Every business owner knows the positive impact of a great hire—and the drag of not having the right number of people with the right skills in the right places to serve customers and support growth.
While headcount planning is a resource-intensive process, the investment is well worth making because the success of any organization hinges on smart hiring. How do we define “smart” here? You hire people who are willing and able to execute nimbly on strategy changes, work as a team toward long- and short-term goals, enthusiastically serve customers and forward the organization's growth plans.
Here’s how to build your high performance team.
What Is Headcount Planning?
Headcount planning is a strategic exercise undertaken to ensure an organization's team members and organizational structure can meet short- and long-term goals within a defined budget. Also referred to as “org charting,” the headcount planning process guarantees a company has the right number of people with relevant skills to execute its strategy, without overspending on labor.
Teams of departmental leaders, senior executives and human resources and finance specialists work on headcount planning. The work produced includes hiring plans or targets, reducing employee churn, analysis of worksite occupancy and space utilization data and organization-specific insights and direction.
A multidisciplinary team delivers a more complete outlook and ensures that hiring goals and strategies can be revised quickly should the company’s needs change.
Video: What Is Headcount Planning?
Why Is Headcount Planning Important?
It's crucial that a business’s leadership understands what the company is paying for labor — that’s a major line item for most businesses. In addition, tying headcount planning to the financial planning and analysis (FP&A) process means companies can align talent acquisition efforts with business goals.
Headcount planning also ensures an organization's future stability in that it helps leaders implement succession plans, and for those seeking funding, it encapsulates a company's understanding of its current organizational design, labor costs, productivity and human resources expertise.
Benefits of Headcount Planning
The main benefit of headcount planning is to support current and future business goals. Most companies experience the following benefits when they achieve success with headcount planning:
- The ability to respond quickly on a workforce level to emerging challenges across the business, industry and overall economy.
- A more efficient, productive and effective workforce because employees are more likely to possess relevant skills and be good fits for their positions.
- A method to control and quantify costs by directly linking talent expenditures with business objectives.
- Ongoing monitoring of attrition and ensuring there is a pipeline to fill critical roles; this includes succession planning.
- A better understanding of an organization’s worker profile so that HR policies can be shaped to maximize talent goals.
What Team Members Should Be Involved in Headcount Planning?
While HR takes the lead, four constituencies should be involved in headcount planning.
HR teams traditionally head up this effort. Companies that have mature human capital management (HCM) practices are more likely to have well-defined talent management processes.
Executives bring insights into overall goals and budgets and plans around M&A, new product launches and other strategic efforts. While HR teams use their knowledge of the larger organizational structure to create a talent roadmap, business leaders provide the destination.
Departmental leaders, such as those from operations, sales or production, bring to the table insights into their individual group budgets, priorities and strategies.
The finance department also plays a critical role since they're the ones who create the company-wide budget.
Short answer, the headcount planning process needs to be a collaborative effort led by HR but with plenty of input from business and financial leaders.
When Should Headcount Planning Occur?
Organizations traditionally do headcount planning annually. However, when external forces or industry-specific fluctuations arise, companies should be willing and able to plan in a more iterative and agile way.
Ideally, your headcount plan is a living document that leaders revisit regularly to make adjustments based on real-time data. That way, the organization can respond quickly to internal and external factors that could disrupt business operations.
How Do You Align Corporate Real Estate Planning and Headcount Planning?
Aligning real estate and headcount planning enables organizations to efficiently utilize their space, spend wisely on new real estate and build a strong workplace culture.
Incorporating real estate into headcount planning requires knowing your workspace capacity, and then tracking occupancy and calculating space utilization rates. Besides looking at workstations, like a traditional cubicle or space suited to industry-specific activities, you’ll also want to factor in conference rooms and other common areas.
Say your tax preparation business rents an office suite with 15 cubicles, a conference room and three private offices for executives. If 15 accountants, your CEO, VPs of HR and sales come to work for eight hours per day, five days per week, and clients visit several times per day to meet in the conference room, you can feel pretty good about utilization.
But if the VP of sales and seven of your 15 employees work remotely three days out of five, and you do most client meetings on Zoom, it’s time to recalculate your space requirements — that is, unless your headcount plan shows that you expect to hire new accountants and a VP of marketing in close proximity to the office.
Bottom line, while CFOs need to run the numbers on the per-employee cost of various work models, that calculation is incomplete without workforce projections.
Space planners likewise need to understand current and future headcount goals before they can create a real estate strategy that accounts for such variables as an increase in hires and department adjacencies that encourage team building, while taking into account the realities of how people are actually working.
Here are some steps your organization can take to align both types of planning.
1. Look at how your business operates: The space needs to support the way your people work. That means looking at functional needs, such as whether an open floor plan is appropriate and whether you need designated areas for meetings, in your workforce plan.
2. Consider the future: What is your projected maximum headcount over the term of a lease? Is there expansion room should you experience growth and, conversely, a clause to sublet space if you need to downsize?
