business plan to add headcount

Build Your Case: Increasing Headcount on Your Team

• December 11, 2019
• Leadership & Management

How can you justify and build a business case for additional staff ? This question is easily one of the most frustrating things for hiring managers. You feel your team is understaffed and overworked. Even worse, you’re starting to worry about employee morale and the quality of work being pushed out the door.

So, what are some of the reasons it’s so hard to advocate for more staff? And more importantly, how can you overcome the common objections raised by the decision-makers when it comes to hiring more employees?

Why it’s so tough to convince decision-makers:

• Costs – People are a large expense for companies. Eliminating employees increases equity for owners and decreases costs associated with benefits, salaries, equipment, training, etc.
• Productivity – Companies sometimes downsize to increase productivity. Counterintuitive? Maybe. But, some companies think they can increase individual worker output while keeping production constant.  A company might also downsize to increase productivity by replacing workers with technology.
• Value – Downsizing generally signals restructuring or change. If shareholders/investors think these changes will increase profitability, it will increase the value of company stock. This can result in more investors coming on board or current investors increasing their contributions. In either case, downsizing can increase the company’s perceived value.
• Failed Evaluation – Some managers fail to critically evaluate their needs and the type of help required.
• Outsourcing – Some companies overextend the number/types of services they offer which leads to the elimination of products/services or outsourcing certain activities. In turn, this often leads to a decrease in employees.

How To Build Your Case for Additional Staff:

Follow the steps in this guide to help you build a solid business case to justify an increase in headcount for your team.

Step 1: Identify your needs

Identify your needs by asking yourself some simple questions:

• Do you need help during specific times of the year?
• Are you seeing a higher volume of work right now? Do you expect that volume of work to continue?
• Do you have specific gaps on your team? Do the gaps frequently change?
• Is your business growing?
• Do your team members seem more emotional and/or sensitive than usual?
• Is the quality of work on your team decreasing?
• Are you experiencing a higher turnover than normal?
• Are employees working early mornings, evenings, on weekends and missing family or social engagements to work?

If you answer yes to any of these questions, it’s time to identify the type of help you need…

Step 2: Be specific about what you’ll be asking for in a new hire

Not being specific with your requests is a critical mistake to avoid! When you’re asking for an increase in staff, focus on:

• Skills/knowledge
• Industry experience
• Specific backgrounds
• Personalities

In addition, think about how many employees you need to hire and what kind (full-time, part-time, temporary, freelance, etc.). No need to start from scratch – check out these job description templates that include responsibilities, key role metrics, competitive salary information, and more!

Step 3: Collect the right data

You’ll want to collect the data that will help you frame your argument for why you need more staff, exactly how many new employees, what kind , and why.

Use real-life scenarios to illustrate the negative impact of being understaffed and how an increase in headcount can help your team meet its goals. The best data you can collect on your own to help you make your case include things that will show:

• Impact on company goals
• Indisputable facts that highlight a need for action
• How the business has been/will be negatively impacted by not hiring

Examples of data you can collect to showcase trends (some may currently be tracked by your team, and some may not):

• An increase in the number of projects being assigned to the team but with the same number of resources (or less) assigned to complete the tasks
• Working hours of current staff, which show everyone is consistently working extended hours. You can use data like this to calculate a specific deficit in your needs. For example, 6 months of tracking shows a 2-head deficit relative to capacity (ask salaried employees to track their hours in a spreadsheet)
• An overall decrease in employee satisfaction, work quality, and customer service

If you don’t already have a Headcount Planning Strategy, consider creating one, so you can show how you can maximize efficiency and help justify your need for hiring when necessary.

Step 4: Show your current state and the consequences of not hiring

There can be serious consequences for not hiring if the customers, team, and business are suffering. This phenomenon is often referred to as the opportunity cost, which represents the lost benefits that would have been achieved if the new hire had been made.

Point out some of these consequences to the decision-makers:

• Increased attrition/turnover
• Decrease in qualified marketing and sales leads
• Decrease in sales revenue
• Missed growth opportunities
• Competitive disadvantages
• Delayed projects and initiatives
• Other enormous impacts on the overall goals of the company

Step 5: Exhibit the positive impacts of hiring (for the customers, employees, and business)

Compare the current state to the future desired state. Focus on the impact. When you outline your plan, include how these things positively impact customers, employees, and business. For example:

• Improved marketing efforts can positively impact the customer experience from a consumer perspective
• Time to pursue career development opportunities can positively impact the morale and stability of a team
• Generating higher-quality leads can positively impact big company goals, such as increasing sales revenue

Step 6: Know when and where to discuss this topic with decision-makers

When and where you should bring up adding more headcount to your team is crucial and wildly depends on your company and situation. So, follow these tips:

• Pay attention to timing. It’s best to plead your case when your company has the money, when you can identify where to save alternative dollars and spend, or when your team recently had huge accomplishments
• Ask yourself if it’s best to broach this topic during budget planning at the beginning or the end of the fiscal year; be smart about it and base it on your company structure
• Always schedule an in-person, one-on-one meeting with the decision-makers; avoid getting ignored or shot down by email or phone

Step 7: Consider alternatives to full-time employees

If executives are hesitant to add full-time employees, you can explore other options, such as freelancers or contractors . The key is to show how these temporary workers can fill skill gaps, provide flexible staffing solutions, and allow for a trial period before committing to a full-time employee. This is also a great opportunity to show the need for more full-time staff in the future.

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How to Write a Proposal on Additional Staff Required

by Ruth Mayhew

Published on 25 Oct 2018

Human resource planning begins with determining workforce needs: the levels, positions and numbers of people the organization needs to carry out its mission and objectives. This type of planning generally occurs before the company opens its doors for business. Factors such as company growth, increased revenue, expansion into new markets and employee attrition also can require additional staff. When you're sitting at the table with executive leadership, it's wise to have a written proposal that justifies your request for additional manpower.

1. Start With the Essentials

Depending on the size of your organization and the complexity of your staffing plan, your request for additional staff proposal should have at least four basic sections:

• Executive Summary
• Needs Assessment
• Methodology

Some proposals may require additional sections, such as Project Evaluation and Communication Strategy, but a human resources planning proposal may not need more than the basic four. The proposal requires input from your entire human resources team because staffing involves recruiting, employee training and development, and compensation.

2. Write an Executive Summary

State the purpose of your proposal and identify who provided input. Summarize the contents and provide information about how you intend to carry out the plan for additional staffing. Readers with access only to the executive summary should fully understand the underlying reasons for the request for additional staffing. Also make clear how you arrived at the conclusion that you need more employees and how the budget will cover the costs to recruit, train, onboard and pay them.

The ABC Company Human Resource Manager, [insert name], submits this proposal, dated [insert date] to justify the addition of five additional staff across two departments: Corporate Sales and Accounting. The HR team researched the company's needs, assessed the current labor market and estimated the overall cost for the additional employees. The details are set forth in this proposal approval by the ABC Company executive leadership team.

3. Describe Your Additional Manpower Proposal

Describe the reasons why the company needs additional staff and explain the methodology you used to determine how many staff are required to sustain the organization's operations. The needs assessment is likely to include a review of the company's current staffing plan and when it was implemented. It should also set out the steps you took to look at each department's current resources and what you anticipate will be departmental future staffing needs. For example, your needs assessment might include descriptions of average employee tenure, succession planning, employee training and development, and attrition and turnover.

4. Describe Your Methodology

This is the process used to conclude that the organization or department needs additional staff. For each one of the components of your needs assessment, describe the sources for your information and how you used that information. For example, averaging employee tenure is a simple calculation:

•  Review employee personnel files for hire dates
•  Calculate the number of years employed
•  Total the years worked
•  Divide the total by the number of employees 

For some departments, you might want to examine individual employee tenure to estimate attrition numbers. The methodology should also include the availability of workers, because there's no sense in petitioning for additional staff if the labor market is such that you don't stand a chance in attracting qualified applicants. Labor market availability determines whether you have access to human resources, such as nearby schools that produce graduates or a general labor market within commuting range. You might also include in this methodology what could happen if the company is unable to hire qualified additional staff. For example, increased overtime for current employees, loss of productivity or sales, or low employee morale because the current workforce is carrying the burden of excessive workloads could result.

5. Propose a Budget

The budget for additional staff is more than just what employees earn. Compensation for each employee includes annual wages or salaries, plus the cost of benefits. As of December 2017, the U.S. Department of Labor's Bureau of Labor Statistics indicated the cost for private sector employee compensation was 31.7 percent of wages. For example, the cost to employ someone who earns $50,000 a year is approximately $15,850, making the total cost for that employee $65,850 year. Benefits include paid time off, insurance and retirement savings contributions. There are also costs to recruit, train and onboard employees, which depend on the time and wages of human resources team members engaged in the hiring process. Many organizations base hiring decisions on cost, so your proposal's budget section should describe the costs and the basis for your projections.

6. Sum It All Up

The conclusion of your proposal for additional staff should indicate the timeline, based on when you receive approval, because you can't usually pinpoint the exact date when you can actually bring people on board. Contingencies, such as background checks and candidates who need additional time for providing notice to current employers may cause delays. Don't rush the time frame within which you can bring on additional staff.

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May 23, 2024

By OrgChart Team

Do you have the people you need to get the job done? Are the right people in the right roles? Can your finances sustain your workforce and keep you profitable?

These questions might seem straightforward, but the path to answers can be very challenging. 

In this article, we will define headcount planning (and other key definitions) so you can start building your own roadmap.

You will also learn how headcount forecasting benefits a business and enables your organization to be more streamlined and effective in accomplishing goals. 

Along with addressing common challenges, we will help you adopt headcount reporting best practices using a step-by-step guide. 

What Is Headcount Planning?

Headcount planning is a way to map out your current workforce and determine whether you have the right number of people in each department or role. 

It is also the first step in determining if you have the best people with the right skills in the ideal roles to execute a business strategy. 

Businesses use headcount forecasting and workforce planning to identify skills deficits in their workforce. They inform recruiting efforts, guide professional development initiatives, and help bridge the gap to achieve optimal staffing levels.     

Headcount Planning vs. Workforce Planning

You might wonder how headcount planning differs from general workforce planning . 

Both headcount planning and workforce planning are used to generate insights about your current workforce, with an eye to the future. They can identify where staffing is adequate and where there is a deficit or surplus. 

However, let’s explore some key differences:

The Importance of Developing a Headcount Planning Strategy

Your team members bring special skills, experiences, and even quantitative outputs that impact the organization – all of which can be leveraged to accomplish business goals.

Headcount planning is often used to determine budgets, resource allocation, and staffing needs. It is critical to understanding the company’s overall efficacy.   

Through headcount analysis , businesses can determine if they have enough manpower to accomplish their goals. 

Headcount management provides an overview of the number of people spread out across departments and teams. Leadership develops a clear understanding of over- and understaffed areas, which informs budgets and forecasts.

Benefits of Headcount Planning and Forecasting

Some organizations use the information for budgets and resource allocation. However, headcount management can also help leadership start to understand skills deficits within their workforce. 

Here are some other benefits of analyzing your headcount planning insights:

• Improved employee retention: When employees have cohesive teams and adequate support, they are simply more satisfied. This can help reduce turnover and attrition.
• Budget optimization: Businesses that cut costs in the right places and make wise investments tend to see the most growth and profitability.
• Regulatory compliance: Laws may determine staffing requirements, and you need evidence of compliance. This is particularly important for things like labor limits and/or the need for licensed professionals on duty.
• Efficiency overhauls: Whether it’s wasteful spending or hours worked, headcount plans provide a great deal of information about where money and resources are being overconsumed. 

Financial Implications of Headcount Planning

One of the biggest drivers for companies to engage in headcount control is for financial insights. 

Even a very simple plan can provide valuable information about potential cost savings, investment opportunities, and ROI.

Some insights to be gained from staffing headcount plans include:

• Departmental ROI
• Departmental inefficiencies
• Future costs
• Potential cost savings

Sometimes, more qualitative insights can also be drawn, answering questions such as:

• What ROI do my low-earning, mid-earning, and high-earning employees provide?
• Do I need more employees, or would freelancers/contractors suffice?
• Is my staff inefficient due to skill deficits or from something else?

Headcount Planning Legal Compliance

Aside from internal benefits, headcount planning is also conducted to ensure organizations comply with all legal and regulatory requirements (e.g. labor laws, EEO, safety). These could be mandated at the local, state, or federal level. 

It’s important to have the right number of people in your workforce and people with the right certifications, experience, and licenses (if applicable). 

Terms to Know: Headcount Planning 101

Before you start headcount budget planning, familiarize yourself with these key terms:

• Full-Time Equivalent (FTE): A measurement based on the organization’s full-time status and the hours an individual employee actually works. This will help you calculate how many and what kind of employees you have and still need to hire.
• Attrition rate: The rate at which employees voluntarily or involuntarily leave an organization. This metric can help you evaluate low or high turnover rates. 
• Hiring velocity: A company’s speed and efficiency in hiring, usually calculated by number of positions filled within a certain amount of time. Long hiring times may indicate that your efforts are inefficient and/or your job offers are not competitive.

Common Headcount Planning Issues (and How to Avoid Them)

As you dive into your own headcount management, you might be wondering what common challenges could arise and how they can be mitigated.

How to Do Headcount Planning: A Step-by-Step Process

Here is a guide to conducting headcount planning. It will help you evaluate your current workforce, identify skills gaps, estimate budgets, and collect necessary data.

We’ve also included ways to avoid common mistakes while following best practice guidelines.

Step 1: Engage Stakeholders in Planning

Gather insights from stakeholders, executives, managers, and frontline staff. You’ll have information regarding high-level direction, execution strategies, and input about what is working and what is not .

