The Importance of Workforce Planning

by Kory Wagner

Workforce planning is one of the most strategic exercises CFOs can undertake.

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The sudden upheaval in our home and work lives has brought into stark reality the importance of planning for the unexpected, especially when it comes to a company’s most critical asset: its employees.

For most companies, people are the single largest expense, accounting for 70% of operating expenses, according to an EY study. Moreover, managing employee salary and benefits is enormously complex. Salaries, hourly, overtime, taxes, 401(k) contributions, insurance, employee stock purchases, garnishments, pre-tax items, post-tax items, holiday pay, sick day pay and vacation pay -- there are a lot of details that have major impacts on a company’s annual plan.

For many companies, the task of workforce planning falls solely on the shoulders of the chief human resources officer (CHRO), but I believe it should be shared with the CFO. According to a Paycor survey, HR professionals spend just 15% of their time managing labor costs.

Complicating matters further, emerging trends -- competition for digital and analytical skills, millennials’ expectations for promotion and career development, the emergence of the gig economy, and a range of new technologies -- are forcing companies to reevaluate their workforce models.

Year after year, Deloitte’s CFO Signals surveys reveal that acquiring the right talent is a top priority for CFOs at the enterprise level, and for good reason; workforce planning is a strategic exercise for an organization’s ability to thrive in the marketplace. It’s time for CFO’s in all companies to take this task on.

The Case for CFO Involvement in Workforce Planning

Why should CFOs be active participants in workforce planning? First and foremost, you bring strategic skill sets to the exercise. For example, an EY survey found a strong link between CFOs’ level of involvement in strategic workforce planning and broader business performance. According to the survey, “At high-performing companies, the CFO makes a bigger contribution to strategic workforce planning, and there is greater collaboration between finance and HR on this activity.”

That’s not to say that CHROs don’t bring valuable insights to the process, because they do. In high performing companies, the EY survey notes, “Both CFOs and CHROs have more upstream involvement in shaping strategy, rather than just reacting to it.” Rather, CFOs have the unique position of looking across the company in order to understand and plan for the broader financial and operational impacts of workforce transformation.

Factors to Consider in Workforce Planning

Workforce planning in today’s environment requires a broad look at a range of factors that will have an impact on the performance of a company, such as:

Emerging technologies. Are there new technologies that can eliminate manual or back office tasks, allowing the company to redeploy resources to more strategic activities? Many technologies, like AI and machine learning, can perform a host of tasks better than humans, and deploying them can free up sales, customer care and marketing people to spend more time interacting with clients.

Alternative workforce models. The gig economy -- freelancers, contractors and temps who work on their own terms -- now account for 15% of the workforce. When does it make sense to leverage these independent employees? At our company, we rely on several consultants to perform a range of marketing and PR functions that are important to our success, but don’t warrant full-time positions.

Seasonality. Nearly all businesses experience some kind of seasonality, whether that’s hiring additional retail staff during the holiday season or hiring promoters to hand out CPG samples as part of a new product launch. Reflecting the highs and lows of your company’s unique seasonality will help you to determine whether to book on a cash or accrual basis. Accounting for seasonality is also very important for a company’s cash flow.

Workforce by department. Workforce planning by department is critical if your company has multiple operating lines and or products. In such cases you will probably opt to spread your expenses by department so that you can see your controllable workforce expenses and make better decisions.

Budgeting at the individual level. The more detailed the workforce budget, the better your ability to track performance to plan accurately, and to identify instances when changes are necessary to meet your business goals.

Best Practices to Follow

Workforce planning requires the utmost accuracy, which is why I offer these three best practices. First, integrate the data from your HR and payroll systems directly into your planning platform. These systems have the robust data mentioned in the beginning of this article, which will go a long way in ensuring your workforce plan is as accurate as possible.

Second, avoid Excel as it’s just too difficult to calculate the complexity of workforce expenses in a spreadsheet. And lastly, re-forecast frequently in order to stay on top of shifting business environments and priorities.

Workforce planning is one of the most strategic exercises CFOs can undertake. A detailed forecast will allow CFOs to identify synergies and make the best possible use of employee talent.

Kory Wagner serves as VP of Marketing and Demand Generation at Centage.