Every L&D leader I know is facing the same challenge: more demands, constrained budgets, and pressure to demonstrate value. The question isn’t whether to make trade-offs—it’s which trade-offs to make.

After analysing dozens of L&D budgets this year, patterns emerge about what’s working and what isn’t. Here’s my framework for budget allocation in 2025.

The Budget Reality

Let’s start with honest assessment of the current environment:

Budgets are flat or declining in real terms. Inflation has eroded purchasing power. Many organisations haven’t increased L&D budgets to compensate. AHRI’s annual workforce surveys confirm this trend across Australian organisations.

Demands are increasing. AI upskilling, compliance requirements, skills gaps, employee expectations—the list of legitimate needs keeps growing.

Scrutiny is intensifying. Leadership wants evidence that L&D investments deliver returns. “Trust us, it’s valuable” no longer suffices.

Technology costs are shifting. AI tools create both new costs (platforms, licenses) and potential efficiencies (automated content, reduced instructor time).

This context requires strategic allocation. Spending on everything isn’t possible. Spending wisely is essential.

The Four-Bucket Framework

I recommend dividing L&D budgets across four categories with rough allocation guidance:

Bucket 1: Must-Have Compliance (15-20%)

Some training is legally or regulatorily required. This bucket includes:

• Workplace health and safety
• Harassment prevention
• Industry-specific compliance
• Professional certification maintenance
• Privacy and security requirements

You don’t have discretion here—these must be funded. But you have discretion in how:

• Can AI-generated content reduce development costs?
• Can asynchronous delivery reduce facilitation costs?
• Can assessment automation reduce administrative costs?

Fund compliance requirements, but don’t overspend. Efficiency in this bucket frees resources for higher-impact investments.

Bucket 2: Strategic Capability Building (35-45%)

This is where you build capabilities that differentiate the organisation. In 2025, this bucket should emphasise:

AI fluency programs. Comprehensive capability development that enables employees to work effectively with AI tools. Not optional anymore.

Skills for work transformation. The capabilities people need as work changes—adaptability, digital fluency, complex problem-solving, continuous learning.

Leadership development. Especially for leading through change and technology transformation. Leaders who can’t navigate uncertainty become obstacles.

Critical role development. Focused investment in roles that disproportionately impact organisational success.

This bucket requires ruthless prioritisation. You can’t develop every capability. Choose the ones that matter most for your organisation’s strategy.

Bucket 3: Learning Infrastructure (25-30%)

Infrastructure enables all other learning. Investments here include:

Learning platforms. Systems that make learning accessible, personalised, and integrated with work.

AI learning tools. AI-powered coaching, content generation, practice environments, and assessment.

Content libraries. Access to quality learning content, whether built or bought.

Analytics capabilities. Systems that help you understand what’s working and what isn’t.

Manager enablement tools. Resources that help managers support team development.

Infrastructure is easy to neglect because it’s less visible than programs. But inadequate infrastructure undermines everything else.

Bucket 4: Innovation and Experimentation (10-15%)

Reserve budget for trying new approaches:

• Piloting emerging technologies
• Testing new delivery methods
• Exploring new partnerships
• Building capabilities for future needs

This bucket funds learning about learning. Without it, you stagnate. With it, you discover what works better.

Don’t cut innovation to zero under budget pressure. Organisations that stop experimenting stop improving.

What to Cut

Budget allocation isn’t just about where to spend—it’s about where to stop spending. Common cuts that make sense:

Generic leadership programs. The standard two-day leadership workshop with generic content. If it’s not customised to your context and connected to real challenges, it’s probably not worth the investment.

Content production for commodity skills. Why build custom content when quality alternatives exist? Licence content where possible; build only where necessary.

Programs without clear outcomes. If you can’t articulate what a program achieves and how you’ll measure it, question whether it should exist.

Low-engagement programs. Programs that people don’t complete, don’t apply, and don’t value. Either fix them or eliminate them.

Administrative overhead. Processes that consume resources without adding value. AI can automate much of what learning administrators used to do manually.

Cutting is painful. But resources spent on low-value activities are resources unavailable for high-value ones.

The AI Reallocation

AI creates specific reallocation opportunities:

From: Expensive custom content development To: AI-assisted content creation plus human curation and quality control

From: Instructor time on knowledge transfer To: Facilitator time on application, discussion, and coaching

From: Manual assessment and feedback To: AI-powered assessment with human oversight for complex judgment

From: Administrative coordination To: Automated scheduling, tracking, and reporting

From: One-size-fits-all programs To: Personalised learning paths enabled by AI

These reallocations don’t necessarily reduce total L&D investment. They shift where that investment goes—from activities AI can do toward activities requiring human capability.

Making the Business Case

Budget allocation requires leadership support. Build the case:

Connect to strategy. Show how L&D investments support organisational priorities. If leadership cares about AI transformation, show how your budget addresses that.

Quantify where possible. “This program will train 500 employees in AI fluency” is better than “this program develops capability.”

Show trade-offs explicitly. “With this budget, we can fund A and B but not C. Here’s what that means.” Leaders appreciate clarity about choices.

Benchmark appropriately. Industry benchmarks for L&D spending can contextualise your requests—though don’t rely on them exclusively.

Demonstrate past returns. Evidence that previous investments delivered value builds credibility for future requests.

Budget Governance

How you manage budget matters as much as how you allocate it:

Build in flexibility. Don’t lock every dollar to specific programs in January. Retain discretionary funds for emerging needs.

Review regularly. Quarterly budget reviews allow adjustment based on what’s working and changing conditions.

Track actual spend against plan. Variances reveal either budget issues or execution problems. Both need attention.

Measure ROI where feasible. Not everything can be measured precisely, but measure what you can. Data builds credibility.

Be transparent with stakeholders. Business partners should understand what L&D resources are available and how allocation decisions get made.

The Conversation with Finance

L&D budget conversations with finance often go poorly. Improve them:

Speak their language. Talk about investment, returns, and risk—not just learning outcomes.

Bring data. Finance respects evidence. Come prepared with metrics, not just assertions.

Acknowledge constraints. Show you understand the broader budget context. You’re more likely to get resources when you demonstrate fiscal responsibility.

Propose scenarios. “At this budget level, we can achieve X. At higher level, Y. At lower level, Z.” Let finance understand the trade-offs.

Build relationship over time. The best budget conversations happen with finance partners who understand L&D value from ongoing relationship, not annual negotiation.

The Bottom Line

L&D budget allocation in 2025 requires strategic discipline:

1. Fund compliance requirements efficiently
2. Concentrate strategic investment on capabilities that matter most
3. Invest in infrastructure that enables everything else
4. Reserve funds for innovation and experimentation
5. Cut activities that don’t deliver value
6. Leverage AI to reallocate from low-value to high-value activities

Perfect allocation isn’t possible. Strategic allocation is.

Make choices that position your organisation to develop the capabilities it needs most. That’s what L&D budget management is really about.