Some additional tips to gather the best information:

• Review your organization’s plans, goals and challenges: Pull from historical headcount plans and discuss top priorities. 
• Create questions based on goals: Think about what insights you want to draw from your headcount plan. For example: Is the focus on streamlining workforce costs or complying with new labor laws? 
• Start early: Reach out to stakeholders and staff early for their input, even months in advance.
• Make it easy: Simplify how stakeholders and staff communicate with you. While email messages and surveys can be effective and convenient, schedule time for live conversations as well.

Step 2: Set Up KPI Tracking

The most transformative headcount planning process builds in ways to collect, analyze, and track key metrics, including:

• Employee turnover rates
• Time-to-fill and time-to-hire 
• Attrition and retention
• Training time
• Revenue per employee

Even before generating your headcount, you’ll need access to these metrics to understand previous and current states.

Step 3: Integrate Strategic Business Initiatives

With a preliminary mockup of your headcount, start layering in your business goals. This could include market expansion, product launches, organizational restructuring, diversity and inclusion initiatives, and more.

How can headcount planning be tailored to support these goals?

• Track metrics that matter: As you create your plan, include ways to collect and store data insights right within your plan. You may need software like OrgChart to accomplish this.
• Fortify specific departments: See how you can leverage your current workforce and note where you need to hire new talent to ensure you have enough manpower. 
• Prioritize staffing changes based on doability: Determine which goals and needs are the most pressing. Then, you can prioritize certain staffing improvements over others, and get things done.

Step 4: Find and Research the Best Headcount Planning Tools

There are various headcount management tools to facilitate better data collection and mapping. For more information about easily creating org charts, explore our blog . 

Headcount planning software like OrgChart simplifies the process. Plus, it includes various features that solve common HR challenges, such as:

• HR system integration: Pull data insights within minutes.
• User-friendly interface: Make quick changes with drag-and-drop features and automatic staffing updates.
• Streamlined visual representation: Customize how you want your org chart to display for instant comprehension.
• Shareable formats: Send it to your stakeholders, or incorporate it into a presentation for easy distribution.
• Custom filters and insights: Choose what information you want pulled from your existing HR system: time until retirement, salaries, titles, and more.

Curious how OrgChart works? Book a free demo today.  

Future Trends and Technological Advancements

The future of headcount budget planning is fast, automated, and more informative than ever before. 

Headcount planning software like OrgChart gives you the latest features. 

These advancements allow HR professionals to incorporate more data-driven insights without increasing the workload. Headcount planning becomes a flexible and strategic roadmap to move the business forward.

Create an Org Chart for Headcount Planning

Headcount planning is the first step in forecasting and budgeting for staffing needs and aligning your people with strategic objectives.

Our best practices can help you create a headcount planner that empowers your leadership to make calculated, successful decisions. 

See how to make an adaptable, detailed org chart in minutes.

Book a free orgchart demo, to learn more about other hr-related hot topics, explore more of our latest blogs, guides, and more here., “ extremely easy to implement and use. easy and fast to create charts, allowing the information to be always updated and even better, customised. ”.

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Sales Operations Lead

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“ OrgChart creates a perfect org chart that’s easy to update every time. Saves battling with MS Visio every time there a staffing change. ”

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• Headcount Planning: An HR Practitioner’s...

Headcount Planning: An HR Practitioner’s Guide

What is headcount planning?

Why does your organization need headcount planning?

Essential for financial planning & analysis , solid recruitment plans , effective use of your (future) talent .

• The number of employees required to help attain your company goals
• The specific skills and knowledge needed for the business
• Your current workforce (headcount and existing skill sets)
• Diverse workforce goals

Better HR strategies, processes, and policies

Headcount planning best practices, 1. review your organization’s plans, goals, and challenges, 2. put your headcount reporting in order.

• Job status (active or inactive)
• Schedule status (part-time, full-time, contract)
• Time in role / tenure
• Exemption status (exempt or non-exempt from receiving OT pay)
• Education level
• Retirement age
• Veteran status
• Always tag employees’ status: Are they full-time, part-time, seasonal, or temporary employees?
• Be responsible in managing employee data : Comply with record-keeping laws and observe data security.
• Create a headcount report dashboard to gain accurate information on your current headcount status and key metrics in real-time.
• Identify short and long-term goals by aligning your headcount targets with your long-term business strategy to help you effectively respond to labor and compensation trends and developments.

3. Determine who needs to be involved

4. gather sufficient data.

• Revenue goals
• Forecasted expenses and budget for recruitment
• Current number of employees
• Role requirements
• Employee skills 
• Employee salaries
• Organizational hierarchy
• Performance ratings 

5. Find the right headcount planning tools

6. prepare for multiple scenarios, 7. continuously review your headcount plan, a final word.

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Headcount Planning Process, Tools, & Checklist

• September 9, 2020
• Corporate Performance Management , Financial Planning (FP&A)

Table of contents

What is headcount planning, benefits of effective planning, costs of poor planning, 1. understanding of current team, 2. long-term vision, 3. collaborative, 4. accurate and complete, 6. transparent and visual, determining demand, 1. make extensive use of assumption sheets, 2. leverage active dashboards for immediate feedback and collaboration, 3. differentiate forecasted hires from actual employee data, 4. reduce manual entries or “plugs” as much as possible, 5. include detailed salary information in employee data where practical, want to learn more about headcount planning, further reading.

Headcount planning is a critical process employed by businesses to ensure a company’s available resources meets its demands both internally amongst your team and externally with regard to your business structure. On the surface, it’s a straightforward comparison: demand vs. availability. Will the demand for our resources be met by the availability of those resources? Will they be met not just now, but in the foreseeable future? It doesn’t take long to recognize the challenges inherent in accurately and completely determining the values on each side of the equation. You also realize very quickly that the equation is not a static one. Both sides of the equation are constantly changing and an effective planning solution must be dynamic.

Having the right people in the right jobs is important to be able to successfully execute any business strategy. Since headcount has the biggest impact on the bottom line – costs related to headcount compensation and benefits typically account for between half and three-quarters of a company’s budget and operating expenses – success hinges on your hiring decisions.

With a clear roadmap and systematic headcount planning process in place, you are able to effectively balance resource demand and availability. This results in quicker, more efficient deals as no time is spent matching customers to resources. Strong headcount planning also helps to identify areas of need within your business as it will become very clear where your resources don’t align with demand.

Without a good, systematic headcount planning process in place, your business is unnecessarily vulnerable to shifts in the marketplace. Given that salaries and related costs constitute such a big percentage of a company’s overall budget, large unexpected fluctuations in these expenses can sink a business. On the revenue side, companies without an effective planning process miss out on valuable opportunities that arise if they’re not prepared with the necessary sales and support resources. Within sales teams, accurate headcount plans can be crucial in determining responsibilities within a team. Without these plans, it’s very likely that individual time and effort are used inefficiently.

Lastly, inadequate systems put an undue burden on a company’s finance team. They become tasked with data gathering, data updates, and preparation of reports that are no longer relevant by the time they’re complete and distributed.

What constitutes a good headcount planning process?

You need the right people in place at the right time. This is much easier said than done, but every good headcount model has certain characteristics to ensure it provides relevant and timely information for hiring decisions. Here are those characteristics:

Ensuring your current workforce is thoroughly represented in your model is critical. This means it contains detailed employee data including roles, salaries, cost centers, geographies, etc. Any data element you include in your overall financial planning model should be part of your employee dataset.

Estimates strongly supported by existing data and extrapolated where possible are needed for a meaningful headcount demand forecast. You should have a good sense of where your organization should be in 12, 24, or 36 months, including any potential changes in external demands or industry conditions.  

For any planning process to be meaningful, input from business unit leaders across the company is required. Allowing department heads and budget managers to do the heavy lifting frees the finance team for important analytics work.

The importance of accurate and complete employee data cannot be overstated. Systematic reviews are necessary to ensure all the correct attributes are assigned to each employee and prevent over-or under-counting.

Annual or even quarterly planning is no longer enough to stay competitive. The planning process should be ongoing. To remain agile, your headcount planning model needs to be easily updated to reflect an ever-changing business environment. Any changes made to your model should be instantly available for review and comment by business stakeholders.

Transparency into the planning process and how final outcomes are determined increases the feeling of ownership among the contributors, which leads to increased participation and accuracy in data reporting. Additionally, visual representations help contributors understand how their inputs affect the overall planning process in an easy, digestible way.

Approaches for determining demand for people vary by industry but generally are based on anticipated demand for a company’s products and how much they can sell, deliver, and support. 

For example, SaaS companies often start with spreadsheets that model various revenue scenarios and calculate key metrics and ratios. These ratios might include:

• Sales Rep Quotas and ACV
• Account Execs : Sales Reps
• Sales : Marketing
• Sales & Marketing : R&D
• Accounts : Account Managers
• Percentage of G&A 

Once established, these ratios can be used to establish the number of employees in each role to support specific revenue goals. Combining the ratios with forecasted sales and ramp-up time for certain roles, you can determine how and when net headcount will need to increase to meet sales quotas.

Of course, the details of how resource demand is calculated are different for each industry. But the concept is essentially the same – first determine market demand for your product then identify the skills and number of people needed with those skills to meet the demand.

Calculating Availability

Calculating the availability of headcount to meet forecasted demand can be much more difficult. Common pitfalls include inaccurate and/or incomplete data, double-counting of data, and frequent changes requiring reworking the model.

Following the best practices listed below within a platform like Workday Adaptive Planning won’t necessarily eliminate your issues but they will be significantly reduced and, when they do pop up, will be much easier to deal with.

Often, key percentages, multipliers, etc. are set at a dimension level. For example, your company may be planning to offer 3% raises for employees in Europe next February but 4% raises for US employees in June. You can model these differences in assumption sheets and utilize formulas to ensure the correct percentages are applied when forecasting salary costs in future periods.

Active Dashboards in Adaptive Planning enable entry of changes to your headcount model with immediate visibility of how expenses, revenues (for capacity-based revenue models), and important KPIs are affected, all in one place.

By making budget owners contributors, you can also share dashboards with them for submission of new data, instead of putting the entire burden on your finance or HR team.

Forecasted hires and actual employee data should be differentiated from each other to ease reporting and improve analysts’ ability to identify potential issues. You also can delegate maintenance of the data more easily when the different categories of headcount data are easily identified.

Differentiation can be achieved through the use of separate sheets or distinct categories if the data is maintained in the same sheet. Keeping the data in the same sheet is often easier to set up but can become overly complex with higher data volumes. Separate sheets require more planning to be utilized properly but can simplify administration as your headcount grows.

When data is imported into your headcount model, you may find data cleanliness issues that need to be fixed after import. For example, there might be multiple rows of data for a single job role but each row has a slightly different job role name. By mapping misspelled or otherwise differently named roles between your source data and planning system, using mapping tables to transform the data on the way in eliminates the need for any manual updates after the fact.

Except in very large companies with tens of thousands of employees, avoid aggregating salary data for groups of employees. With Adaptive Planning, you can control access to salary data separately from cost centers and dimensions. When creating your model, you have control over which fields represent salary data and these fields are not available for view or entry to users who aren’t specifically given access to them.

By aggregating your data after bringing it in and not before, you greatly improve your reporting flexibility as well as your team’s ability to troubleshoot any issues that may occur.

Download Our Headcount Planning Checklist to get Started

Starting headcount planning may seem like a daunting task, but there are several people who are willing to help. Download our checklist to get started.

Creating a headcount planning process might seem like a daunting task as determining demand and calculating availability can be unclear, but it is a key way to improve your business agility. By focusing on your long-term goals while maintaining an understanding of the current makeup of your business, company leaders are empowered to identify areas of need quickly to redirect resources to create the most efficient solution. Schedule a call with QBIX today to start the process of gaining stronger insights into your business through accurate headcount planning.

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4 Headcount Planning Strategies to Drive Success

Published:  jul 10, 2020 time to read:  6mins category:  org charting.

Written by: Stacy Soley

Stacy Soley has more than two decades of experience working with organizations solving strategic issues. In her time with PeopleFluent, she was responsible for the execution and progression of multiple ad hoc initiatives to advance the company's business strategies. She has completed a variety of research efforts into the human capital management marketspace and the talent management products. Stacy began her career as a CPA and combines financial understanding with an MBA. Her continuing education includes emotional intelligence, product development and management, pricing, data, and leadership.

• Compensation
• Talent Management

In this article, you’ll find four strategies that drive success and make the headcount planning process simpler and more effective. Managing your organization’s headcount, while staying within budget, and having the employee resources to meet your organization’s strategic goals for growth is a crucial component to any talent management strategy. Although 70% of HR executives understand the need for workforce transformation, only 37% of these same leaders are confident that their HR departments have the ability to make future progress.

What Is Headcount Planning and Why Is It So Important?

Regardless of industry, executives and leaders need to know that talent costs and goals are aligned across the organization. That’s where headcount planning comes in, and why it’s vital to your future success.

A critical talent management exercise , headcount planning (also known as org charting) is a systematic process designed to ensure an organization has the right number of people with the right skills in the right roles so the company can execute on its business strategy. For enterprise organizations, the process typically culminates in a talent review meeting where leaders talk about hiring targets, succession, organizational structure, and more.

Before making hiring decisions or implementing a succession plan , managers need to understand their current and future organizational design. The best way to tackle this level of planning is with the use of an appropriate solution that allows decision-makers to see the design, performance, costs, and span of control for the organization as it exists today. Taking that a step further, a capable org charting tool will also include open positions and contingent workers, as well as additional resources that are necessary for the organization to function properly.

