Workforce planning is the process of managing your business's headcount and hiring plan to achieve strategic goals. It’s a collaborative process between the finance team, HR, and stakeholders across all other business units to manage one of the business’s biggest expenses.
A strategic approach to workforce planning puts FP&A teams in the driver’s seat to gather key workforce data and analyze the impact that headcount changes would have on the business plan and achieving goals.
Workforce planning considers factors like predicted staffing needs, recruitment costs, salaries, and the organization’s strategic goals to ensure that every new hire and training initiative is a strategic decision to support long-term business health and success.
Why is workforce planning for finance important?
As an organization matures and increases in complexity, it will outgrow the ‘educated guess’ method of headcount planning. Workforce accounts for a large chunk of operating expenses – up to 70% for some businesses! That means that every headcount must be justifiable from a financial perspective.
Business leadership and the finance team must implement a metric-driven workforce plan to place guardrails around hiring, while still ensuring that the business has the staff in place to achieve top-line revenue growth and goals.
As the business grows, workforce planning becomes a more guided experience where FP&A coordinates across departments to manage headcount costs well. This metric-driven approach may seem like a rigid process, but it actually allows for greater flexibility.
“When the finance team knows the KPIs associated with adding, removing, or retaining headcount, they can easily create new scenarios or modify plans to fit business needs and changing economic factors.”
Quy Dong, Head of Customer Success at Stratify
Effective workforce planning ensures that:
- Your financial plans reflect your actual workforce capacity, so you can adjust the hiring strategy to meet business goals.
- Business resources are used effectively, especially considering the high costs of recruiting, hiring, and training talent, or a high churn rate.
- Finance teams can spend less time hunting data and completing the manual reconciliation process – saving time for strategic analysis of workforce trends.
- Finance teams can produce detailed models on a granular level, adjusting for complex factors like employee taxes, benefits, and bonuses.
Who is involved in the workforce planning process?
As we explain in Overcoming Challenges of Headcount Reconciliation with Best Practices, there must be a joint effort between FP&A teams, HR leaders, and all other budget owners to "manage all aspects of workforce planning, including a shared, accurate understanding of headcount." Each leader has an important role to play in the process.
- Senior Leadership
As the business approaches a new fiscal year, it’s time for senior leadership to communicate their vision and goals to their teams. The CFO needs to guide discussions and decisions so there are sufficient funds allocated to workforce as the hiring plan is developed. Senior leaders should also keep their finger on the pulse of wider trends, opportunities, or risks and communicate those insights so the FP&A team can make more informed predictions and recommendations to business partners.
- Finance
The FP&A team drives the workforce planning process as a key part of delivering the annual plan. After the executive leadership team delivers the top-line goal, FP&A needs to coordinate and collaborate back and forth with each department leader and build a plan for each team that supports the greater whole – including headcount plans.
Finance provides concrete headcount targets to guide each business leader in their planning. FP&A also supports HR with different scenario models to show possible outcomes of adding or subtracting headcount. Finance also has a continuous role in the headcount reconciliation process as they compare actual headcount decisions with what was planned, and adjust accordingly to stay on track.
- HR
HR’s main role is to translate the strategic workforce plan into reality through the complexity of recruiting, hiring, onboarding, developing, managing, and firing employees. HR can answer the question of how to deliver on the workforce plan that was set to achieve strategic goals.
- Department Leaders
As each business leader plans for the year, they may have a wishlist of headcount they’d like to add (in a desired timeframe), but their finance business partner can provide insights and support to determine how their plan fits with the organization’s wider strategic goals.
Common workforce planning challenges for FP&A teams
Workforce planning is a pillar of business planning and a key responsibility for finance teams to monitor and minimize loss and risk. So why is it still such a burden for financial analysts? Here are some of the top challenges for FP&A during headcount planning:
- Tedious data gathering – Without headcount planning software, finance teams need to perform headcount reconciliation, gathering data from various business platforms and transferring into spreadsheets to reconcile actual vs planned headcount. Working from different spreadsheets with different numbers makes headcount reconciliation and building the workforce plan a pain to track and maintain.
- Hidden errors – Manual calculations for salary expenses, benefits, taxes, and compensation changes are error-prone.
- Inconsistent headcount definitions – HR, finance, and other departments don’t always agree on headcount! HR will be hiring for all positions in the organization – part and full-time, whereas finance is typically focused on budget allocation for full-time equivalents (FTEs). This causes confusion when FP&A reconciles the workforce plan with the hiring plan and numbers don’t match.
