Decentralized Headcount Planning

Centralized or decentralized headcount planning?

Should your organization employ a centralized or decentralized headcount planning methodology? It all depends on the “3 C’s”.

For organizations who have embraced a “decentralized” approach to budgeting, it might seem like that philosophy would naturally extend to every aspect of your budgeting process.  Especially for headcount planning – an area that (including salaries and benefits) can easily account for 50-80% of your budget!

Yet, even in organizations that embrace a decentralized approach to budgeting – there’s a good chance that personnel budgeting and headcount planning are centralized activities managed by the finance team and senior management.

What’s so different about headcount planning that makes it such a common exception to the decentralized rule?  We’ve asked our senior finance leaders across multiple industries – and it seems to boil down to three key concerns:

1. Culture

Organizational culture and how it influences a decision to centralize or decentralize budgeting overall – and headcount planning more specifically – involves a complex mix of issues and considerations.  How many employees do you have and what is your turnover rate?  Flexibility or control – which is more valued and/or critical to achieving your objectives? How important is transparency and communication to your culture – to employee morale or performance?  And perhaps most importantly – does the detailed expertise and hands-on knowledge of your department heads influence the accuracy of your final budget numbers?

However you answered these questions, at XLerant we believe that culture should be the primary driver of your organization’s decision to go with a centralized or decentralized headcount planning process.

2. Confidentiality

No one wants to run the risk of salary and benefit information falling into the wrong hands. This is a particularly challenging issue for organizations using Excel templates for budgeting.  Distributing multiple iterations of spreadsheets out across the organization to all of the managers involved in the budgeting process can be a confidentiality nightmare.  Lacking the ability to effectively limit who sees what data with a user login tied to management level or role-type makes many senior managers (justifiably) wary of implementing decentralized headcount planning.

3. Challenges of Execution

This category is an interwoven mix of issues related to the financial savvy of your current staff and the capabilities of the software you are using for budgeting and planning.  Questions such as:  What is the financial expertise of your staff?  Do they have the requisite experience and skills to quickly navigate Excel budgeting templates or your budgeting software?  Can you quickly remove costs associated with an unexpected termination – or flexibly shift hire dates and reflect the impact across the budget?  Can you easily set compensation cost drivers for benefits and salary increases?

If you are using Excel for budgeting – the short answer is “No!” – it’s likely impossible to overcome the many barriers to confidentiality and execution necessary to execute decentralized headcount planning.  However, a purpose-built budgeting and planning software solution can provide you with the right infrastructure to successfully navigate these issues.  With the proper controls in place, you can then decide if a centralized or decentralized approach to headcount planning is right for your organization’s culture.

Software should be your silent partner – providing the right balance of flexibility and control that enables you to successfully and seamlessly implement your organization’s preferred or chosen budgeting philosophy.

For more information on what to look for, and key evaluation criteria in selecting a budgeting software that can support effective headcount planning (whichever approach you take) check out our whitepaper: Budgeting Decision Point: When is the right time to move to a purpose-built budgeting solution – and why?

Read More