Furthermore, the right org charting tool can help managers create and share visual representations of how all these factors will come together when a change is made, such as a restructuring, an office closure or a company merger. A successful headcount planning process accounts for both internal and external changes, empowering the organization by:

• Aligning talent strategies with organizational strategies and goals
• Identifying skills the current workforce lacks, but that you need to be successful
• Focusing recruiting teams on the right candidates—the ones with the skills you need in the near term
• Allowing managers to identify and mentor employees who can—with additional training—fill critical skills gaps
• Projecting costs associated with hiring new staff and developing current employees, as well as salaries for your future workforce.

RELATED READING | ' Charting Your Course to Success: 6 Ways Org Charting Software Saves Precious Time '

To reap the benefits of workforce planning, organizations should take these four steps to create their headcount plan.

1. Identify Your Business Challenges

When identifying business challenges, there are a few questions to ask yourself:

• Has your competition broadened or deepened their offerings?
• How are your customers’ needs evolving?
• Are there regulatory changes ahead that will affect your businesses?
• Are there technologies, process automations, or other innovations you can adopt to your competitive advantage?
• Is your goal to grow within current markets, expand into new markets, add products or services, or enhance existing lines?

With a firm understanding of your business goals, strategies, and market landscape to inform the headcount planning process, you can keep pace with what’s ahead while anticipating your organization’s future needs.

2. Establish Metrics to Evaluate Existing Talent, Define Workforce Needs, and Inform Budget Projections

Smart leaders—and successful organizations—ground their critical decisions in data. As with effective succession planning and other talent decisions, headcount planning should be as free of individual bias, guesswork, and subjectivity as possible.

Define the objective measures by which you will determine whether individuals or departments are staffed with the right people, and let those metrics drive your workforce evaluation and headcount strategy. Common workforce metrics include:

• Performance ratings
• Position requirements
• Employee skill sets, certifications, and licenses
• Attrition rates (overall and by department)
• Department hierarchy
• Retirement eligibility information
• Salary data

During your headcount planning exercise, HR and business leaders who lead and participate in headcount planning exercises will benefit from data visualizations that capture these workforce metrics in real time.

YOU MIGHT ALSO LIKE | ' 6 Steps to Kick-Start Your Succession Planning '

3. Evaluate Your Workforce

Now it’s time to put the metrics to work. Some important considerations to think about during this stage:

• Which roles are critical now and which ones will be in the future?
• Which positions (if any) can we do without to maximize the overall ROI of our workforce?
• Where are we having problems with attrition and what can we do about it?
• Are we growing or hiring succession-eligible employees?
• Do you know who your high potential employees are? And which employees are a high flight risk?

As you evaluate the workforce, pay particular attention to critical roles. This includes leadership positions—the ones typically accounted for during succession planning and talent reviews—but don’t neglect other roles.

Depending on your industry and market dynamics, other critical positions might include sales, customer service representatives, R&D, retail associates, or project managers. Essentially, whichever roles are necessary for implementing your business strategy in the near and mid-term.

HANDPICKED FOR YOU | ' 6 Real-World Benefits of Combining What-If Planning and Org Charting Software '

4. Make Headcount Planning Agile and Inclusive

Organizations that engage in formal headcount planning typically do the exercise annually. But given the current landscape due to COVID-19, which has shown us how quickly markets can pivot, the truly strategic approach should be agile, inclusive, and iterative. That is, your headcount plan should be a living document.

Ideally, leaders should revisit and adjust their strategic workforce plan regularly, using real-time data. This enables the organization to respond nimbly to internal and external factors that could otherwise be disruptive.

The headcount planning team should reach out routinely for insights from departmental and business line leaders, and their HR counterparts, to surface near and long-term skills needs.

The Competitive Advantage of Headcount Planning

As a significant element of workforce planning as a whole, headcount planning is one of the most powerful and critical exercises led by HR teams. Your headcount plan makes a direct connection between strategic organizational priorities, budgets, and talent management strategies—including hiring, learning and development , and succession planning.

Being able to plan a proposed organizational structure will have the greatest benefit for senior leaders, like the VP of Human Resources, who are looking at larger organizational structures. Having a clear roadmap and process for success in place, along with real-time data to inform course corrections or shifts, gives your business an edge on the competition.

Take the guesswork out of organizational planning with your free trial of OrgPublisher , where you can see all your critical workforce data in easy-to-read org charts.

Discover how org charting helps you see your enterprise in new ways.

An organizational chart can be more than something to look at. It can tell you things. See and understand your workforce in real time and living color.

Related Reading On Org Charting

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Mosaic’s Guide to Headcount Planning & Key Strategies

Brian Campbell

Founder and CPO

Profit and Loss + Headcount Model

There are three Cs that define the best headcount planning processes — continuous, collaboration, and consistency. 

While the bulk of your headcount planning effort might come in the traditional annual planning process , high-growth companies can’t rely on that plan for the long term. Circumstances are constantly changing, and the most strategic finance functions partner closely with department heads to keep plans updated at least on a monthly and quarterly basis throughout the year.

But if it were so easy to make headcount planning a collaborative, consistent, and continuous effort, every team would do it. If you want to take the pain and frustration out of headcount planning , this guide will help.

Table of Contents

Get the blueprint for your best planning cycle yet

What Is Headcount Planning?

Headcount planning (and future workforce planning more broadly) is the process of assessing your current workforce and determining the best path forward for staffing future needs that will scale the organization.

But traditional finance education and experience don’t prepare you to understand the ins and outs and other departments. You don’t necessarily know how different parts of the engineering department work together to execute on the product roadmap. And you don’t necessarily know the nuances of the company’s sales team. All the more reason to nail down a collaborative headcount planning process.

Why Is Headcount Planning Important?

Headcount planning is important because workforce-related costs are typically the single largest expense for a business — especially in SaaS, where headcount can comprise upwards of 70% of total spend. 

Because workforce expenses make up so much of your total spend, getting headcount planning processes right can make or break the overall efficiency of your business.

A continuous, collaborative, and consistent headcount planning process will help you overcome many of the common frustrations that come with the exercise. Getting it right means:

Aligning Your Business on a Single Source of Truth

Building your headcount plans in a way that everyone in the business — not just finance — can consume and understand is critical. A strong process creates a single source of truth that eliminates any confusion around open heads and forecasted new hires .

Refreshing H eadcount Plans According to the Latest Information

A strong headcount planning process means developing and maintaining the forecast continuously. Don’t just wait for annual planning or quarterly board meetings to make incremental budgeting changes.

Keeping Your Ratios in Order

Inconsistent headcount planning can lead to mismanagement of workforce ratios and succession planning. An effective process accounts for those critical ratios to ensure you’re hiring the right number of people in the right roles while also safeguarding against attrition.

The 6 Essential Steps of Headcount Planning

Every company’s specific headcount planning process is unique. However, the following essential steps will put you on the right track to maximizing forecast accuracy and efficiency.

1. Start with Top-Down and Bottom-Up Backcasting

Every headcount planning process should start with backcasting — working backward from business goals to come up with the requirements to reach them.

There are two angles you can take:

• Top-down. Start with business objectives that come from leadership. What are the company’s growth goals and initiatives for the next year or three years? What are the current constraints for getting there and how do you fill skills gaps ?
• Bottom-up. Approach headcount plans at the department level first. For example, what assumptions do you have around sales rep quota attainment and ramp rate? Given those assumptions, how many sales reps do you need to hit revenue targets? And how many customer success managers will you need to handle the increased customer count ?

Combine these two angles to create a strong foundation for the headcount planning process . Knowing how department-level growth plans and goals map to company-level goals will give you a common language with everyone in the business to get this process right.

2. Understand the Workforce Planning Ratios in Your Business

Proactivity and curiosity go a long way toward building the trust and understanding needed for collaboration and determining what the necessary steps in strategic workforce planning for your organization are.

Once you have established a first-class understanding of how different teams and departments work together, you can begin to assess headcount-driven dependencies and focus more on strategic resource planning. This is where partnering with human resources can help. Because HR teams are so close to the org chart side of headcount planning , they’ll be able to help you understand the organizational structure and the relationships between different roles in the org. Here are a few examples.

• Customer Success Employees to Customer Count 
• Customer Success Employees to Revenue 
• Managers to Employees
• QA Engineers to Developers 
• G&A/Operational Support to the Rest of the Business 
• SDRs to Account Executives
• Sales Team to Revenue
• R&D/S&M/G&A Staff to Total Employees

3. Build Out Your Headcount Planning Template

Once you have determined the interplay between different departments across the org, leverage a headcount planning template and establish baselines around what efficient teams look like at scale.

Carry those baselines forward using the hiring plans you receive from your business partners. Push back when ratios start breaking the mold. Be proactive by recommending solutions that scale non-linearly with headcount.

Here are a few examples that CFOs and their teams can offer to business partners:

• Encourage business leaders to implement software that gives their people a force multiplier. Some examples are customer success ticketing software, headcount planning software , sales automation tools, and marketing aggregators .
• When ramping engineering teams for a new product launch, consider contract-to-hire models that ensure you are not left with unallocated resources once the surge is over.
• Ensure new employees in engineering are not spinning up cloud instances unnecessarily. If you need to surge, ensure you are buying reserved instances vs paying based solely on usage.

4. Account for Employee Ramp Time

Your headcount model should reflect both short and long-term goals that are challenging but attainable. Make sure hiring plans are realistic with what your company has been able to do historically. Setting goals that are not realistic will leave you with a bloated model that is not reflective of what is happening across the business.

If you have an applicant tracking system, leverage the data from this tool to understand the number of resumes in the queue, historical pass-through rates, and time to hire. Fact check these metrics against hiring assumptions and timelines to ensure they make sense.

If meeting your top-line goal is dependent on new sales reps, make sure onboarding and rep ramp times are factored into your model. To calculate rep ramp, you will need data from your CRM as well as data from your HR system. Figure out how long it has taken for your reps to contribute meaningfully to the pipeline from their start date. Bake these timelines into your projections.

You’ll find that you should often hire sooner than you thought to meet your near-term goals. 

5. Prioritize Hires and Understand the Fully-Loaded Costs

Because your business and external factors can change so quickly, it’s important to keep a prioritized list of forecasted hires as part of your headcount plans . 

When you stack rank your open roles, you know that you’re dedicating talent acquisition and recruiting team efforts to candidates with the right skill sets. And if you have to reduce headcount plans for whatever reason, you won’t be in a situation where you hired a handful of low-priority roles and have to cut the most critical ones.

Any process of mapping out and prioritizing forecasted hires should include the fully-loaded costs of future and current employees. Salary and benefits are not the only costs to consider when adding new folks to the team. There are several other direct and indirect costs that need to be factored into your model.

These costs contribute to the fully loaded cost per employee, the metric you should track as you scale.

Here are additional costs contributing to the fully loaded cost per employee:

• Employer Payroll Taxes 
• Dependents Benefit Expenses 
• Signing Bonuses 
• Relocation Fees 
• Computers & Equipment 
• Software Licenses 
• Recruiting placement fees & job postings 
• Rent and Space Requirements 
• Performance Bonuses
• Salary Adjustments
• Office meals and supplies

Additionally, keeping an eye on the revenue per employee metric is crucial, as it provides insight into the overall financial efficiency of your workforce.

6. Get the Plans Approved and Reassess Often

One critical part of the headcount planning process is getting approval from both your executive team members and the board. But the approval chain can be nuanced.

If you’re riding the wave of a strong market and have plenty of VC funding, headcount plan approval is more like a formality — you’re expected to grow rapidly. But in the case of a market downturn, extending runway is key. And that means having deeper conversations with executives and investors about the priorities in your hiring plan and making sure that you align the priorities of different stakeholders.

This is another reason why it’s so important to make your headcount planning process continuous. You don’t want to have to go through the complex process of building a hiring plan from scratch every time a board meeting comes along. If you’re having consistent conversations with department leaders, you’ll be able to keep the hiring plans fresh and go into executive and investor meetings with confidence.

Get Powerful Insights Into Workforce Management & Unlock a Smarter People Strategy

Requirements needed for headcount planning success.

Traditionally, headcount planning (like all financial planning ) has been a spreadsheet -based process — and a frustratingly difficult one at that. Like most processes in finance, spreadsheets get the job done. They just might not be the tool that will get you from building passable headcount plans to nailing down the consistent, collaborative, and continuous process high-growth companies need.

If you want to improve your headcount planning workflows , you need to satisfy three requirements.

Build a Single Source of Truth

Headcount planning goes wrong when new forecasting cycles come with a brand-new version. Eventually, you have multiple spreadsheets all formatted slightly differently, causing stakeholders to lose trust in the process. Building out a single source of truth is critical to success.

Use a Collaborative Process

How much agency do your business partners have in the headcount planning process ? Because spreadsheets aren’t inherently collaborative tools, it can be difficult to get leaders from across the department to work with you on headcount plans . Finding different tools that speak the same language as business partners can make a difference in headcount planning .

Interconnectivity is Key  

Manually updating your headcount plans with real-time actuals from your different workforce planning-related systems is tedious, time-consuming, and error-prone. Integrating data from your HRIS, ATS, CRM, and other source systems will help you focus more on strategic planning and less on data collection and aggregation.

Spreadsheets no longer have to be the de facto tool for headcount planning . Find out how Mosaic can help you create more dynamic headcount plans complete with multiple scenarios (without the usual headaches).

Smart, sustainable headcount planning will help you avoid or at least minimize worst-case scenarios.

Implementing these practices will give you a more data-driven approach to headcount planning , ensuring that you hire the right people, at the right time, for the right business reasons.

Headcount Planning FAQs

How does mosaic help facilitate headcount planning.

