This article aims to examine in depth the process of planning and controlling human resources. As in the previous case, in which we dealt with the financial planning process, sales and operational planning, the following is a general introduction to the model with particular reference to clearly distinct project types and, on request, a series of examples including some practical tips which, although general, refer to the best practices adopted in real projects.
A model for planning and controlling human resources is a monthly simulation of the staff plan and costs, and the comparison with the final data.
Although this is often one of the most important and strategic cost items in the income statement, many companies are still struggling to plan and analyze the costs of their employees today. In fact, in order to be able to structure a careful planning process you must have a model that allows you to:
- have a detailed planning of a specific set of analytical dimensions such as: employee, role, department, cost center, legal entity, contract, timeline, etc .;
- have a scale of reference for planning in terms of granularity, single employee planning vs. budgeting or FTE planning at BU or legal entity level ,and in terms of the timeline which can go from a quarterly forecast to a multi-annual strategic planning
- manage what-if simulation scenarios based on model assumption modifications, such as: timetable requirements, staff costs, overtime and leave, wages policies, etc.
- forecast multiple business dynamics that may have an impact on staff costs, such as: the opening of new establishments or outlets, the sale or acquisition of companies or business lines, the merger of several companies or departments
- have an alternative or, sometimes, a coexistence of a centralized planning at an aggregate level of detail and a structured planning based on a collaborative process. In the latter case, the responsibility for data collection is decentralized to those responsible for each of the individual business areas. Furthermore, it is necessary to have the right tools for collaboration and a structured validation process available among the various organizational levels of the company;
- Report the results obtained and compare/reconcile them with the final data, both quantitatively and in value, by defining a single HR DataMart.
As in the previous articles, we will present three distinct models of human resource planning and control, differentiated by the level of detail with which each one operates:
- Planning and receiving at a FTE level, from external processing of unit rates by FTE type
- Employee planning scheme and reception, from the payroll system of a forecasted cost basis per employee, supplemented or edited in the process
- Staff Planning and Cost per Employee;
Here below, is a detailed analysis of each model.
Planning at FTE level
The FTE Layout Model is a centralized process where the management control is required to enter the variation of income and expenditure in terms of the FTE number after having had a meeting with managers of various work teams and/or with the HR office. The Planning activity takes place at institutional times such as: the budget or forecast and the detailed simulation schedule is typically monthly or annually in the case of multi-year models.
The Planning process is of the cost center or profit center and the FTE, and is distinct from G&A and OPEX. It can be dealt with in an aggregate view of the various types of employees: administrators, managers, operatives, supervisors, IT, etc. as well as by qualifications and contractual levels.
The Planning process will use as a starting point the final staff plan at the beginning of the simulation and the base rate applied to each type of FTE. In addition to the direct cost planning, it is necessary to simulate the following effects that can be calculated either as a percentage on the base or as an absolute value:
- taxes and charges
- income variations (overtime and holidays)
The aim of this process is to maximize an aggregate forecasted income statement and to point out any changes with respect to the final balance and any other simulation scenario.
This approach is quite simple and straightforward, but its poor accuracy makes it appropriate for business entities that are characterized by rather static staff and little cost-to-staff variability among employees of the same category.
Employee planning scheme
The Employee Planning Scheme is a process that can be structured to provide a centralized planning task, fully managed by the HR planning manager, or it can be deployed to individual business units. The forecasted staff is defined on a monthly basis by planning and using details from the cost center or profit center, and employee register, the income, expenditure and transfers between business departments. The forecasted cost of each employee, expressed in aggregate cost items such as: wages, taxes, benefits, TFR (severance pay), contributions, etc, is recovered from the payroll system and is applied to the previously planned staff item.
Although this type of model does not have a specific plan for the cost of each staff member, it is still possible to act on a certain level of aggregated detail or specifically on some cost-related planning levers such as: overtime, holiday balance, MBO , wage increases due to hypothetical or actual contractual renewals.
In the case of a model distributed to individual business units, it is possible to hypothesize a process flow in which:
- at the legal entity or national level, the HR planning manager inserts the general assumptions of the model such as: the standard cost of new recruits, % of contract renewals, etc;
- at the business unit level, the business manager carries out the forecasted staff schedule. The HR manager can approve or reject what has been entered, perform an automatic calculation of the forecasted rate by applying the rate charged by the payroll system, or force the planning result directly.
Compared to the previous case, this planning model is based on a much larger amount of information, as we are dealing with individual employees with their personal characteristics (level, occupation, BU, etc.) and their individual costs.
As a result, a forecasted figure is obtained much more precisely than what is achievable in the previous model. What-if hypothesis scenarios are more numerous and can be simulated more accurately. Income statement information allows you to make a more accurate analysis of the profitability of the single cost center or profit center. In addition, the analysis of variances between the final data and the forecasted data or between different forecasted scenarios can be done on a scheduled basis, allowing for a more effective justification of the differences.
The difficulty of this particular model lies in having a flexible tool that allows you to manage both the planning detail previously mentioned with the help of what-if analysis tools , a collaborative process and a favourable workflow.
Staff planning scheme and employee costs
The staff planning and employee cost model is a rolling forecasting process distributed to the managers of each business unit and/or cost center and profit center. The planning activity moves on particularly extensive detail. In fact, starting with the staff and the forecasted cost –initial stock – the planning is done by date movements with the detail of:
- movement type: recruitment and resignation, transfer within the legal entity or within the group, change in status – part time, maternity, etc. – wage increase, change of role;
- role, employee register, department, manager/reference manager, date of recruitment, percentage of FTE in the role;
- the value of the annual salary, benefits, insurance and other extra costs.
Such articulated planning requires, as mentioned above, the distribution of the data collection activity of the changes in the initial stock movements. In fact, it is conceivable to think of an extension of the previous model in which:
- at the legal entity or national level, the HR planning manager inserts the general assumptions of the model such as: the standard cost of new recruits, the forecasted MBO share, the value of the benefits, the extra costs (clothing /uniform, material etc.), insurance, etc .;
- at the business unit and/or cost center and profit center level, the business manager inserts daily movements that change the initial stock for existing employees or any new roles and/or employees.
- at the business unit and/or cost center and profit center level, the HR planning manager organizes the adjustment value for each employee: increase in wages and other individual benefits, etc, and automatically calculates the labour costs, keeping the details of the items within the paycheck.
As in the previous model, the HR planning manager can validate or reject what each business manager does. The HR planning manager may apply manual adjustments at an aggregate level, which will then be allocated to the individual employee. To avoid using such a large detail in the presence of types of employees of minor importance such a: trainees, interns etc, a hybrid model may be used where some staff planning is made by applying the logic of the movements described above, while others only for head counts or for FTEs.
This model is considerably more articulated than in previous cases, and its difficulty consists in addition to the implementation of an instrument covering the features described above, to assign the various departments of the company the responsibility of revising the monthly rolling activity of the needs of all human resources in the company.
Director International Team – Akeron Consulting