Before HR leaders implement a hiring and workforce strategy, they need to understand both the financial impacts and implications. Brandon Metcalf, CEO of Place Technology, explores how HR can develop data-driven workforce management and talent acquisition strategies.
The right financial forecasting software can not only help companies visualize the basic expenses of a new employee, such as compensation, but uncover hidden expenses, including – recurring subscription costs, hardware, and insurance costs. It also provides HR leaders with greater insight into workforce management, including headcount planning, employee expenses, and tax rates.
In my experience, working with SMBs and fast-growing startups, the largest expense and greatest asset for most organizations are people. Understanding the financial underpinning of workforce planning is key to managing that team well. Bringing people with the right skills on board at a right time is good for the business — and it’s better for the individuals too, as it avoids getting into a damaging ‘hire and fire’ strategy where businesses bring on too many employees and then drop them when they find they have underestimated the costs.
The financials of workforce planning have grown more complex in the wake of the pandemic. Figures which may have been relatively predictable in the past are changing rapidly with the potential for new hidden costs to emerge. These could be things like raised healthcare premiums, an increased number of software subscriptions to support remote working, and uncertainty over whether people will expect to return to the office in 2021.
Business and finance leaders have to take a more tech-enabled, adaptive approach, noting changes as they appear and recalculating the numbers based on a continuously updated, rolling forecast model. But while they can bring the planning horizons closer on some metrics, they need to look further into the future when it comes to workforce planning.
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Here Are Three Ways Financial Forecasting Can Inform Workforce Planning and Hiring Strategies in the Era of COVID-19
1. Strategic planning
How does your business decide whom to hire? It is usually a question of balancing competing priorities. There are likely to be various team leaders asking for more help: “our customer service team can’t cope with the number of tickets,†“we need to hire new sales people to build our demand pipeline,†or “we are using expensive contractors, and it would be more cost-effective to recruit our team.â€
Before you go out to the hiring market, you need to better understand where your recruitment budget is best spent. You want to know what different roles will actually cost the business and also which hires are most likely to pay for themselves and bring in more revenue. Being able to look at a detailed forecast helps to decide.
For example, one high-growth SaaS company we worked with was looking to expand their customer success team. However, after drilling down into the operational financial data, they found that the specific customer raising the most tickets was too small to get value out of a product designed for bigger organizations and were likely to churn. Instead of hiring additional customer success support, they recruited more sales people to help target more qualified customers. That immediately reflected in a forecast for stronger growth.
2. Modeling employee costs
Of course, most businesses attempt to forecast the fully loaded costs of new employees. They generally do this by adding some fixed amounts and percentages. But taking a more granular view gives a better basis for managing the costs, especially in a changing environment.
For instance, in the wake of the pandemic, many organizations—from startups to large enterprise companies—are now operating with more dispersed global teams. Another U.S.-based company with more than 150 employees was considering hiring developers based in India because they assumed the overall cost would be less than hiring domestically. But then they asked, “Are we capturing all of the hidden costs in our forecast?â€
After further investigation, they found several costs that they had not accounted for, such as the expectation in India that salary will rise by as much as 30 percent in the second year. Once all the costs were fully modeled, the potential savings was considerably less than first assumed but still significant enough to pursue this option with a reduced hiring plan. Being able to model that effectively positioned business leaders to make a more fully informed decision.
3. Talent recruitment and onboarding new employees
Being able to take a forward-looking view based on financial forecasts means you can get into the hiring market early. If you are confident you have a strong pipeline of demand, you may be able to recruit employees with great skills in high-demand fields when there is less competition.
Also, having a more granular view of how demand is progressing may mean you can time their start dates at the optimum moment of utilization. For instance, if you are looking to hire a software implementation team and you are forecasting a big deal coming down the pipeline in a few months, but you don’t have the capacity, you may want to recruit someone for the team two weeks before the start date as you know that is the length of time it takes to onboard someone.
When hiring a salesperson, you might decide to time their start data early in the financial year because it will be a bit of time before they are likely to be bringing in revenue, and you can see from the forecast that you need them up and running coming into the last quarter.
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Cross-Company Collaboration Is Key To a Financially-Informed Workforce Strategy
Leveraging financial forecasting for workforce planning helps companies visualize the basic expenses of a new employee, such as compensation, and uncovers hidden workforce expenses, including recurring subscription costs, hardware, and insurance costs. It also provides greater insight into the broader workforce management strategy, including headcount planning, employee expenses, and tax rates.
There are software platforms and tools available to help finance and human resources do this successfully, enabling them to work together to develop a hiring and workforce development strategy based on real-time financial data. Businesses that can do this well will reap a competitive advantage, especially in unpredictable times.