Mosaic’s Strategic Finance Platform integrates seamlessly with HRIS systems as well as your ERP, CRM, and billing systems to give a holistic view of your workforce. You can easily visualize headcount by department, role, or location while making real-time adjustments as needed and forecast future hiring needs.

How does headcount affect budgeting and forecasting at my organization?

Headcount has an immediate and dramatic effect on a company’s expenses and future budgeting, from payroll costs and employee benefits to taxes and overhead expenses. This makes headcount planning one of the key components in financial forecasting and planning processes.

What are the differences between headcount and full-time equivalents?

Headcount is the total number of employees within an organization. FTE stands for Full-Time Equivalent: it measures an employee’s workload in such a way as to be comparable across contexts for both part-time and full-time employees. An FTE value of one equates with full-time work while half-time work would only qualify as half FTE status.

Related Content

• How to Build a Workforce Planning Process that Boosts Growth (+ Examples)
• The Unpainful Budgeting Process: How to Plan with More Collaboration and Agility
• Recession-Proof Your Business in 5 Steps

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How to do Headcount Planning (the Easy Way) Using Agentnoon

Grow your business with confidence. In this headcount planning / workforce planning guide, learn how to plan headcount accurately in minutes (not weeks).

Why is the headcount planning process important?

How to do headcount planning (in 7 steps), step 1. identify goals (and challenges), step 2. collect required data, step 3. build your organizational chart, step 4. identify hiring gaps, step 5. align all stakeholders, step 6. forecast costs, optional: plan for multiple headcount scenarios, step 7. monitor your headcount plan.

People make up ~ 70% of a company’s spend. Yet most senior execs don’t create well-defined headcount plans that tie back to business outcomes.

The result: Subpar teams that are operationally ineffective and financially inefficient. These are teams that often fail to meet org goals.

That’s why headcount planning is important to grow your business. The cost of making a mistake is high. If you hire the wrong people, don’t you risk wasting time and money? 

In this guide, you’ll learn how to create a successful headcount plan FAST .

We’ll use Agentnoon – a workforce planning software to help us with the headcount planning process. Using the tool isn’t essential, but it’ll help you save ~2 weeks.

By the end, you’ll be able to plan headcount in hours. Not weeks. 

(… without the needless complexity, headaches, or guesswork.)

Let’s dive right in.

What is headcount planning?

Headcount planning (aka headcount modeling , org charting or workforce planning ) is the process of setting up your workforce to help achieve your business goals. Check out Headcount planning checklist .

In simple terms: figure out key hires to make so your company can achieve its short and long-term goals. 

Here’s what workforce planning looks like in Agentnoon : 

Headcount planning or Workforce planning aren't just an HR buzzword. 

It’s a strategic exercise that’ll help you hire the right people with the right skills to execute your company strategy. Without going over your headcount budget.

At a high level, here’s how headcount planning works:

• Identify business goals
• Collect the required data
• Build out your org chart 
• Find hiring or skill gaps
• Plan for multiple scenarios

We’ll dive into each step in greater detail.

“The number one fixed cost is people.” – Sahil Lavingia, The Minimalist Entrepreneur

People are your company’s biggest expense . But they’re also your strongest asset. Why not allocate your biggest spend wisely to hit your growth goals? 

That’s where headcount planning comes in.

Without a headcount plan, you have no way of knowing if you can sustain expansion or scale successfully. It’s like shooting in the dark.

On the flip side, companies that plan headcount have a ~ 2.2x higher chance of success: 

Dynamic workforce planning (aka headcount planning ) is the future of work.

Still not convinced? 

Benefits of headcount planning:

• Flexibility: Headcount planning helps you adapt to shifts in the market, technological  innovations, and the economy. By reviewing your plan frequently, you can respond quickly to events like layoffs or recessions.
• Cost Efficiency: Helps you hire the right number of people based on your business goals and workforce gaps. No more worrying about being over budget.
• Effective forecasting: Leaders often overshoot their budget. They also lack a clear vision of who they need to hire. Without a plan, you’re shrouded in uncertainty. That's why an effective workforce planning leads to accurate headcount forecasting .

Bottom line: Headcount planning is about being proactive. Not reactive. It helps you connect the dots between growth, talent, and budget.

How top execs do workforce planning:

• Do flexible workforce planning for multiple scenarios (Headcount Modelling)
• Tie headcount decisions to business objectives .
• Make decisions based on accurate employee data. 
• Ensure buy-in from all senior executives. 
• Adjust plans quickly with limited impact on execution.

An investor’s success relies on effective capital allocation. Your success as a business leader relies heavily on allocating talent effectively.

At large orgs (>200 people), workforce planning is complex and time-consuming. In early-stage startups (<50 people), it’s ad hoc and relies mostly on guesswork. Which is why most CEOs dread it.

Not anymore. 

Here are 7 steps to accurately plan headcount, FAST .

Are you an Agentnoon user? Here’s a simple headcount planning process: 

Let’s cover each step in detail: 

Staff Planning or Headcount planning starts with Identifying your business goals. Your goals are your “why”. If you know your “why”, the “how” slowly reveals itself.

Start listing out your organizational goals as they relate to growth. 

For example, your goals might be: 

• Grow 30% MoM this year.
• Increase closing rate by 20%.
• Expand into EMEA.

Once done, ask yourself: “what’s preventing me from achieving these objectives?” 

In other words, carry out a quick gap analysis : 

Make a note of all the challenges (or gaps) preventing you from hitting your goals. More often than not, it’s a lack of the right people in key areas that are a major bottleneck.

Maybe you’re not growing fast enough . Is the problem a lack of consistent leads? Or is sales unable to close leads? Based on the answer, you might need to bolster your marketing team. Training your sales team is another option.

Trying to expand into new markets? You might need to build an expansion team. Maybe you don’t have employees with the right skills in your current workforce. You’d benefit from hiring someone with experience leading companies into new markets. That's where an effective workforce planning process comes to play and exactly why good workforce planning softwares are needed.

You’re training to gain clarity on two things:

• Where do you need to hire? 
• Who do you need to hire? 

This is the most crucial step in this exercise. Don’t skip it.

Or as Abraham Lincoln said: 

“If I only had an hour to chop down a tree, I’d spend the first 45 mins sharpening my ax.”

To do staff planning effectively, we need to collect key employee data. Without it, your headcount plan is as good as a bunch of guesses. Most of which will be wrong.

Here are a few inputs you need to collect: 

• Revenue goals
• Annual budget
• Projected spend
• Number of employees
• Position Requirements
• Company hierarchy
• Employee salary and skills
• Individual worker performance
• Attrition rates (overall and department)
• Payroll data (compared to benchmarks)

This is where things start getting complicated. Most companies (and yours) use different HRIS, ATS, and FP&A tools. Each tool has different data points.

You’ll have to perform some gymnastics to bring all your headcount data into one place. 

You have two options:

Export your data from these tools. Import everything into a Google Sheet (or Excel). This will save you some money. Keep in mind: working in Sheets is time-consuming and prone to errors.

Or you can use Agentnoon .

Upload your Sheets data into Agentnoon and you’ll be up and running in ~15 minutes.

Once done, you’ll find all your people data organized visually in Agentnoon's organizational chart.

With Agentnoon you can: 

• Collect data: From your favorite HRIS, ATS, HR tools.
• Manipulate data: Slice-and-dice data with powerful filters.
• Calculate impact: Real-time insights into your burn rate. 

All in one place.

The best part: Agentnoon integrates with 100+ HRIS, ATS, and HR tools . Which means setup is as easy as a few clicks and let's you do your headcount planning in minutes.

No app downloads. No complex migrations. It’s that simple.

This makes Agentnoon your central repository of employee information: 

Review the people data you’ve collected so far. Look at team sizes, ratios, and comp benchmarks. Reconcile these insights with your goals (from step 1). This will make your headcount planning accurate.

But that’s not all. Analyzing your people has other tangible benefits:

• Highlight inefficiency: Diving deep into critical peo ple data will highlight areas of improvement. Maybe your sales department is consistently working overtime. Why not hire more salespeople and relieve some pressure off them?
• Set better goals: Let’s say you have a limited recruitment budget. Can you still hit your original goals? Do you need to revisit them? This data will help you set realistic goals you can achieve (while operating on a limited budget).
• Get a birds-eye view: Get a holistic understanding of your business health . You might notice key people metrics performing better or worse. Now you can fix people issues before they become larger problems. 

Optional: Talk to current employees. Data can only tell you so much, but employees have a better pulse on the current business situation. Do they feel overworked? Is their department understaffed? Do they have a strong enough team to hit their goals?

Headcount planning is easy and intuitive when you visualize your organization.

The best way to visualize your organizational structure? Create an org chart .

Here's a list of 1 0 best org chart software in 2023 .

So far we’ve identified our business goals, challenges, and analyzed the required data. In this step, we’ll use these inputs to build out an org chart.

There are many ways to design an org chart: 

If you uploaded your Google Sheets data (from step 2) into Agentnoon , you’ll be automatically greeted with a beautiful org chart:

Most org charts are structured top-down. You, as founder or CEO, start at the top, followed by senior execs, and finally direct reports.

In this step, we’re going to create an ideal org chart. This means we’ll add the exact hires we need to make in key departments. 

Determining your ideal headcount will require some math. But if you carry out steps 1 and 2, it’ll be easier and more accurate. Once done, highlight these roles with a different colour so you know which gaps to fill.

In Agentnoon, you can seamlesslydo headcount planning with our intuitive org chart software. Drag-and-drop role templates, slice and dice your org chart with powerful filters, and plan for different futures: 

We’ll also give you real-time data on how your changes impact budget: 

New blog: The SaaS Org Chart You've raised a new funding round. You need to staff up. Here's what that looks like. https://t.co/6ZIGO8Jlx1 — David Sacks (@DavidSacks) July 23, 2021

Further Reading: The (Interactive) FTX Org Chart

This is the most straightforward step in the headcount planning process. 

We’re going to answer: “who do I need to hire to achieve my business goals?”

Once you create your ideal org chart, the hiring gaps will reveal themselves. This is labor you need to hire. Prioritize them based on your business goals (and challenges) from step 1.

Here’s a few examples: 

• Trying to scale growth? Consider adding firepower to sales or marketing teams.
• Expanding into a new region? Hire someone with the right skills to lead your team.
• Looking to increase closing rates? Upskill your current sales team instead of hiring more salespeople (which may not fix the problem).

Build a hiring report with Agentnoon : 

Pro Tip: You can use Glassdoor, Payscale, or Salary to find salary ranges for each role. 

If you’re a global tech company, Agentnoon has a nifty salary calculator:

You’ll get accurate salary ranges for roles based on title, seniority, and location. 

Plus, confidentiality controls ensure only the right people have access to salary data. Give it a try! 😉

Now you have a list of key roles to hire for along with a hiring budget for each role. Time to secure buy-in from your team.

If you’re the CEO of a startup, feel free to skip this section. But if you’re a large org, this step is especially crucial. 

Hiring is a holistic process and requires collaboration between different teams. To succeed, everybody has to be on the same page. The talent planning team, finance specialists, HR department, and most importantly senior execs.

The point: Transparency and alignment are key. 

The old-fashioned way to ensure alignment: Emails, PowerPoint, and meetings.

A faster way is by creating hiring requests for headcount planning in Agentnoon.

All your team has to do is make a hiring request. You and human resources can decide if you want to approve or reject the request for your workforce planning.

Remember: The more stakeholders in your company, the more you need to pay attention to this step.

Your ideal headcount plan is ready. But unfortunately, we live in an unpredictable world. Which means we have a few more steps to go. 

Starting with forecasting costs.

Your main barrier to achieving your business goals is going to your budget. Which will determine your headcount planning process.

To forecast costs, you’ll need to involve the finance department. If you have one.

If you don’t, start by reviewing your: 

• Cash flow statement
• Cash burn rate
• Revenue streams 

You’ll find all this information in your FP&A tool. If you use Agentnoon, you’ll find your burn rate in hiring plans (scenarios): 

Based on this information, figure out your financial capability to hire. Now and in the future. 

Once you’ve taken stock of your current resources, talk to your HR team about salary expectations. Finally, forecast your future workforce costs. Add expected salary ranges (from step 4) for each role in this forecast. 

An in-depth section on headcount forecasting is out of scope for this guide. But if you use Excel, here’s a handy model by Ben Murray :

Get Headcount Planning template (Excel)

This model accounts for salaries, part-time/full-time hours, and payroll taxes. Plus, it’s automated (with formulas) so you don’t need to spend hours updating it.

Ben explains why headcount forecasting is important: 

“Headcount expenses often represent the largest expense on a software company’s P&L. It’s important to spend the time to develop a detailed headcount forecast model so that not only your wage forecast is accurate but also your cash flow forecast.”

Further Reading: How to Create Detailed Headcount Forecasts  

If you’re using Agentnoon, headcount forecasting is dead simple.

Here’s a quick demo: 

Forecasting costs are quintessential. But by itself, it isn’t enough. 

The future is unpredictable. Resignations, mass layoffs, recessions , remote and hybrid work, and market changes are just a few events that occur randomly.

The best leaders don’t just survive during uncertainty. They thrive in it.

How? By planning for it. This is where workforce planning scenarios come into play.

Anticipating different scenarios for your future workforce is critical if you want to thrive in uncertainty. This way you can prepare contingency plans that allow you to allocate resources and staff for multiple scenarios in the best way possible. 

Scenario planning is an optional step. But if you want to be an antifragile organization , don’t ignore it. You, as a leader, and your HR professionals should allocate time to building multiple headcount plans for different scenarios. 

