Strategic Workforce Planning and the Power of Implementation

Data Source for Workforce Planning

There are always three core data sources across organizations where all employee information intersects – Finance, Payroll and Human Recourses (HR). To ensure the most accurate data reliance is in place, there can only be one ‘true’ source utilized and this should sit within HR. HR is the best option as it collects, collates and manages extensive and detailed bio and performance data – unlike Finance and Payroll. In addition, only HR should have the overriding management of access and release of employee information through the whole employee life cycle. However, HR must ensure all employee data-source information is regularly tested and audited to maintain accuracy.

This primary data should cover (though is not limited to):‍

• ‍Total Head Count: Full-time, part-time, casual, secondment, contractors.
• ‍Job Classification: Responsibilities and competencies for all positions within all divisions and departments.‍‍
• ‍Salary Packaging: Fixed and variable.
• ‍Age (DoB): To understand age diversity within an organization and plan accordingly.
• ‍Nationality: To manage workforce composition across the organization or within specific organizational units. ‍
• Terminations and Separations: To examine and communicate the impact of workforce turnover, formulate improvement action plans.‍
• Employee Benefit Participation: To review the benefits which employees use and recommend or highlight additional programs which might be of benefit to the employee. ‍
• Open Vacancies: Managers can use the visualization of open positions for succession planning and threats to talent bench strength.  ‍
• Performance / Appraisals: This metric can also be used for rewards and recognition and determining the quality of managerial leadership.
• Tenure: Such metrics can be compared with industry metrics – high level of long tenures is not always a competitive advantage for an organization.‍
• Average Salary: Is a stepping stone to more sophisticated salary analysis, such as statistical analysis of salaries, their range and standard deviation which can be extremely useful.‍
• Turnover Ratio: Compared internally, to assess management effectiveness and overall organizational health, different job roles and functions can be compared to industry peers to assess the competitive position.‍
• Succession Planning: Organizational groups which require support by identifying skills training and management opportunities to potential successors, who are not ready to assume the new position. Succession Planning is one of the most critical activities an organization can manage.‍
• Retirement Eligibility: Important for maintaining the right bench strength and also links to Succession Planning. ‍
• Work Experience: The value of moving employees into different job functions to increase the quality of their background and depth of experience – key to the strategic workforce planning agenda. ‍
• High Performers: Maintaining a high performing workforce requires ongoing review of low, medium and high (10/70/20) performance to address skill/performance and build the necessary bench strength.
• Span of Control: Used to assess organizational structure and ensure balance of the organization during reorganization, restructure, transformation and change cycles.  ‍
• Learning & Development: Focusing where training is required (or available) and to reward employees who have taken advantage of optional training and tuition reimbursement programs. Training metrics in combination with training cost information and employee performance metrics used to establish training ROI (Return on Investment).

Note:

Data cleansing, reconciliation, and regular audit are paramount to ensuring that accurate information is provided to the ‘Workforce & People Analytics’.  A process must be agreed upon and one source and only one source of information to be used.

Below (Figure 1) indicates the value (Low to High) when working with people metrics and workforce analytics. If the very basics of ‘Headcount Planning’ is not supported by accurate and fully cleansed (pure) data, then the value success of the organization cannot be realized at the ‘Enterprise Strategic Workforce Planning’ level – which is the level an organization needs to be positioned at for a highly competitive and winning platform.

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Impact Matrix for Uncontrolled Workforce Planning

The impact to poorly or misguided workforce planning, whether from inaccurate analysis, inefficient management of process, leadership resistance or managing ‘right’ organizational structures, is outlined in the following matrix (Figure 2). In essence, if an organization expands too rapidly in perceived Market Growth and then consolidates in times of Market Contraction - the many impacts such as financial, organizational and reputational can be recovered; however, it is rare for the impact to company culture to recover.

How does this translate into real hard revenue which can be managed?

As an example, if Revenue is set at 10% YoY increase and Profit is aligned at 4% YoY increase, then the cost of new addition Headcount needs to ensure neither the revenue % or Profit % drops post the (total - all related fixed and variable) new employee cost for the first 12 months.

Once the above formula is applied, understood and managed, there are also a set three core data points to monitor and map. These should be hard-wired into both workforce management and business KPIs as these are critical in controlling spend and the organizational structure within expansion.

1. Total Workforce Cost: (TWC)
   The sum of all workforce-related costs, including all compensation, benefits and other expenses related to full-time and part-time workers in a prescribed and set time period. ‍
2. Revenue per Employee: (RPE) 
   Divide total revenue by total number of employees. This calculation not only helps in measuring what employees contribute to the bottom line, however, also provides insight into evaluating the cost of lost employee due to turnover and productivity. Same headcount though retracting revenue is red flag!
   (i.e.) Monthly Revenue MR / Total Employees TE = Revenue per Employee RPE‍
3. Workforce Effectiveness Ratio: (WER)
   How much gross profit the company gets for every (total) dollar spent on salary for full-time and part-time employees. This delivers informed workforce strategy decisions, particularly within headcount growth proposals as an outcome of business performance growth.
    (i.e.) Gross Profit GP / Total Workforce Cost TWC (X 100) = Workforce EffectivenessRatio WER (%)‍

All should be drawn into table (spreadsheet/ online portal access) which addresses:

• ‍*Total Workforce (can also be split across divisions and operations)‍
• Leadership/ C-Suite
• Operations (includes most junior role to most senior role)‍
• Support SG&A (includes most junior role to most senior role)

This can be mapped as a running report from weekly to monthly, though would not exceed bimonthly.

Careful utilization and deployment for current and future growth through Enterprise Strategic Workforce Planning are critical. It is about: Having the Right People (skills, experience, attributes) at the Right Place (geographically/business unit) at the Right Time (full-time, part-time, casual, secondment, contractors) performing the Right Job (specifics need for the organization) and at the Right Investment (pay, benefits reflective for their performance).

Target Operating Model - Formula for Managing Headcount

As the organization performs, there is a tendency to believe that employing more talent will deliver more results. This works in very short-term, basic (low complex products/services) models, which are operating within or leading fast pace or new industry markets. This formula, i.e. increasing headcount (reactionary) to accommodate growth, does not work in mid-to long-term, traditional, markets.

A formula (or test) which is used in identifying Target Operating Models within organizations is outlined below:

1. Establish, agree and sign off on the forecasted three-year business performance and operating revenue and profit (percentage and/or amount).
2. Develop the optimum organizational structure, upskilling instead of upscaling. SG&A reductions to be set YoY.
3. Additional headcount and associated total employment costs should be calculated. When the first year of the three-year forecast is exceeded by the guaranteed revenue and profit of year one, then additional headcount can be considered.
4. However, the employment cost of the new hire cannot erode the percentage forecast (profit) of year one(agreed). A variant percentage may need to be considered only if the probability of contract or client loss is to be factored into the forecasting.
5. From an organizational perspective, structures cannot expand or a position float, if a new role is introduced; a hard line of reporting and management must be identified and embedded as per the agreed organizational structure.

In summary, expansion on headcount should only be engaged when the forecasted operating profit is secured, and the new hire will not reduce the operating profit year one (for the year they are onboarded). A targeted formulated approach can be developed, monitored and measured to ensure headcount and associated costs are kept in line with revenue and profit increase.

Businesses are built by people, measured by data, sustained through profit, succeed through leadership and remain true through values...easier said than done!

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