The Headaches of Headcount Planning:
For most organizations – headcount planning (including salary and benefits) accounts for a whopping 50-80% of your budget.
So…it’s critical to your bottom line (and your staff morale) to get it right. But there are a lot of moving parts – not the least of which is confidence that you have secure control over who in each step of the budget process can see confidential salary information. For this reason alone, many finance teams retain control over headcount budgeting – which presents its own set of challenges.
With headcount representing such a significant portion of an organization’s fiscal commitment – the details matter, and who better to be able to shed insight into the details than the department heads themselves? Not to mention the resource burden and commitment required from the finance team to manage this time-intensive process.
Ideally, headcount planning is integrated as part of a decentralized budgeting process – with department heads and budget managers doing the heavy lifting and providing the necessary insight to ensure accurate final numbers. So how can finance teams make that happen while feeling confident that the right controls are in place?
It’s no secret that at XLerant we believe a purpose-built budgeting software is the solution to many headcount planning headaches. But why exactly? And what do you need to consider in the headcount planning process – whatever budget and forecast software you are currently using (be it Excel, BudgetPak, or yes – even one of those “other” software solutions?)
Here’s a quick rundown of key strategies for successful headcount planning – and eliminating headaches along the way…
8 Headcount Planning & Budgeting Tips:
- Ensure confidentiality. Maintaining privacy of HR data is top priority in a decentralized budgeting model. Proper security measures should be put in place allowing access to view or change employee data based on role or title and department.
- Audit data for accuracy. Just one or two inaccuracies in the data can result in thousands of dollars of hidden errors in your budget. Headcount planning should include a detailed review by each department head of current employee data. Confirm that everyone (both annual and hourly staff) has the correct department, salary, and identifying data such as ID, position #, salary grade, employee class, etc.
- Assess fluctuations and impact throughout the year. Hiring, firing or planned leaves have an obvious impact on the bottom line. But the key to accuracy in your final numbers lies in being able to anticipate the impact (both cost and timing) on the budget – and to make adjustments if necessary. While it’s not realistic to know every staff change in advance, department heads have the best “intel”. Leveraging their insight can get you significantly closer to budgeted vs. actual spend at the end of the year.
- Be transparent. Budget managers should be aware of their portion of the cost for any employees allocated across departments. It’s true that they may not “like” the situation or have any control over these costs. However, research shows transparency into the total budget by department increases ownership, engagement and accuracy.
- Simplify benefit calculations and salary increases. A built-in calculation of benefits (based on the rules for that department, by individual employee, or some combination thereof) provides convenience for your budgeting manager. At the same time it ensures proper controls are in place for the finance team. Similarly, providing a default salary increase (across the board or by employee class) frees up department managers to focus on identifying which employees should be an exception to the rule – based on merit, a well-deserved promotion, etc.
- Dig for details. Provide prompts for critical (but often overlooked) compensation information that is often only available to the employee’s direct manager. This includes costs like sales or performance bonuses, overload payments, stipends or overtime.
- Document the decisions and rationale. Ensure there is a mechanism to capture the justification behind each key decision. This information provides insight for the finance and management teams if adjustments to the budget are needed. In addition, it increases the ability to track budget to actuals throughout the year, and captures historical knowledge to inform next year’s budget or in the case of turnover.
- And last but not least, provide a detailed checklist (ideally a guided-process) to ensure department heads don’t miss any of these key steps along the way.