Antifragility: things that not only gain from chaos but need it to flourish. Antifragile goes beyond resilient. The resilient resists shocks and stays the same; the antifragile gets better.

Planning scenarios is easy with Agentnoon . 

Here’s what it looks like:

If you’ve already uploaded your data into Agentnoon, we’ll do most of the heavy lifting for you. All you have to do is create a scenario! 

The kicker: You can create unlimited hiring plans (or scenarios) with Agentnoon! 

Alternatively, you can use Causal for Google Sheets: 

It’s a nifty add-on that lets you run multiple scenarios. Without leaving Google Sheets.

Most companies plan headcount annually. The problem: headcount planning is a continual process . It isn’t something you do at the end of each year. 

“The best-laid plans of mice and men are never right.” – Robert Burns

Maybe you prefer Murphy’s Law: 

“Anything that can go wrong will go wrong.”

Will your current org structure help you achieve your growth goals? Account for market changes, recessions, layoffs, etc. And positive events like raising funds from investors or launching a new product. 

It’s important to review your headcount plan each quarter (earlier is better). This way you can make any course corrections if needed. With minimal impact on the budget.

Use Excel for headcount planning? Treat it as a living document. Work with your HR professionals to review and revise your headcount plan frequently.

Agentnoon lets you manage by exceptions. This means you can review headcount plans in ~10 minutes (vs spreadsheets). 

Here’s how to track headcount easily:

Agentnoon gives you real-time access to people data. So you can grow your business with confidence (while staying on budget). 

Make headcount planning agile. If you do it right, your headcount plan will help you respond to randomness quickly and effectively.

Wrapping Up

Your headcount planning = complete.

Follow these 7 EASY steps to plan headcount effectively. You’ll find that your headcount plan is not only operationally effective but also financially accurate. Plus, spending weeks planning headcount will now be a thing of the past. 

The best part? No more fear of going over budget when doing workforce planning with Agentnoon 😉

The best execs develop flexible headcount plans for multiple scenarios. They tie headcount decisions to business outcomes and performance. Most importantly, they adjust plans quickly with limited impact on execution. 

CEO, Agentnoon

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4 Headcount Planning Strategies for Fast-Growing Teams

For rapidly scaling companies, the pressure is on to hire quickly. But, too often, in this rush to fill roles, organizations end up making expensive staffing mistakes : hiring the wrong candidate or losing top talent because of a failing employee experience .

With effective headcount planning strategies in place, HR can support the organization to build a workforce plan that brings the right skills into the business—at the right time, throughout the company’s growth.

Put your best plan forward: Your guide to intentional team and company growth DOWNLOAD THE GUIDE

1. Develop a strategic workforce plan that focuses on quality, not numbers

Hiring under pressure to achieve a certain number of employees may result in bringing the wrong candidate on board.

Thirty percent of companies that made a hiring mistake said they felt they needed to fill the role quickly, according to a CareerBuilder survey . A “bad hire” occurs when an employee doesn’t have the hard or soft skills to succeed in the role, or when the new hire feels a mismatch between the expectations and reality of the job. The cost of a bad hire ranges from additional recruitment costs to decreased productivity and increased stress—particularly on managers—according to a survey by staffing consultancy Robert Half .

To avoid rushing hiring decisions, companies should move from chasing staffing targets to finding the right fit—even if it means slowing down the recruitment process. In an episode of Recruiting Brainfood , Matthias Schmeißer, the director of talent at analytics firm Beamery, contends that a sustainable approach to headcount planning reduces focus on hiring targets. Instead, talent teams should empower hiring managers to make decisions.

The cost of a bad hire ranges from additional recruitment costs to decreased productivity and increased stress.

“My lesson learned [is to] never push hiring managers to hire a candidate if they are not 100% convinced because I don’t want to hit my numbers, I want to grow in a sustainable manner even if it takes sometimes a bit longer,” said Schmeißer.

In Mastering the Hire: 12 Strategies to Improve Your Odds of Finding the Best Hire , Chaka Booker writes that hiring managers should be coached to evaluate the candidate’s suitability for the role, not their performance in the interview. Booker recommends that hiring managers immediately write down their first impressions of the candidate to call out and minimize bias in the hiring process.

2. Create and visualize a clear organizational structure

A clear organizational structure enables HR to develop better headcount plans, identify skills gaps, improve the employee experience, and determine the ideal span of control through the company’s growth.

A clear organizational structure—a system that outlines roles, workflows, and reporting structures—shows how work is done and decisions are made in the company. An org chart represents this information visually, depicting relationships, processes, and responsibilities throughout the organization so everyone can understand them.

Creating and visualizing such an organizational structure gives the entire team clarity about talent shortages, urgent hiring needs, and budgeting implications.

Without a clear organizational structure to guide the headcount plan, teams may end up with too few managers to support employees. Your workforce could find themselves doing extra work far outside the scope of their roles—exposing your people to burnout and the company to attrition. Different departments risk duplicating work because responsibilities haven’t been defined.

Dave Koslow, chief operating officer at DocSend, says companies often ended up growing without updating the org structure .

“You’re a 10-person company. You’re trying to move as quickly as possible . . . Then you get a little bit bigger, and the organization needs more structure, but your inertia can just continue to carry you forward operating in the same way. [You need to say], ‘Okay, we need to slow down a little and be methodical, because things have changed.’”

To create a clear organizational structure, consider how work will be managed throughout the company. This clarity allows you to choose the appropriate organizational structure for your company.

Common organizational structure types include:

• Functional: Group employees into teams based on specific functions
• Flat: Reduce or remove layers of management so the entire workforce is on the same level
• Matrix: Employees report to multiple managers
• Team: Group people together based on specific goals

Factors like your company culture and stage of growth might influence your selection. Once you’ve chosen an organizational structure, find an org chart software that will help to visualize that structure. Your org chart software should also serve as a headcount planning tool, allowing you to view open roles and create scenarios to inform financial planning.

3. Eliminate a one-size-fits-all approach to workforce planning

Your organization is hiring for multiple roles, and each may require a longer interview process or tailored recruitment strategy.

Frequently, organizations make broad decisions about headcount plans that don’t account for individual departments. For example, if an organization is ramping up to launch a new product, it may be important to hire more developers to help build it or more sales people to support the new sales stream. Depending on the role, the time to hire for certain positions might be longer. At 43 days, the time to hire for technical roles is higher than the U.S. average, while some roles have slower interview processes, according to a Glassdoor analysis .

Higher-priority roles may also require specialized recruitment programs. According to research by LinkedIn , recruiters recommend using customized employer branding content to attract candidates in sales, engineering, and operations. Planning ahead for these types of specialized programs is critical to fulfilling growth plans.

Eliminate a one-size-fits-all approach to workforce planning by reviewing hiring needs by department . You’ll want to evaluate metrics like time to fill and diversity, equity, and inclusion (DEI) indicators, and ensure they’re adjusted for specific roles. Then, to further customize your approach, build a talent acquisition strategy that’s based on that data.

Andrew Chen, a general partner at Andreessen Horowitz, suggests finding communities where your ideal candidates are active and engaging them in conversation right away. “This may be Newgrounds for Flash people, or the Firefox extensions directory for browser folks.”

Ragini Holloway, the head of talent at fintech company Affirm, said the company conducts tech tours at universities to connect with more women in tech in an effort to put action behind its DEI goals.

The headcount planning process must account for these role-specific recruiting initiatives because they will impact hiring timelines and headcount forecasting.

4. Build an alumni program for departing employees

Building an alumni program helps you create a network of ex-employees who remain connected to the company and may eventually rejoin the organization.

In the technology sector, talented employees constantly leave to pursue new opportunities, but that doesn’t mean they have to be gone for good. An alumni program is a structured program for maintaining relationships with those former employees and a way for you to extend your talent pool.

According to data from LinkedIn , software companies have a higher turnover rate than companies in other sectors. Part of this is due to increased competition for tech talent. Peter Cappelli, a professor at Wharton School and the director of its Center for Human Resources, says turnover directly affects headcount planning : “Companies hire from their competitors and vice versa, so they have to keep replacing people who leave.”

Through an alumni program, you may be able to encourage some of those employees to return, perhaps when the company is at a different stage of growth. An employee who left after your company secured its seed round may be able to bring a new perspective after you’ve secured your Series B.

To establish an alumni program, stay connected to departing employees. This can be as simple as asking if they’d like to be added to your company newsletter and invited to future company events.

Heather Kinzie, the chief operating officer of Strive Group, a consulting firm that also deals with recruitment, told Recruiters Network that exit interviews play an important role in employee alumni programs. During the exit interview, ask whether an employee is open to coming back to your organization, make a note of their response, and add it to the person’s profile in your applicant tracking system.

One caveat is that a rehired employee’s performance and engagement may depend on why they left the company. A Journal of Management study found that rehired employees tended to leave the company a second time for the same reason they initially left.

Establish a Successful Headcount Plan to Guide the Org Through Growth

Successful headcount planning ensures the business has the right number of people with the right skills to help achieve growth goals. As the company scales, the HR team can adjust hiring plans and anticipate talent needs to align the workforce strategy around business goals, whether it’s putting action behind DEI commitments or expanding into new markets.

Ready to expand your team to support fast-paced business growth? Download our Startup's Guide to Intentional Growth to learn more about what it takes.

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Headcount planning best practices: What to know in 2023

, FP&A Manager, Abacum

13 min read · Published: July 27, 2023

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🎯 Introduction

Effective headcount planning is a critical aspect of business success and the organizational structure of a company. It involves the strategic allocation and optimization of human resources to achieve company goals. By carefully assessing staffing needs, businesses can ensure they have the right people in the right positions at the right time. In this article, we will explore the basics of workforce planning, its significance for business success, and provide practical tips to streamline this process for maximum efficiency.

Understanding the Basics of Headcount Planning

Headcount planning encompasses various activities, such as forecasting future staffing needs, analyzing existing manpower, and developing strategies to meet those needs. It involves evaluating factors like market demand, business objectives, and employee productivity to determine the optimal workforce size.

An effective headcount plan should take into account both short-term and long-term goals. By aligning workforce requirements with the company’s vision, finance teams can help ensure the business has the capacity to respond to changing market dynamics and scale their operations proactively.

When it comes to workforce planning, businesses need to have a comprehensive understanding of the process. It involves more than just determining the number of new employees needed. It requires a deep analysis of various factors that contribute to the overall workforce management strategy (e.g. talent management and current headcount).

A Comprehensive Guide to Headcount Planning

To develop an effective workforce plan, businesses need to consider several key factors:

• Business Goals: Aligning staffing needs with strategic objectives ensures that the workforce supports the company’s overall vision.
• Market Demand: Analyzing market trends and customer demands helps anticipate staffing needs during periods of growth or contraction.
• Employee Productivity: Evaluating individual and team performance aids in identifying areas for improvement, training, or reallocation of resources.
• Budget Constraints: Balancing workforce requirements with financial limitations ensures efficient resource allocation. The relationship between FP&A teams, recruiting teams, and hiring managers is essential to execute this well.

By considering these factors, businesses can develop a comprehensive strategic workforce plan that optimizes future needs while ensuring operational efficiencies.

When businesses align their future workforce needs with their strategic objectives, they create a workforce that is not only capable of meeting the demands of the present but also adaptable enough to handle future challenges. It is essential for businesses to analyze market trends and customer demands to anticipate future staffing needs accurately. By doing so, they can ensure that they have the right number of employees with the necessary skills to meet the demands of the market.

Employee productivity plays a significant role in headcount planning. By evaluating current employee performance, businesses can identify areas for improvement and implement training programs to enhance employee skills. Additionally, evaluating the productivity of the workforce can help businesses identify opportunities for resource reallocation, ensuring that employees are deployed in the most effective and efficient way possible.

However, headcount planning is not just about meeting staffing needs. It also requires businesses to consider their budget constraints. By balancing workforce requirements with financial limitations, businesses can ensure that they allocate their resources efficiently. This involves making strategic decisions about hiring, training, and retaining employees to optimize the use of available funds.

In conclusion, headcount planning is a critical process that involves analyzing various factors to determine the optimal workforce size. By aligning staffing needs with business goals, analyzing market demand, evaluating employee productivity, and considering budget constraints, businesses can develop a comprehensive headcount plan that optimizes staffing levels while ensuring operational efficiency. This strategic approach to workforce management allows businesses to adapt to changing market dynamics and scale their operations proactively.

Learn more:

The Significance of Effective Headcount Planning

Effective headcount planning plays a crucial role in achieving business success. It offers several tangible benefits:

Cost Control: Properly managing headcount allows businesses to avoid unnecessary labor expenses and optimize resource allocation. This means that companies can allocate their budget more efficiently, ensuring that they are not overspending on labor costs. By carefully planning and monitoring headcount, businesses can identify areas where they may be overstaffed and make adjustments accordingly.

Operational Efficiency: By ensuring the right people are in the right roles, businesses can streamline workflows, improve productivity, and reduce operational bottlenecks. When employees are properly aligned with their skill sets and responsibilities, they can perform their tasks more effectively, leading to increased efficiency and smoother operations. This results in a more productive and profitable organization.

Talent Acquisition and Retention: Strategic headcount planning enables businesses to attract and retain top talent, enhancing overall organizational performance and minimizing attrition. When companies have a clear understanding of their staffing needs and critical roles, they can proactively recruit and hire individuals who possess the skills and qualifications necessary for success. Additionally, by having a well-defined headcount plan, businesses can create a positive work environment that fosters employee satisfaction and loyalty, reducing turnover rates.

Scalability: By aligning staffing levels with business growth projections, companies can seamlessly adapt to evolving market conditions. Having a flexible headcount plan allows businesses to scale their operations up or down as needed, ensuring that they can meet customer demands and take advantage of new opportunities. This adaptability is crucial in today’s rapidly changing business landscape.

