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What is headcount planning?
Headcount planning is a critical process employed by businesses to ensure a company’s available resources meets its demands both internally amongst your team and externally with regard to your business structure. On the surface, it’s a straightforward comparison: demand vs. availability. Will the demand for our resources be met by the availability of those resources? Will they be met not just now, but in the foreseeable future? It doesn’t take long to recognize the challenges inherent in accurately and completely determining the values on each side of the equation. You also realize very quickly that the equation is not a static one. Both sides of the equation are constantly changing and an effective planning solution must be dynamic.
Benefits of effective planning
Having the right people in the right jobs is important to be able to successfully execute any business strategy. Since headcount has the biggest impact on the bottom line – costs related to headcount compensation and benefits typically account for between half and three-quarters of a company’s budget and operating expenses – success hinges on your hiring decisions.
With a clear roadmap and systematic headcount planning process in place, you are able to effectively balance resource demand and availability. This results in quicker, more efficient deals as no time is spent matching customers to resources. Strong headcount planning also helps to identify areas of need within your business as it will become very clear where your resources don’t align with demand.
Costs of poor planning
Without a good, systematic headcount planning process in place, your business is unnecessarily vulnerable to shifts in the marketplace. Given that salaries and related costs constitute such a big percentage of a company’s overall budget, large unexpected fluctuations in these expenses can sink a business. On the revenue side, companies without an effective planning process miss out on valuable opportunities that arise if they’re not prepared with the necessary sales and support resources. Within sales teams, accurate headcount plans can be crucial in determining responsibilities within a team. Without these plans, it’s very likely that individual time and effort are used inefficiently.
Lastly, inadequate systems put an undue burden on a company’s finance team. They become tasked with data gathering, data updates, and preparation of reports that are no longer relevant by the time they’re complete and distributed.
What constitutes a good headcount planning process?
You need the right people in place at the right time. This is much easier said than done, but every good headcount model has certain characteristics to ensure it provides relevant and timely information for hiring decisions. Here are those characteristics:
1. Understanding of Current Team
Ensuring your current workforce is thoroughly represented in your model is critical. This means it contains detailed employee data including roles, salaries, cost centers, geographies, etc. Any data element you include in your overall financial planning model should be part of your employee dataset.
2. Long-Term Vision
Estimates strongly supported by existing data and extrapolated where possible are needed for a meaningful headcount demand forecast. You should have a good sense of where your organization should be in 12, 24, or 36 months, including any potential changes in external demands or industry conditions.
3. Collaborative
For any planning process to be meaningful, input from business unit leaders across the company is required. Allowing department heads and budget managers to do the heavy lifting frees the finance team for important analytics work.
4. Accurate and Complete
The importance of accurate and complete employee data cannot be overstated. Systematic reviews are necessary to ensure all the correct attributes are assigned to each employee and prevent over-or under-counting.
5. Dynamic
Annual or even quarterly planning is no longer enough to stay competitive. The planning process should be ongoing. To remain agile, your headcount planning model needs to be easily updated to reflect an ever-changing business environment. Any changes made to your model should be instantly available for review and comment by business stakeholders.
6. Transparent and Visual
Transparency into the planning process and how final outcomes are determined increases the feeling of ownership among the contributors, which leads to increased participation and accuracy in data reporting. Additionally, visual representations help contributors understand how their inputs affect the overall planning process in an easy, digestible way.
Determining Demand
Approaches for determining demand for people vary by industry but generally are based on anticipated demand for a company’s products and how much they can sell, deliver, and support.
For example, SaaS companies often start with spreadsheets that model various revenue scenarios and calculate key metrics and ratios. These ratios might include:
- Sales Rep Quotas and ACV
- Account Execs : Sales Reps
- Sales : Marketing
- Sales & Marketing : R&D
- Accounts : Account Managers
- Percentage of G&A
Once established, these ratios can be used to establish the number of employees in each role to support specific revenue goals. Combining the ratios with forecasted sales and ramp-up time for certain roles, you can determine how and when net headcount will need to increase to meet sales quotas.
Of course, the details of how resource demand is calculated are different for each industry. But the concept is essentially the same – first determine market demand for your product then identify the skills and number of people needed with those skills to meet the demand.
Calculating Availability
Calculating the availability of headcount to meet forecasted demand can be much more difficult. Common pitfalls include inaccurate and/or incomplete data, double-counting of data, and frequent changes requiring reworking the model.
Following the best practices listed below within a platform like Workday Adaptive Planning won’t necessarily eliminate your issues but they will be significantly reduced and, when they do pop up, will be much easier to deal with.
1. Make extensive use of assumption sheets
Often, key percentages, multipliers, etc. are set at a dimension level. For example, your company may be planning to offer 3% raises for employees in Europe next February but 4% raises for US employees in June. You can model these differences in assumption sheets and utilize formulas to ensure the correct percentages are applied when forecasting salary costs in future periods.
2. Leverage Active Dashboards for immediate feedback and collaboration
Active Dashboards in Adaptive Planning enable entry of changes to your headcount model with immediate visibility of how expenses, revenues (for capacity-based revenue models), and important KPIs are affected, all in one place.
By making budget owners contributors, you can also share dashboards with them for submission of new data, instead of putting the entire burden on your finance or HR team.
3. Differentiate forecasted hires from actual employee data
Forecasted hires and actual employee data should be differentiated from each other to ease reporting and improve analysts’ ability to identify potential issues. You also can delegate maintenance of the data more easily when the different categories of headcount data are easily identified.
Differentiation can be achieved through the use of separate sheets or distinct categories if the data is maintained in the same sheet. Keeping the data in the same sheet is often easier to set up but can become overly complex with higher data volumes. Separate sheets require more planning to be utilized properly but can simplify administration as your headcount grows.
4. Reduce manual entries or “plugs” as much as possible
When data is imported into your headcount model, you may find data cleanliness issues that need to be fixed after import. For example, there might be multiple rows of data for a single job role but each row has a slightly different job role name. By mapping misspelled or otherwise differently named roles between your source data and planning system, using mapping tables to transform the data on the way in eliminates the need for any manual updates after the fact.
5. Include detailed salary information in employee data where practical
Except in very large companies with tens of thousands of employees, avoid aggregating salary data for groups of employees. With Adaptive Planning, you can control access to salary data separately from cost centers and dimensions. When creating your model, you have control over which fields represent salary data and these fields are not available for view or entry to users who aren’t specifically given access to them.
By aggregating your data after bringing it in and not before, you greatly improve your reporting flexibility as well as your team’s ability to troubleshoot any issues that may occur.
Download Our Headcount Planning Checklist to get Started
Starting headcount planning may seem like a daunting task, but there are several people who are willing to help. Download our checklist to get started.
Want to learn more about headcount planning?
Creating a headcount planning process might seem like a daunting task as determining demand and calculating availability can be unclear, but it is a key way to improve your business agility. By focusing on your long-term goals while maintaining an understanding of the current makeup of your business, company leaders are empowered to identify areas of need quickly to redirect resources to create the most efficient solution. Schedule a call with QBIX today to start the process of gaining stronger insights into your business through accurate headcount planning.