- Struggle to collaborate – Financial analysts rely on input from HR to map actual positions in the headcount plan. Plus all department leaders need to be included to establish a new workforce plan once the top-line goals are handed down for a new financial year. Inconsistencies and incomplete data are likely to delay the process.
Workforce planning strategies & best practices
Implement these strategies to improve your workforce planning process:
- Align workforce plans with business objectives
Continuously check that your workforce plan is aligned with the short and long-term goals of the organization. Ignoring the long-term could lead to short-sighted staffing decisions that don’t pay off.
- Focus on people, processes, and systems
Look for ways to strengthen your FP&A team across these 3 areas.
- People – Strengthen your communication with business partners, and learn more about the goals and struggles of each department.
- Processes – How can you improve your planning process? Would a calendar help? Do you need to establish a more frequent rhythm of stakeholder meetings?
- Systems – Do you have a workforce planning tool to automate your tedious spreadsheet-based reconciliation process? Prioritize a collaborative tool where stakeholders can view their business plan and respond to questions or comments.
- Stay agile
Be sure that your FP&A team has scenario-modeling capabilities, and use them to plan for possibilities like a market downturn, entering a new vertical, acquiring another business – anything that could dramatically affect your headcount.
- Stick close to HR
Determining concrete hiring targets is great, but the workforce plan is still lacking if FP&A isn’t familiar with hiring timelines, training routines, or new talent acquisition costs. Rely on HR insights so the plan is both fiscally- responsible and achievable.
- Get familiar with workforce KPIs
Use all the analytics tools at your fingertips to track key workforce metrics like employee turnover, revenue per employee, and time to fill. All of these will help you to better spot workforce trends and areas to improve in the business.
Learn More: Strategic Workforce Planning: 5 Tips for FP&A Professionals
Workforce planning tools and software
FP&A software solutions are an ideal way for finance teams to streamline the workforce planning process, including headcount reconciliation. Many organizations work within disconnected spreadsheets to manage workforce planning, but new solutions have emerged to speed up and improve this critical process.
Workforce planning software solutions do this in a few main ways:
- Pull together data from HRIS, GL, and other business systems to be the source of truth for all stakeholders in the planning process.
- Automatically display the latest data and track changes to assumptions for comparison, and prevent the dreaded question, “Is this info living in someone else’s spreadsheet?”
- Reduce the time spent on manual headcount reconciliation by quickly matching actual vs planned positions to understand whether the organization is ahead or behind on planned headcount. In a collaborative FP&A tool like Stratify, HR business partners can access this workflow and complete the process themselves, saving valuable time for financial analysts.
- Support payroll expense planning to forecast detailed payroll costs for positions in the workforce plan, such as benefits, merit increases, taxes, etc.
- Allow for operations capacity modeling, plugging your workforce data into sales and operational models for a connected planning process.
Compare: The Top 5 Workforce Planning Tools for Strategic Finance
Future trends in workforce planning for FP&A
A finance-driven and strategic approach to workforce planning has never been more important. These 5 emerging trends are shaping the future of workforce planning. FP&A leaders, take note:
- Agility is a requirement
Post-pandemic, companies are working with a combination of office-based and remote employees. Workforce planning needs to be even more agile than before to find the right mix of in-person and remote teams to achieve revenue targets. The new element of remote headcount brings its own set of trends and KPIs (for example, your organization may experience variable retention rates between remote and office-based employees). Finance professionals need to discuss and adjust with their business partners and be prepared to support them with forecasts and data-backed recommendations.
- AI joins the team
Some enterprise-level workforce planning tools have begun to incorporate AI to provide predictive insights and models for salary calculations. Or, AI can be applied to analyze workforce data and performance and recommend custom training paths to help each employee build new skills. At a smaller scale, HR and Finance teams can use AI tools to make their interview process or onboarding process more efficient, saving time and resources.
- More contractors than ever before
The popularity of contracting and freelancing reveals a growing interest in alternatives to full-time, in-house positions. It’s not just Uber and DoorDash – consultants and freelancers are common in the corporate workforce too. Finance teams need to respond with careful attention to the benefits and risks of adding these workers into the mix. The workforce can scale up or down more quickly, but lower employee engagement or retention rates could cancel out potential profits. And because benefits and merit-based pay increases are different for ‘gig’ workers (and competitive pay is a top priority), FP&A must include those factors in the workforce plan.
- Skills gaps require investment
87% of organizations know they have a skills gap or will within the next few years. Leadership teams should pay careful attention to employee training and upskilling, otherwise, FP&A teams will start seeing inevitable losses due to high turnover and inability to achieve strategic targets. Respond by budgeting appropriately for employee training initiatives to plan and build a more resilient workforce.