How Headcount Planning Impacts Business Success

A well-executed headcount plan can significantly impact business success by:

• Ensuring Adequate Resources: A balanced workforce ensures that all business functions have the necessary human capital, preventing a strain on existing employees or excessive reliance on temporary new hires. When businesses have the right number of employees with the right skills, they can effectively meet the demands of their operations without overburdening their workforce.
• Enabling Growth: Anticipating staffing needs allows businesses to scale their operations strategically, avoiding the risks associated with overstaffing or understaffing. By carefully planning their headcount, businesses can ensure that they have the necessary resources to support growth initiatives without incurring unnecessary costs or compromising operational efficiency.
• Promoting Employee Engagement: Effective headcount planning fosters a positive work environment by ensuring that employees are not overwhelmed with excessive workloads or bored due to underutilization of skills. When employees feel appropriately challenged and engaged, their morale and productivity increase, leading to higher job satisfaction and retention rates.
• Enhancing Customer Satisfaction: The ability to meet customer demands promptly, efficiently, and with high-quality service is directly influenced by proper headcount planning. When businesses have the right number of employees with the necessary skills, they can provide exceptional customer service, resulting in increased customer satisfaction and loyalty.

With such far-reaching impacts on various aspects of business operations, it becomes evident why effective headcount planning is indispensable for achieving long-term success.

By carefully managing headcount, businesses can optimize their resources, improve efficiency, attract top talent, and adapt to changing market conditions, ultimately leading to sustainable growth and profitability.

Streamlining Headcount Planning in 6 Simple Steps

While headcount planning may seem complex, following a structured approach can simplify the process.

Here’s a step-by-step guide:

• Assess Current Workforce: Evaluate existing employee demographics, skill sets, and performance levels to understand resource strengths and gaps. When assessing the current workforce, it is important to consider not only the number of employees but also their individual capabilities. By analyzing employee demographics, such as age, gender, and diversity, businesses can gain insights into their workforce composition and identify any potential imbalances or areas for improvement. Additionally, evaluating skill sets and performance levels allows organizations to determine the strengths and weaknesses of their employees, enabling them to make informed decisions about future staffing needs.
• Forecast Future Staffing Needs: Analyze business projections, market trends, and upcoming projects to estimate future labor requirements. Forecasting future staffing needs requires a careful analysis of various factors that can impact an organization’s workforce. By examining business projections, such as anticipated growth or expansion plans, businesses can estimate the number of employees they will need to support their objectives. Additionally, considering market trends, such as changes in consumer demand or advancements in technology, can help organizations anticipate skill requirements and adjust their headcount planning accordingly. Furthermore, taking into account upcoming projects or initiatives allows businesses to identify any temporary spikes in labor demand and plan for them accordingly.
• Determine Staffing Ratios: Define the ideal employee-to-manager or employee-to-customer ratio based on industry norms and organizational goals. Establishing appropriate staffing ratios is crucial for maintaining operational efficiency and ensuring optimal resource allocation. By benchmarking against industry norms, businesses can gain insights into the typical employee-to-manager or employee-to-customer ratios observed in their sector. This benchmarking process helps organizations identify any deviations from industry standards and determine whether adjustments are necessary. Moreover, aligning staffing ratios with organizational goals allows businesses to tailor their headcount planning to support specific objectives, such as enhancing customer service or improving employee satisfaction.
• Identify Skill Gaps: Identify areas where additional training, recruitment, or skill development is required to bridge talent deficiencies. Identifying skill gaps is a critical step in headcount planning as it enables businesses to address any deficiencies in their workforce. By conducting a comprehensive skills assessment, organizations can identify areas where employees may lack the necessary knowledge or expertise to perform their roles effectively. This identification of skill gaps allows businesses to develop targeted training programs, recruit individuals with specific skill sets, or invest in skill development initiatives to bridge the talent deficiencies. By proactively addressing skill gaps, organizations can ensure that they have a competent and capable workforce to meet their business objectives.
• Create a Hiring Plan: Develop a hiring strategy that optimally balances full-time hires, contract workers, and outsourcing options. Creating a hiring plan involves making strategic decisions about the types of employees to recruit and the employment arrangements that best suit the organization’s needs. While full-time hires offer stability and long-term commitment, contract workers provide flexibility and specialized expertise for short-term projects. Additionally, outsourcing certain functions can help businesses reduce costs and access specialized services. By carefully considering the advantages and disadvantages of each option, organizations can develop a hiring strategy that optimally balances these different employment arrangements, ensuring that they have the right mix of talent to support their operations.
• Regularly Review and Adjust: Continuously monitor key performance indicators, market dynamics, and internal changes to adapt the headcount plan accordingly. People planning is not a one-time exercise but an ongoing process that requires regular review and adjustment. By monitoring key performance indicators, such as employee productivity and turnover rates, organizations can assess the effectiveness of their headcount plan and identify any areas for improvement. Additionally, staying abreast of market dynamics, such as changes in industry regulations or emerging technologies, allows businesses to adapt their headcount plan to remain competitive. Moreover, internal changes, such as organizational restructuring or new strategic initiatives, may necessitate adjustments to the headcount plan to ensure alignment with the evolving business needs. By regularly reviewing and adjusting the headcount plan, organizations can ensure that they have the right resources in place to drive success in a dynamic and ever-changing business environment.

By following these steps, businesses can streamline their headcount planning process and ensure they have the right resources to drive success.

The pandemic brought significant changes to the workforce and the recruiting industry. One notable outcome is the ‘workforce-as-a-service’ model. For more insights, watch a recorded discussion below with Felipe Navio, Co-Founder at Jobandtalent , and Julio Martinez, Co-Founder at Abacum .

Key Factors for Successful Headcount Planning

To foster effective headcount planning, businesses need to consider several critical factors:

• Accurate Data

Robust workforce analytics and reliable HR data provide the foundation for informed decision-making. Accurate data is crucial for successful headcount planning. It enables businesses to have a clear understanding of their current workforce and make informed decisions about future staffing needs.

By analyzing workforce analytics and relying on reliable HR data, businesses can identify trends, gaps, and areas for improvement. This allows them to align their headcount planning strategies with their overall business goals and objectives.

• Collaborative Approach

Involving key stakeholders, department heads, and HR professionals promotes a holistic understanding of staffing needs. Headcount planning should not be done in isolation. It requires collaboration and input from key stakeholders, including department heads and HR professionals.

By involving these individuals in the planning process, businesses can gain a holistic understanding of their staffing needs. Department heads can provide insights into specific skill requirements and workload demands, while HR professionals can contribute their expertise in workforce management. This collaborative approach ensures that headcount planning is comprehensive and considers the needs and perspectives of all relevant parties.

• Flexibility

Planning for changing business dynamics and incorporating contingency plans allows for rapid adaptation of workforce strategies. Successful headcount planning requires flexibility. Businesses need to anticipate and plan for changing business dynamics, such as market fluctuations, technological advancements, and industry trends. By incorporating contingency plans into their headcount planning strategies, businesses can quickly adapt their workforce strategies when unexpected changes occur. This flexibility allows businesses to stay agile and responsive to the evolving needs of their organization.

• Regular Evaluation

Conducting periodic reviews of staffing levels and performance metrics helps identify areas for improvement and ensure continuous alignment with business goals. Regular evaluation is essential for effective planning.

By conducting periodic reviews of staffing levels and performance metrics, businesses can assess the effectiveness of their workforce strategies and identify areas for improvement. This evaluation process helps businesses to ensure that their headcount planning is aligned with their business goals and objectives. It also provides an opportunity to make necessary adjustments and optimizations to optimize workforce management. By integrating these factors into their headcount planning practices, businesses can proactively address challenges and optimize workforce management.

Wrapping Up: The Importance of Headcount Planning

Effective planning is not just a mere administrative task; it plays a crucial role in the overall success of a business. It goes beyond simply filling positions and managing payroll. Headcount planning is about strategically aligning staffing needs with business objectives to optimize resource allocation, improve operational efficiency, and foster a positive work environment.

When businesses take the time to plan their headcount strategically, they can ensure that they have the right people in the right roles, with the right skills, at the right time. This alignment allows organizations to operate at their full potential, maximizing productivity and achieving their goals.

One of the key benefits of proper planning is the ability to adapt to changing market demands. In today’s fast-paced business landscape, organizations need to be agile and responsive to stay competitive. By having a well-thought-out plans in place, businesses can quickly adjust their workforce to meet shifting customer needs and industry trends.

In conclusion, headcount planning is a critical aspect of business management. By following a structured approach and considering key factors such as business objectives, market demands, talent attraction, and customer satisfaction, businesses can streamline their headcount planning process and position themselves for long-term prosperity. Effective workforce planning is not just about numbers; it is about setting the stage for success, enabling businesses to thrive in a dynamic and competitive environment.

What is the difference between headcount planning and workforce planning?

It is essential to recognize the significance of both headcount planning and workforce planning in effectively managing our organization’s resources. Headcount planning enables to accurately determine the optimal number of employees required for each department, taking into account financial constraints and workload considerations. Meanwhile, workforce planning takes a more strategic outlook, aligning our human capital with the organization’s long-term business objectives.

How can headcount planning be effectively incorporated into FP&A processes?

Headcount planning plays a crucial role in aligning workforce resources with financial objectives, ensuring optimized resource allocation and informed decision-making. To achieve this, organizations can leverage modern tools like Abacum . By utilizing Abacum, finance and FP&A teams can eliminate the manual, siloed, and error-prone process of headcount planning in spreadsheets or legacy solutions. The platform’s powerful analytics and scenario modeling features allow organizations to simulate various workforce scenarios and understand the financial implications of hiring, and more.

Further reading

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How to create a dynamic headcount plan, spend 75% less time on manual tasks with abacum.

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Smart Tips on Getting Headcount Added To Your Team

That’s why it doesn’t help to get emotional when asking for headcount. It doesn’t help to say your people are tired or that they are too busy or frustrated. None of these “softer” reasons help much because by the time they get translated to the exec team who’s actually making the decision, they lose all weight. 

Better to make your business case with data . Speak in terms of managing talent risk – showing data that proves you have insufficient people lined up to execute the business strategy. And, that you know this because you can also prove that all of your current resources are fully and efficiently deployed.

You can drive the talent risk management conversations starting with risk assessment followed by prioritization and ultimately mitigation. Adding talent is only one of many risk mitigation strategies so be sure you’ve explored all the options before asking for the one that is likely the most expensive – more people.

Here are some ways you can structure your case using the Knowledge Silo Matrix: 

• List the silos of knowledge and expertise required to maintain current systems as well as any new ones that may be needed to meet the new strategy.
• Show where your people are currently deployed.
• Explore and explain all options for cross training, leveling workloads, reducing complexity, and clarifying roles so you can prove you’re using your current headcount to its highest advantage.
• Show how you’re borrowing resources from outside your existing team to manage spikes in demand.
• Show how you stopped doing work in some silos to further clean house and ensure no time is wasted.
• Calculate the “Cost of a Mistake” and/or “Cost of Missed Opportunity” for insufficient staffing in any given silo.
• Identify opportunities to outsource or insource work, ensuring that the right mix of employees and contractors is always in play.

With that analysis done, you can then show where you would deploy new headcount, not by talking about adding, for an example, a “software engineer” but instead, by talking about adding capacity in a silo or series of silos. You can say things like:

• “We have a new silo and lack expertise in that area. Hiring one critical expert and then using that expert to cross train existing employees using knowledge transfer is going to expedite how quickly and effectively we can execute your strategy.”
• “We can train up the headcount in these three silos and cut our response time by 10%.”
• “We can reduce reliance on a single point of failure in this silo so that expert can do something more important.”
• “We can reduce rework in three silos by hiring an expert from outside and having them stand up a new standard. This will save us costly cycle time.”
• “We can prepare for increased demand just-in-time (rather than too late or too early) because we know exactly which silos will be affected and have a plan to prepare for growth.”
• “We can replace an expensive contractor in a high risk, high priority silo with an employee and save money doing it.” 

A disciplined, data driven approach to “managing up” will not always net additional help but when an executive has a choice between adding headcount to the leader with a plan or someone else, the outcome is fairly predictable.

Steve Trautman

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Headcount Planning and Forecasting

Whether you’re expanding, downsizing, evaluating your long-term goals, or planning your five-year budget, headcount capacity planning will almost always be brought up during any forecasting plan. 

Effective headcount planning is an essential part of any forecast strategy, and it could be the difference between whether you excel or fail in actualizing your long-term goals. 

Below we’ll get into everything you need to know about effectively integrating a headcount forecasting and headcount budget planning forecast. 

What is Headcount Forecasting?

Headcount forecasting is the process of aligning your current and future business goals with the number of people you have employed in your business. Beyond just the number, though, dynamic headcount strategies take into account the quality of hires you’ve attained your capabilities based on the skills/qualifications of your current employees. 

If you have ambitious goals for expanding new products or services, a headcount plan would determine whether or not your current workforce has the training, qualifications, or tools they need to accommodate those goals. 

In order to develop a holistic headcount forecast plan, you need data and cooperation from your product development team, finance leaders, HR department, and departmental managers. 

How do you project headcount growth?

Projecting headcount growth is primarily about identifying areas of improvement or expansion. 

If boosting brand equity is part of your long-term plan, then you’re likely to expand your marketing team. If you have growing demands for your products and services, you might increase your sales force. 

Use your future goals, needs, and areas of improvement as your headcount forecast measuring stick. 

How do I optimize my headcount?

Headcount optimization is about information and planning. The more data and information you have, the better prepared you’ll be to add, cut, or reorganize your talent. 

