The Only Guide To Headcount Planning You Need + Checklist

The global workforce is changing, making headcount planning more challenging than ever. However, there are ways to make this process less painful for your company!

Get yourself up to speed on headcount planning by reading this article, and then scroll down for a checklist you can use immediately to adopt better headcount planning for a smarter workforce.

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What is headcount planning?

Headcount planning is a strategic activity carried out to ensure that an organization's team members and organizational structure can achieve short and long-term goals within a certain budget.

Who is involved in headcount planning?

While the Human resources (HR) team does work on headcount planning, it’s hard to build an effective plan as a siloed team given how hard it is to keep track of business goals and the needs of every department. You require input from the following stakeholders: 

1. Finance teams: Understand the company’s health from your finance business partner. This includes revenue growth (for specific accounting periods), net profits, gross margin profit, and whether the company can cover debt interest repayments.
2. Department Heads: Meet with departmental heads (e.g.: sales, marketing, and customer success) to understand the roles or skills their teams currently lack. This will help you understand the roles needed to recruit.
3. Executives: You’ll have to present your plan to stakeholders or the leadership team for their buy-in.

What are some key headcount planning challenges?

The primary challenge in headcount planning is that it doesn’t go according to plan! There are multiple factors or variables or metrics that you’ll have to include in headcount planning that are by nature volatile. These factors could be internal (organizational metric) or external (outside the organization). Challenges facing leaders responsible for headcount planning include:

1. Shifting workforce demands - The current workforce demands have changed to what they were a decade ago. Apart from compensation, retaining employees involves improving other areas of employee well-being such as career opportunities, improved health care, better work-life balance, information on the company’s direction, inclusion of mentorship programs, mental and physical wellness programs, and more. A quarterly survey on what is top of mind for employees will also help you understand the pressing concerns of employees. 
2. Attrition - It’s difficult to forecast the number of employees who will leave the company in the next quarter. The attrition rate could increase compared to previous quarters which can alter your headcount planning entirely.
3. Changing business needs - With changes to customer behavior, expectations, and preferences, companies are at the cutting edge of change. Changes in company requirements translate to changes in budget allocation. Headcount planning becomes difficult with the ever-changing needs of the business.
4. Economic downturns - Consecutive quarters of economic slowdown would lead to businesses scaling back on expenditure. This affects the budget allocated to attract more talent based on previous headcount planning.
5. Mapping headcount to growth initiatives - Mapping headcount (persons who will be recruited) directly to the strategic growth initiatives of the business is difficult.

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What are the key headcount planning metrics?

It’s important to track certain metrics during the headcount planning process to be able to prioritize your efforts and measure the effectiveness of your planning model. Here are the must-have headcount planning metrics you should keep track of:

Turnover rate

A company's turnover rate is the number of employees who leave during a given period, typically a year.

Turnover rate = Number of employee exits / Total headcount

Most reasons for turnover are voluntarily initiated by employees who quit or change employers. Involuntary employee turnover occurs when employers lay off workers for subpar performance, failing to complete a probationary period, redundancy, or breaking corporate policy.

Attrition rate

Attrition describes the natural turnover of employees. Attrition specifically refers to voluntary exits, when an employee leaves of their own accord.

Attrition rate = Number of voluntary employee exits / Total headcount

It is important to monitor attrition levels carefully, as too much attrition can lead to negative consequences such as a drop in productivity or an increase in absenteeism.

Ramp time

Ramp time is the period of time between a new employee's hiring and the time when they begin to be productive at their new position. Existing documentation on guidelines, processes to follow, and training programs for new hires can reduce ramp time.

Time-to-hire

Consider opening the position on November 1st, receiving the first application on November 5th, and successfully closing the position on November 29th. The time it takes to hire (time-to-hire) a candidate for a particular position is 24 days.

The risk of applicants slipping out of the funnel increases during delays in the recruitment process. The longer those delays last, the worse they are for both the applicants and your team. The more time and money you invest in what could be a simple hiring process through tests and interviews, the more expensive it becomes.

Full-time equivalents (FTE)

Employers can standardize their headcount by combining their part-time workers' hours to determine how many full-time employees would work those hours using the full-time equivalent (FTE) method.

A part-time employee's FTE value, for instance, would be 0.65 (26 hours worked / 40 hours) if they worked 26 hours a week.  

Employee net promoter score (eNPS)

eNPS refers to a person's inclination to suggest their employer to family and acquaintances. High eNPS scores, in other words, show that employees are loyal to and engaged with a company.

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What are the steps to create a headcount model?

Headcount modeling involves creating and using an analytical instrument (a headcount model) in order to analyze the current organizational structure and generate headcount projections or forecasts.

Headcount modeling has the following stages:

Headcount modeling scope and preparation

1. Determine the scope of headcount modeling - Determine the list of functions and business units you will be targeting, the headcount data sets (business unit/process/qualification), and the depth of calculation detail (how many parameters will you include in the analysis)
2. Conduct interviews with middle and top-level management to get a better understanding of the role
3. Determine the qualification factors and performance indicators for the role

Data consolidation

4. You’ll need your current headcount information in a database
5. Go through the qualification factors, work schedule, and goals of your current employees to get an understanding of performance and productivity based on a specific criteria.

Headcount model design

6. Analyze industry and external best practices on the determination of productivity

Analyses of result

7. Long- and medium-term headcount forecasting of supply and demand
8. A  prioritized list of headcount-optimization opportunities
9. Specified and targeted performance indicator and a' target headcount
10. Target productivity levels for assets, branches, or business divisions based on internal benchmarking

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Headcount Plan Checklist

Use the checklist below while working on headcount planning to ensure you implement better headcount planning for a smarter workforce.

• Bring all your data into a single source of truth: Simplifying data is paramount for headcount planning. The entire planning process will be futile if your data is scattered across software and departments. Data from finance, and other departments should lodge in a single software that can display reports based on that data.
• Assess the state of the economy: Measure the economy's performance over the next 2, 3, and 5 years including employment growth, and output growth.
• Work with your finance business partner: Meet with your finance business partner to understand the company's financial health.
• Understand the needs of each department: Meet with departmental heads to understand the roles or skills their teams currently lack. 
• Assess business goals: Measure the short and long-term goals of the business. This may be increasing advertising ROI or doubling business revenue.
• Identify blockers to the business goals: Identify the roles that are crucial to meeting these business goals and are currently unavailable in the company.
• Map your needs and requirements: Map your business goals with blockers and team skills gap together.
• Convert mapping into a headcount model: Convert your mapped data into a headcount model.
• Use scenario planning: Visualize best, worst, and baseline case scenarios using scenario planning 
• Win stakeholder buy-in: Build your formal headcount plan and open it up to feedback from stakeholders
• Execute your headcount plan: Execute your plan and review or adjust it frequently based on changes in business goals and requirements for the organization.

Headcount planning is an essential tool for all businesses, big or small. By understanding your company's strengths and weaknesses, you can create a workforce that is more adaptable to changes in the market.

This process begins with data gathering and analysis so that you can identify which positions are most important to your company's success. From there, you can begin to create a plan for how to fill those critical positions.

Headcount planning is not a one-time event, but rather an ongoing process that should be revisited on a regular basis. With a little time and effort, you can create a smarter workforce that will help your business thrive during even the toughest economic conditions.

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