- Multinational workforce
Remote work has also opened the door to a global talent pool, even for SMBs who operate in a single location. Hiring across the world introduces factors like time zones or cultural differences into the workforce planning process. Finance teams can support HR as the headcount expands internationally to track the quantitative aspects of this trend. Pay greater attention to KPIs around productivity and seasonal availability.
FP&A teams should pay close attention to these trends to increase the strategic value of workforce plans and add more value to leadership decisions.
Workforce planning FAQs
What is the difference between workforce planning and workforce management?
These two aspects of business planning both have efficiency and cost savings at their heart, but they’re not exactly the same.
- Workforce management is an HR priority, focusing on whether employees are properly placed within the organization. Workforce management also covers day-to-day processes like payroll and time tracking to efficiently organize and supervise the workforce.
- Workforce planning takes a wider view to consider how hiring and staffing decisions can support the organization’s strategic goals and objectives. Workforce planning pays careful attention to trends in the business to predict future needs or gaps and involves coordination between all departments. Because workforce makes up a large percentage of a company’s operating expenses, it’s a key component of the financial plan. Workforce planning seeks to manage those costs well and know the financial implications of adding or subtracting headcount.
Why should FP&A teams get involved in workforce planning?
Finance teams need to dive into workforce planning and coordinate with HR and business partners because they bring a unique perspective on the interplay of financial and operational data. When FP&A is involved in headcount planning, they can ensure that every headcount is financially justified and guide the organization towards achieving its goals without overspending. They coordinate and analyze data to align staffing needs with business objectives. That helps HR and department leaders to make strategic hiring choices and allocate their resources more effectively.
What are some practical ways for FP&A to support the workforce planning process?
FP&A teams can provide the data and operational insights to make workforce planning a strategic and financially informed component of the business plan.
These additional tasks support a more efficient headcount planning process:
- Provide different scenario models of staffing plans to HR leaders, with the financial implications of each.
- Provide data on budget limitations and opportunities for all departments to make informed hiring decisions.
- Analyze and forecast the costs of hiring, training, and retaining employees, including benefits and compensation.
- Track KPIs related to workforce efficiency, to stay in line with financial goals.
- Support HR to ensure that staffing levels are aligned with the business’s strategic objectives.
What's wrong with the current approach to workforce planning?
Many organizations are stuck with a workforce planning process where finance and HR operate separately. Because their GL, HRIS, and ERP systems aren't integrated, finance and HR definitions of headcount and records don't match up. Without alignment, these businesses are losing money over time due to poor headcount planning and can't react quickly to market changes. These inefficiencies lead to misalignment between workforce capabilities and business needs, and missed opportunities for growth and innovation.
What should I look for in a strategic workforce planning tool or platform?
Workforce planning tools should simplify and automate key steps in the process. Look for these key features as you compare options:
- Headcount Reconciliation: Ability to reconcile new hires, terminations, and backfills efficiently, leveraging automation.
- Workforce Analytics and Reporting: Provides self-service access to detailed workforce analytics.
- Integrated Planning: Ensures that headcount-based expenses are updated automatically in the financial plans.
- Scenario Modeling: Capability to create 'what-if' scenarios and assess their impact on the plan.
- Customizable Dashboards: Look for pre-built or customizable dashboards to keep business partners informed.
- Excel Compatibility: For finance teams who prefer Excel
- Security and Access Controls: To maintain data security as business partners collaborate on the workforce plan.
- Comprehensive Integrations: Seamless integration with your HRIS, ERP, and other business systems.
Related resources
The Top 5 Workforce Planning Tools for Strategic Finance - If you’re ready to streamline your processes, here’s a breakdown of the leading strategic workforce planning software platforms. The guide compares your top options based on your business size and priorities.
Overcoming Challenges of Headcount Reconciliation With Best Practices - Tired of spending days on headcount reconciliation? Incorporate these best practices to save time and eliminate headaches.
5 Workforce Planning Trends and How FP&A Teams Can Confidently Respond - Explore 5 emerging trends are changing the future of the workforce planning process, including AI, the rise of the contractor, and looming skills gaps.
Strategic Workforce Planning: 5 Tips for FP&A Professionals - Practical tips to improve the speed and accuracy of your workforce planning process, and achieve stakeholder alignment too!
Subscribe to the Strategic Finance Brief
You can unsubscribe at any time, no hard feelings. Privacy policy