You should be leveraging the blow items to optimize your headcount:

• Future budget
• Revenue goals
• Current employee capabilities
• Current number of employees
• Expected positions to be filled
• Areas of improvement

The Value of Headcount Forecasting

Headcount forecasting isn’t just about budgeting for the number of employees you expect to need. It’s about where you allocate resources to reach your goals. 

Redundant hires aren’t just wasteful monetarily, they actually hurt your ability to grow long-term. Recruiting budgets are limited, and if you don’t allocate those resources to departments that actually need the help, you’re less likely to hit your KPIs, benchmarks, and long-term goals. 

Headcount forecasting planning can also help you in the following ways: 

• You’ll be able to optimize your recruitment needs.
• You’ll have a more able and equipped workforce to reach your goals. 
• You’ll be able to improve your overall budget plan. 
• You’ll be better suited to adapt to internal and external market demands. 
• You’ll be able to decrease your hiring costs. 
• Your HR process will be more aligned with your business strategy. 
• You’ll be able to identify talent gaps. 

How Do you Forecast Headcount?

In its most basic form, headcount planning is about identifying the number of employees you currently have and how many employees you will need in the future. The headcount step is actually the simplest part of the process. What takes time, effort, and resources is everything you do around your actual count.

You can break headcount planning into a few different steps.

Organizing data: You can’t make informed decisions on where your business needs to grow if you don’t have the right data. Data helps you evaluate where you should be allocating your resources and where you need to improve.

Budgeting: Budgeting will tell you how many employees you can hire, the kind of salaries you can offer them, and which departments need the most hires. It may also tell you if you need to make any layoffs. In order to budget effectively, your HR team should be working with your finance team. 

Headcount manager: It helps to have a headcount manager to organize, facilitate, and present your various findings from each department. Because effective headcount planning requires cooperation from various departments, you want a manager or set of team leaders consolidating information from your various data points and collaborations. 

Make the count: When you’ve identified your goals, your current capabilities, your budget, and your future needs, you’re ready to make a headcount. 

You can calculate this number in two ways: either a direct headcount of the number of employees you have working under you or the full-time equivalent. You can calculate your full-time equivalent (FTE) by dividing an employee’s scheduled hours by the employee’s actual worked hours. If an employee is scheduled to work 40 hours a week and only works 20 hours a week, their FTE is .5.

Final Thoughts: Headcount Planning and Forecasting

Headcount forecasting and forecasting are integral parts of any recruitment plan or internal business changes. Whether you’re expanding, downsizing, or reassessing your business goals, a robust headcount plan will enable you to hire with confidence, define your KPIs, and gain insight into your business. 

Crosschq was made to take the guesswork out of hiring and allow you to make smarter hiring decisions. Leverage Crosschq’s pre-hire assessment tests and 360 reference checking technology to aggregate data on candidate soft skills, compare candidate self-reference scores with managers, and reduce unconscious bias in the hiring process.

Optimize your headcount planning strategy with Crosschq today .

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The ultimate headcount planning checklist for finance leaders

Nowadays, headcount planning is a non-negotiable priority in fast-growing companies. As a finance leader, headcount planning not only helps you make smart financial decisions but also allows you to ensure that the organization has the right headcount to meet its long-term goals. 

However, poor headcount planning could lead to several challenges , namely: 

• Inconsistency between headcount strategy and business objectives
• Budget misallocation due to inaccurate forecasting

The truth is that headcount planning should be based on clear processes and best practices . And that’s what we'll go over in this article.

In today's post, we'll share:

• What headcount planning is
• Why headcount planning matters for fast-growing companies
• Our headcount planning checklist for finance leaders

Without further ado, let's dive in.

What is headcount planning? A quick overview

As a finance leader, you’re likely familiar with what headcount planning is. But just to make sure everyone is on the same page, let's define it briefly.

Headcount planning is the management of the number, profile, and cost of employees to achieve your company’s goals within a defined budget. Simply put, it’s about assigning the right people to the right roles to achieve your organization's mission, considering current and future circumstances.

Comprehensive headcount planning typically involves:

• Collaboration between HR , Finance specialists , Talent leaders, and hiring managers.
• A scalable, holistic, and iterative strategy to determine the optimal org design without overspending or underspending.
• Headcount planning tools to analyze real-time headcount data, update budget forecasts and keep all stakeholders in the loop.

All in all, good headcount planning allows your company to maximize the productivity and performance of your workforce. 

Why a headcount planning process matters for fast-growing companies

You might be wondering, "Why should I invest time and resources into headcount planning?" Well, there are several reasons. Proper headcount planning will help you:

• Allocate resources strategically

Facilitate revenue growth

• Properly forecast headcount expenses

Let’s briefly explore each benefit. 

Better resource allocation

A company’s headcount could represent 70-80% of the P&L . However, poor headcount planning can result in significant cost increases and wasted resources.

Designing a proper headcount strategy requires understanding HR’s priorities and Talent’s resource needs. With those teams’ input, you can allocate resources strategically to meet your headcount goals without compromising your company’s financial strategy. 

As headcount planning plays an essential role in developing your budget, it can also affect whether you’re equipped to achieve your goals. Proper headcount planning will help you facilitate revenue growth.

As Somrat Niyogi, Head of Business at Gusto, said in The Headcount People podcast : ‍

"Leaders should constantly be asking themselves, ‘What type of organization am I really trying to build?’ Planning around this question can really dictate the success of your business.”

With a well-aligned headcount approach, stakeholders can:

• Invest in employee development and assign hiring priorities according to key insights
• Identify skill gaps and good fits for specific job positions
• Recruit top talent to achieve specific financial goals

Ultimately, good headcount planning can help companies develop accurate workforce plans to meet key business objectives and revenue goals. 

Better forecasting

Headcount planning isn’t just about preparing to recruit. It’s an ongoing effort to effectively track and forecast your company’s spending. The longer you’re committed to it, the more information you’ll have to make better headcount decisions in the future.

The key to smart, efficient company growth is accurate forecasting, which is impossible to do without accurate headcount planning and management. 

Our 5-step headcount planning checklist 

Now you know what headcount planning is and why it matters for fast-growing organizations. So, let’s move on to how to do headcount planning with our step-by-step checklist. 

To build an effective headcount planning strategy we suggest you: 

• Align with HR & Talent around a joint plan
• Gather data in a single source of truth
• Make plan reconciliation part of your routine
• Update the headcount model based on internal changes
• Analyze your headcount forecasts

1: Align with HR & Talent around a joint plan

For starters, it’s imperative that headcount planning considers and aligns with:

• Organizational goals
• Department needs
• Your annual budget

And to do so, you’ll need to combine both top-down and bottom-up collaborative approaches. Simply put, this involves incorporating input from senior management, who set strategic targets, and team leaders, who understand daily operational needs.

By integrating both perspectives, you can develop a comprehensive headcount plan that effectively addresses your organization's needs.

Additionally, it bears repeating that proper headcount planning isn’t just about Finance. Talent and HR will be your best allies. 

For instance, to determine your total envelope , you should collaborate with HR and hiring managers by answering pertinent questions and setting strategy points.

These questions may include:

• What are our investors' expectations?
• What’s the existing headcount structure? 
• What kind of talent do we need to address each department’s needs?
• Can we swap current employees between departments to fill gaps?
• What new roles do we require to meet business objectives?
• How many recruiters will we need to carry out the hiring process? 

Additionally, it's key to determine new hires' compensations, benefits packages, and proposed starting dates. 

2: Ensure governance with a single source of data and standard workflows

A collaborative workflow among relevant stakeholders is essential for headcount planning. But, who is involved in headcount planning?

Relevant headcount stakeholders include:

• Finance leaders
• The HR team
• Hiring managers
• The Talent team

And why is a collaborative workflow important? Well, you need to ensure that: 

• All stakeholders are on the same page.
• They follow the right steps during the headcount planning process. 

And to make this possible, everyone needs to have access to a single source of truth for decision-making. Luckily, many fast-growing organizations are investing in headcount management tools that provide a single source of data and streamline these workflows. 

This is not only about seeking the right approvals but also communicating effectively and ensuring that everyone has visibility into the progress of the plan. Ultimately, coordinated planning is essential to your company’s success.

3: Make plan reconciliation part of your routine

Your headcount planning efforts aren’t done after you’ve set up a strategy. Connect with Talent and HR leaders on a regular basis to follow up and reconcile your plan. 

Are you at risk of going over budget? Is the recruiting progress going as planned?

This should be done on a regular basis, depending on your headcount plan. Some companies run a headcount reconciliation process weekly, others can survive doing it monthly. If you’re reconciling headcount any less frequently than quarterly, it will be really difficult to forecast with any level of accuracy or to keep budget variance under control.

4: Update the headcount model based on internal changes

An effective headcount planning process should not only focus on the hiring process but also on how internal changes affect your hiring model.

For instance, maybe you’ve approved the budget to hire for a leadership position, but team leadership decides to promote internally instead. You’ll want to take notice of that and modify your plan accordingly.

To this end, having open lines of communication with Talent and HR is key. 

5: Analyze your past headcount forecasts

Analyze previous headcount forecasting models. Your past forecasts can provide valuable insights and help you learn from past inaccuracies.

By evaluating the accuracy of your past headcount forecasts, you can assess the effectiveness of your forecasting methodology. Comparing forecasted numbers with actual results will allow you to identify discrepancies and understand the factors that influenced the variances. 

Additionally, understanding how headcount has changed over time (including the impact of internal transfers, promotions, or seasonal variations) will enable you to make better decisions regarding resource allocation.

Furthermore, examining historical data helps you:

• Identify trends and patterns within your organization
• Pinpoint areas where projections fell short or exceeded expectations
• Mitigate financial risks associated with inaccurate projections

Take control of your headcount planning and forecasting with TeamOhana 

In this post, we provided a step-by-step checklist for creating a solid headcount plan as a Finance leader. And it’s fair to say that the key to effective headcount planning is keeping stakeholders aligned through accurate data and forecasts. And here’s where TeamOhana can help.

With TeamOhana, you can plan your headcount based on:

• Unified data . Reconcile ATS and HRIS systems and other data sources and avoid data silos .
• Collaboration . Notify stakeholders promptly of any changes in headcount planning.
• Governance. Make sure that the correct workflows are followed.
• Scenarios . Create case scenarios through real-time headcount insights and predictive analytics so you can anticipate budget variances.
• KPIs . Track key headcount planning metrics, such as turnover rate, attribution rate, ramp time, and time-to-hire.
• Real-time updates . Track expenses against the headcount budget, and anticipate budget variances.

Curious? Book a TeamOhana demo today →

Take control of your headcount spend.

Headcount planning explained: How to tackle budgeting & forecasting headcount (The right way)

Table of Contents

Senior leadership at every company needs to have confidence in the hiring plan. The hiring plan is vital to achieving a company’s business objectives and goals. This is especially true for fast-growing companies because headcount planning is critical to company growth. Over the last couple of years, the labor market has been very tight, so a renewed emphasis has been placed on companies’ headcount strategy. A well thought-out headcount plan is critical in today’s environment if companies hope to achieve revenue growth goals and future workforce needs.

However, the headcount planning process remains one of the most challenging parts of a company’s budgeting and forecasting process. This strategic exercise often leaves business leaders and hiring managers disappointed in the planning process. I cannot count how many times I have seen a budget or forecast be incorrect due to issues with headcount planning.

Common challenges with headcount planning

Some of the challenges companies face with headcount planning include:

• Current workforce headcount forecasted in the wrong departments/cost centers
• Incorrect hire dates for new employees
• Headcount missing from the forecast
• Failure to forecast overtime or using the wrong rates to forecast overtime
• Poor capacity planning models leading to not having the right number of people required to perform the work
• Using the wrong salary assumptions for new employees
• Using incorrect rates (Mert, Taxes, Benefits ) in the forecast

The above are just some of the many issues companies and business leaders face when building headcount plans. Leaked Amazon documents that appeared in the news recently highlight the challenges HR teams and finance teams experience with headcount planning and the impact a headcount mistake can have on the overall business. Amazon managed to post 24,988 positions in 2022, but according to internal documents, Amazon had only approved 7,798 positions .

This highlights the lack of oversight Amazon had in the planning and hiring process and how difficult it can be to manage hiring targets in a fast-growing company. In the remainder of the article, we will cover:

• What is headcount planning, and how it differs from workforce planning.
• What to include in your compensation costs.
• The common methods used for headcount planning include: Run rate, Name-based, Role-based, Capacity-based, and Project-based.
• Common things to watch out for in the planning process.

What is headcount planning?

When it comes to headcount planning, let’s define what that includes and how it differs from workforce planning. Let’s have a look at this table comparing and contrasting the differences between workforce and headcount planning :

So what’s the difference?

Workforce planning is much broader than headcount planning and includes a holistic strategy to ensure you have the right number of people with the right skills, competencies, and experience on the team to get the work done. On the other hand, headcount planning is primarily focused on ensuring you have the right number of people and all associated costs captured for budgeting and forecasting purposes . When it comes to headcount planning, understanding all the costs that are typically included in the planning process is essential. Without a complete understanding of what needs to be included, one will often miss something, thus causing the entire plan to be wrong.

Compensations costs

Many companies spend up to 70% of all expenses on labor costs . This includes the employee’s salary and all the additional costs related to the employee, such as bonuses, payroll taxes, recruiting costs, etc. Below is a list of the common costs to include in your headcount planning. The below includes a definition of the different types of costs but does not include the methods used to forecast these costs, as we will discuss methods in the next section.

This is the base amount you pay an employee annually. Depending on the employee type, this could be an annual salary amount or an amount per hour.

