid to create a
coherent structure, clarify terminology and improve progression routes.

Among changes being considered by Blunkett are:

  • Independent monitoring and
  • Financial incentives for
  • Awards for trainees
  • Licensing of employers who
    want to engage AMAs.

DfEE officials are preparing a consultation document on the proposals. Are
the announcements welcome news for K Home? Kay has mixed feelings. For one
thing he would like to know more details about the plans. "I am not sure
what Mr Blunkett’s ideas are for creating two different types of Modern
Apprenticeship – it sounds very complicated. Direct financing of training is
always welcome and better than indirect finance such as ECITB levy
rebates," he says.

But he fears other proposals may not help. "Setting up independent
monitoring would mean more money not going into training. And I’m not happy
with the idea of licensing employers, as doing this would undoubtedly put
additional administration costs on employers. What about voluntary regulation
or self-regulation through, say, something like the TVEP?" he suggests.

He is also doubtful about the impact of the Government’s proposed increased
investment. "£30m to train 250,000; if my maths is correct that equates to
£120 per trainee – not a lot."

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