3. Take remote workers into account: The reality is that certain businesses have implemented permanent remote work policies. Consider how many employees are likely to be on the premises at any given time. If your utilization starts going down, you may want to consider a smaller space with a "hoteling" arrangement.
5 Steps to Create a Successful Headcount Plan
These five steps will help any organization create an effective headcount plan:
1. Identify business challenges: Leverage your scenario planning and forecasts to predict customer needs, the competitive landscape, regulatory changes, new technology or other innovations and growth within current and new markets. Use these insights to inform your headcount planning process.
2. Establish metrics: Smart leaders base decisions around data while factoring in “what ifs.” Common workforce metrics that should influence your headcount strategy include:
- Performance ratings
- Position requirements
- Employee skill sets, certifications and licenses
- Attrition rates, overall and by department
- Departmental hierarchy
- Retirement eligibility data
- Payroll data compared with industry and geographic averages
3. Evaluate your current workforce: Once you've established metrics, evaluate your current workforce against them. This exercise will reveal, for example, shortfalls in your ability to fill current and future critical roles based on a too-low salary range, how you’re doing growing or hiring succession-eligible employees, problems with attrition, positions that can be eliminated and employees considered flight risks.
4. Make headcount planning agile: As mentioned, headcount plans should be living documents that are reviewed and revised frequently based on up-to-date data and current business realities.
5. Forecast costs: Once you understand job requirements and current resources available, gather insights from HR to ensure salary expectations are realistic. Then finance can begin to forecast future costs of labor.
10 Tips to Improve Headcount Planning and Position Budgeting
Being proactive about headcount planning and budgeting for needed positions can ensure you can afford to meet short- and long-term needs.
Here are 10 tips to help you improve your planning process.
1. Analyze overtime data: Take a look at your overtime costs for each position for the last year and compare that number to the previous three to five years. Map this data to specific positions, then determine whether the causes of overtime are likely to persist. Calculate whether it would be more cost-effective to add headcount.
2. Audit data for accuracy: Using faulty data will result in plans that aren't conducive to success. Some organizations don’t have the ability to track certain metrics; an automated human capital management system that provides a single repository where all employee records are stored can make planning more effective.
3. Review employees who hold multiple roles: Sometimes, cross training is a win/win. A receptionist who contributes to marketing materials from time to time is gaining skills and providing the business with flexibility. But if an employee fills multiple positions and consistently works more hours than budgeted, or is displaying signs of burnout, you risk vacancies in multiple roles. Consider a different staffing model or increasing headcount.
4. Assess seasonality: It's crucial to take into account the cost of adding temporary workers during peak seasons. A human capital management system can help you run reports to gather historical data to make planning easier.
5. Be transparent: All departments need to feel that their requirements are being taken into account. Ensure your headcount planning team gathers feedback from managers in the trenches and provides constructive feedback to demonstrate that the company is responsive to current and future needs.
6. Simplify benefit calculations and salary increases: A standard formula for benefits and raises makes it simpler to see the correlation between budgetary realities and staffing goals.
7. Budget for education: Company-provided training is a great retention tool. If you currently provide or plan to subsidize professional development programs or certifications, you need to budget for that. Consider both the cost of the programs and the time required.
8. Stay compliant: Companies that are required to have employees with certain certifications, like ServSafe for food handling, must forecast the number of certified employees required during both peak and non-peak times. That way, your company won't get caught short.
9. Document decisions and rationales: Have the headcount planning team keep detailed records on how they assessed whether changes in strategy or budget are needed to reach company goals. This ties back to staying compliant while also providing documentation should your company become the target of a workplace lawsuit.
10. Use a checklist: Having a customized headcount planning checklist ensures consistency across all departments and is a way to analyze the results of decisions more effectively.
Free Headcount Planning Checklist
Manage Costs and Improve Your Bottom Line with HCM
HCM, or human capital management, software is intended to empower managers and HR professionals to keep a central repository of employee information, easily onboard and orient new hires, track individual worker performance, keep tabs on payroll and compensation changes and overall help a business manage its employees.
Look for software that integrates the features you need, including payroll, productivity analytics and time-sheet software, into one interface. Ensure any HCM system can scale up to automate processes such as recruiting, staffing and performance reviews. This way, leaders can plan around future and current staffing needs and allocate the appropriate resources and funds.
Choosing the Right HCM Solution
To select the right software, work with your headcount planning team and HR department to understand what functions your business needs now and whether the system can deliver the right data to project future talent requirements.
Most HCM software records and stores information about employees in a central database. HCM software offers advanced features to help organizations understand the best ways to handle administrative HR details, such as paid-time-off requests, and total payroll cost analysis.
Headcount planning is one of the most powerful ways to ensure success in your organization. It's essentially the direct link between strategic budgetary, growth and talent management strategies. Having a clear plan in place plus real-time data ensures smooth changes or shifts in strategy.