Merit/Cost of living increases

This is the amount you anticipate increasing employees’ annual salary every year for merit/cost of living.

Most companies have an annual bonus payout where people can earn up to a percentage of their annual salary. The potential bonus earning amount will vary for different job titles and departments. Typically bonuses are forecasted at 100% to start the year and adjusted as necessary by company decision makers.

Incentive payments often involve paying individuals and teams for achieving certain targets and goals throughout the year. Incentives are typically paid to non-sales employees such as customer success teams. They are often paid to employees who are not bonus eligible as a way to attract top talent.

Commissions

Sales commissions are paid to sales reps and sales teams and are based on sales targets and quotas. The forecast for commissions will need to cover the company’s revenue targets in the company budget.

Overtime wages

Overtime wages include wages paid to hourly employees who work more than the average hours in a given week. Overtime wages are often used temporarily to achieve short-term staffing needs without hiring additional employees. When it comes to understanding overtime hours, using historical data from your time-tracking system can be incredibly valuable. This information can provide additional insights that you cannot obtain from the general ledger that just buckets the total cost of overtime into one line.

Benefits include things like healthcare, tuition reimbursement, etc. Benefits will usually be forecasted as a flat fee per employee but, in some cases, might be a percentage of salary.

Payroll taxes

Payroll taxes vary by geographic region but often include unemployment, retirement, and medical costs. These costs are usually a percentage of total compensation (Salary, bonus, commissions, incentives) and, in some cases, might only apply up to a certain dollar amount.

Training/tuition reimbursement

This includes training costs and tuition reimbursement for eligible employees. This is often a very small amount of overall labor costs and can generally be forecasted based on prior year data with adjustments for any known expenses in the new year.

Recruiting/hiring costs

These costs include external recruiting agency costs, relocation costs, and other one-time costs associated with hiring new employees. One should work closely with your HR professionals to understand these costs.

Severance is any costs paid to an employee upon involuntary termination of employment. If the company budget includes any restructuring activity that will reduce the workforce, it is important to ensure all severance costs are forecasted.

Every company has attrition throughout the year as there will be a market demand for your employees.

Common planning methods

The common methods used for headcount planning include run rate, name-based, role-based, capacity-based, and project-based. Below is a brief explanation of each method and each approach’s pros and cons. Many businesses will use multiple approaches to forecast headcount as different methods will work best for different departments.

One of the most simple methods for headcount planning is the run rate method. One way to do this is to take the average cost per employee from the prior year and add it to your anticipated number of employees for the new year. The below table shows a simple example where the per-employee costs each quarter were adjusted by a predetermined growth rate and multiplied by headcount to develop the compensation cost per quarter for the next year.

Pros: The primary benefit of using this method is that it is easy to manage and will be directionally correct.

Cons: The cons include historical averages often having noise in the numbers due to accruals and one-time expenses, and using them often results in inaccurate forecasts. Furthermore, this planning method does not include any reconciliation between employees and departments, which is often a necessary part of the headcount plan to ensure accuracy.

In practice, this method is rarely used as the cons outweigh the pros, and other methods exist that are more accurate and make it easier to provide senior executives with the details they need to manage the business and the hiring plan.

Name-based planning is a widespread approach to headcount planning, especially when the business is small enough that you can reasonably include every name in the plan. This process includes listing every single employee by name and using the actual compensation data for each employee. This method tends to be highly accurate because it uses actual cost assumptions. I would recommend this approach for a small but fast-growing company without a capacity-based business.

The above table shows what a named based annual planning table might look like for employees. Once you filter it down to the monthly level, you would also include the start and end dates and calculate all the monthly costs and add other assumptions such as training, severance, recruitment, and attrition to the data.

Pros: The biggest benefit of name-based planning is that it is highly accurate and helps you understand how many employees you have and the assumptions used for every single employee, both current and new. This approach allows finance to sit down with the business leaders and share the assumptions used for every single employee.

Cons: Difficult to maintain, especially as the number of employees grows. For example, if you are forecasting a headcount of 5,000 people at a name level, it is probably not realistic. Another big concern is that you have data with every employee’s actual salary, which can create privacy concerns and data security risks.

The role-based planning approach focuses on developing an average salary for each role in the company and then forecasting how many employees are required for each role to meet the needs of the business.

Pros: The benefits of a role-based planning approach is it is easier to manage than a named-based planning approach. This is because you only have to develop averages for each role and track the plan at the role level. Another benefit is it does not require obtaining salary data at an employee level.

Cons: The biggest drawback with this approach is it is less accurate than a name-based approach, and it can be difficult to reconcile when discrepancies arise between the plan and actual headcount.

Capacity-based

Capacity-based planning is prevalent in environments like call centers where each employee can manage a certain number of calls. In this type of environment, you will staff the organization with a certain number of people that achieves the capacity required to meet the anticipated needs of the business. Below is a simplified example of a capacity planning model one might use for a call center. In the below example, we have calculated how many calls each rep can handle in a week and how many calls we anticipate to receive in a week and then came up with a number of reps to staff. We would then apply our cost assumptions for each agent to develop our plan.

Pros: The main advantage of a capacity-based model is it allows you to staff your organization based on the anticipated needs throughout the year and adjust up or down your staffing based on the anticipated needs of the business.

Cons: Challenges with this model mostly center on being able to forecast your capacity needs accurately. Suppose you are substantially off in your assumptions. In that case, it can have a major impact on your P&L.

Project-based

Many companies, in particular professional services companies, build their budget based on anticipated projects. A professional services company might base its headcount plan based on the number of projects they anticipate working on during a given year. When building a headcount based on projects, time tracking software can become very helpful as it can provide information about how many people and how many hours have been spent historically on a project. Beebole allows you to track each employee’s time spent working for different clients and on different projects.

Pros: The benefit of this approach is you have built your hiring needs based on specific projects and if the needs for a project change you can update the needs for that project without having to update the rest of the plan.

Cons: Project based planning can be challenging to manage especially if you have a large number of projects. If every employee works on multiple projects and projects are short-term in nature it may not be realistic to use a project-based approach to planning.

How project time tracking software can help

Common watch-outs.

No headcount plan, especially for a fast-growing company, is going to be perfect. The reality is some roles will be hired earlier than planned, some roles will be hired later, and some might never be hired. That being said, just because your plan will be wrong does not mean you should not strive to be accurate with all known assumptions (Current salary, bonus, rate, taxes, etc.) and make reasonable assumptions for all other parts of the plan.

As you build the plan, a few common things to watch for include:

Special bonuses

It is not uncommon, especially in a fast-growing company with immature processes, for someone to have a special employment agreement that includes a bonus that finance has not been informed exists. Make sure to validate this with the HR team.

Calendarization

For simplicity, it is common to take all the salary assumptions and divide them by 12, but in reality, there is often seasonality in headcount planning. Make sure you consider how seasonality might impact the monthly and quarterly forecasts before just taking each number and dividing it by 12.

Lack of collaboration

Make sure you do not just rely on HR for current workforce data but coordinate it with the department heads as it is not uncommon for the department head to be aware of mistakes in the data or changes that will be happening that the HR team does not have.

Hiring assumptions

Make sure the hiring assumptions are realistic for the organization as a whole. I have seen departments plan to hire more people in a month or a short time period than is possible given the resources of the organization. The business often wants to hire everyone tomorrow; it is your job to ensure reasonable assumptions are made for how fast the hires can be made.

As one builds the headcount plan, watch out for common mistakes that can derail the plan and create frustration and challenges later in the year when the budget is off track due to poor headcount planning.

Final thoughts on budgeting for and forecasting an accurate headcount

Headcount planning can be a real challenge and especially painful when you are trying to reconcile your data. But if you don’t get it right, the pain of explaining every moment that the variance is due to a headcount error is a lot more painful. I had a manager once who made a mistake on headcount, and every month the head of the department would remind us of that when we reviewed the budget.

For this and the many other reasons mentioned in the article, every company should be doing headcount planning annually to ensure the current and future needs of the company are met. What method a company uses for the hiring plan will vary by company and will often include a mix of approaches, depending on what is best for the different departments within the company.

The key to headcount planning is ensuring the right conversations are happening between finance, HR, and business leaders. Nothing is more gratifying for a company than realizing the effort spent on building a well thought-out and planned headcount is worth it. And that happens when it comes to fruition and helps the company achieve its strategic goals and its revenue plan. At the end of the day, nothing is more important than people—it’s the people that make or break a business. Spending time to ensure that you have the right hiring plan is a big part of any hyper-growth company achieving its targets.

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Ty Fahner, former Illinois attorney general who mentored Lori Lightfoot at Mayer Brown, dies at 81

Steve Strahler is a contributing reporter for Crain’s Chicago Business. He was an associate editor, reporter and senior reporter at various times from 1982 to 2004, covering, also at various times, banking, real estate, politics and the exchanges.

Tyrone Fahner, a former Illinois attorney general who led both Chicago's most influential civic organization and law firm Mayer Brown, where he mentored future Mayor Lori Lightfoot, died yesterday at his Northfield home. He was 81.

Fahner was president of the Commercial Club of Chicago and its Civic Committee from 2010 to 2017, when it wrestled with the still unsolved challenges of public pension deficits and other fiscal woes. He was an apostle of the late Gov. Jim Thompson, dating to their days in the U.S. attorney's office 50 years ago.

"Ty was very much a father figure to me. It's through him I learned how to be a lawyer, how to be a good lawyer," Lightfoot said this morning. "He literally encouraged me every step of my career." Pausing to gather herself, she added, "He was my friend."

Thompson, after taking office in 1977, brought Fahner into state government, first as director of the state police and then as attorney general, appointing him to the post following the conviction of incumbent William Scott for tax evasion.

Fahner's tenure as attorney general was brief, but it encompassed an investigation into a shocking crime that attracted attention worldwide: the fatal poisoning of seven people by tainted Tylenol capsules in 1982. Fahner was drawn into the probe because of his prosecutorial and state police experience, becoming the de facto chief of a task force whose work stretched over years without a conviction. Within two months of the murders, Fahner was defeated in a bid for a full term as attorney general.

Despite entreaties from Thompson to run for other offices, Fahner returned to the private sector, rejoining Mayer Brown and serving on the management committee beginning in 1985 and chairing it from 2001 to 2007. He remained visible, though, as an executive who fought an uphill battle to revive the state Republican Party after Thompson and two GOP gubernatorial successors left office and Illinois turned deep blue politically.

He chaired the party's finance committee until joining the nonpartisan Commercial Club, known for sponsoring the Burnham Plan more than a century ago and consisting of executives and partners from many of the Chicago area's best-known companies, banks and law firms.  

The club's Civic Committee lobbied hard during Fahner's term to get a pension fix passed in Springfield, only to see it declared unconstitutional in 2015. "It still gets my blood up," Fahner told Crain's in 2019, after he was succeeded by Kelly Welsh. "We're going the way Detroit went at some point in time. (Pensioners will) get 10 cents of the dollar if they’re not smart enough to be part of the solution." 

Fahner and the Commercial Club backed Mayor Rahm Emanuel amid calls for his resignation after delayed release of video of the 2014 police shooting of Laquon McDonald exposed a coverup. “We can’t afford to walk away from him, and we’re not,” he told the Wall Street Journal in late 2015.

When he stepped down as Civic Committee president, he told Crain's that he did so with regrets but said of the public policy battles, "It wears you down." Among his other civic endeavors was chairing the Shedd Aquarium's board of trustees .

Fahner was born in a blue-collar neighborhood of Detroit, the son of a Chrysler assembly line worker and a telephone operator. After graduating from the University of Michigan and Wayne State University Law School, he came to Chicago on a fellowship to earn a master's degree in criminal justice from Northwestern University's law school.

He wanted to continue a teaching career that had just started at Wayne State but ended up applying to be a federal prosecutor under Thompson, who had been one of the fellowship judges. At the U.S. attorney's office, Fahner worked on the corruption case of the powerful Chicago Ald. Thomas Keane, one of the office's high-profile prosecutions that helped send Thompson to the governor's mansion.

“If you would have told me 40 years ago that young assistants of mine like Fahner and (Tony) Valukas would become chairmen of major law firms in America I would not have doubted it because they had the capacity then,” Thompson told Leading Lawyers in 2010. “They were natural leaders. But that’s how it worked out."

During Fahner's near decade as co-chair and then chair of Mayer Brown's management committee, the firm nearly tripled its lawyer headcount, to 1,800, opening offices in Europe and adding revenue. He brought Lightfoot into litigation cases, including remap tussles for the state Republican Party and one that created the majority Hispanic fourth congressional district gerrymandered like an "upside-down mule" on Chicago’s near Southwest Side.

During her mayoral campaign, Lightfoot was criticized by opponents for representing Republican interests, on top of being a corporate lawyer in general. But Fahner's confidence led to her representing the law firm itself and its partners in other litigation.

"People looked at us and wondered how we had a connection," Lightfoot said. But, besides their Mayer Brown roots, they shared modest backgrounds, a college alma mater and experience in the U.S. attorney's office. Despite a crusty exterior, she said, "he had a heart as big as all outdoors."

Lightfoot said Fahner raised money for her first mayoral campaign and had "long-standing relationships with everybody" — judges and business people — that proved valuable. Without going into detail, she said she continued to consult him during her administration.

Fahner's family roots in the automotive industry manifested themselves in his owning a Toyota dealership in Fox Lake.

“I used to find junkers and fix them up because that is all I could afford,” he told Leading Lawyers, which said his collection improved over the years to include an Aston Martin convertible, a Corvette and a 1968 Dodge Charger, the same model that was the first new car owned by him and his wife Anne.

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