HR is frequently called upon to determine whether the organization has the appropriate number of skilled employees to meet the business OKRs (Objectives and Key Results). Employee headcount planning and analysis assist HR professionals in assessing current and future headcount requirements within the constraints of the organization’s budget. However, it is also an opportunity to align financial planning and talent acquisition efforts in order to develop a long-term HR strategy.
However, when conducting an employee headcount analysis, some common errors can occur. We’ll go over these blunders and provide actionable advice on how to avoid them.
What exactly is an employee headcount analysis?
The number of people working in or for a company at any given time is referred to as employee headcount. Full-time, part-time, temporary, and contract/freelance employees are all examples of this.
A headcount report typically includes job title, status, time in the role, age, location, and retirement age. HR can closely monitor this data and look for key patterns and trends using headcount analysis.
Importance of Employee Headcount Analysis
An employee headcount is usually unnecessary for small businesses with only a few employees. Firms with hundreds or thousands of employees, on the other hand, should take headcount seriously. Measuring employee headcount over time allows HR leaders to keep track of the number of employees and their roles in order to maintain a well-functioning and agile workforce. Headcount can be beneficial in areas such as:
Considering workforce expansion
Ensuring that employees have adequate resources
Providing a suitable technology stack for the number of employees
Making informed decisions about recruitment, hiring, and budgeting
As an organization grows, it becomes more important to accurately measure employee headcount. HR leaders can then accurately estimate the number of employees and maintain a flexible workforce.
Employee headcount reports and analysis are the only measurable way to meet workforce goals. This analysis will assist you in achieving optimal headcount numbers, ensuring your workforce has the necessary skills and maximizing the efficiency of your HR strategy.
Error No.1: Not taking into account your company’s future growth
HR policies and procedures will be impacted as your organization grows and will most likely need to be updated. However, attempting to scale policies used in the startup stage or with fewer than 50 employees is a common mistake. These policies will be ineffective once a company’s workforce has grown to hundreds or thousands of employees. This strategy will result in disaster.
For example, You have a staff of ten. You’re trying to get somewhere as quickly as possible… Then you grow a little bigger, and the organization requires more structure, but your inertia can keep you going in the same direction. ‘Okay, we need to slow down a little and be methodical because things have changed,’ you should say.
A clear organizational structure enables human resources to develop more robust employee headcount plans, identify skills gaps early on, and determine an ideal span of control as the company grows. Functional, flat, matrix and team structures are examples of common structures.
Create an organizational chart with management. This will visually display the organizational structure so that everyone can see and understand the relationships, processes, and responsibilities. This also provides clarity to the entire HR team on the most pressing hiring needs, talent shortages, and potential budget implications.
Error No.2: Failure to conduct a skills gap analysis
When conducting employee headcount planning, a skills gap analysis is a process that is frequently overlooked. It’s difficult to plan for the future unless you know where you stand right now. This tool depicts the gap between the current state of skills in the organization and the desired future state of skills.
A skills gap analysis assists HR in identifying the skills and knowledge that employees across the organization lack. You can then devise a strategy for upskilling and reskilling, investing in L&D, and conducting succession planning to ensure that the organization is adequately prepared for the future.
You won’t have a clear understanding of your company’s skill gaps unless you conduct a skills gap analysis. You will also be unable to develop targeted hiring strategies to address these issues.
To assist you with the process, we have created an in-depth guide on how to conduct a skills gap analysis. It is also suggested that a skills gap analysis be carried out using both qualitative and quantitative methods.
The qualitative approach is founded on the process of organizational development. You begin by identifying the skills required in your organization and determining their importance. The following step is to gather various data sets on your employees’ competencies as well as the organization’s future needs. The final step is to devise a strategy to address the skills gaps you’ve discovered. This could include training current employees, hiring new employees with critical skills, or redesigning a job.
Antonucci and Ovidio’s quantitative approach measures the gap in each competency for all subjects. Once the size of the skills gap has been determined, the organization can either develop and implement self-training activities or seek out a suitable training program.
Error No. 3: You’re hiring for short-term
HR professionals are frequently put under intense pressure by business leaders and managers to address immediate, short-term hiring issues. However, this is a constant need in all organizations, and rehiring as soon as a position becomes available does not always benefit the company.
Long-term business objectives must be considered when conducting an employee headcount analysis. Who is the best fit for the organization? Who possesses the necessary skills, competencies, and behaviors to be a top candidate for the organization? What skills will be required as technology advances and the business expands?
Restructuring a team or redistributing work in the short term is sometimes a better long-term decision.
Get more focused insights into your future workforce needs by collecting and analyzing data such as
Natural attrition rates
Required skill levels for future advancement
Error No. 4: Only tracking headcount and excluding other metrics
Another common error in employee headcount analysis is focusing solely on the ‘headcount.’ This gives you only a skewed picture of your current workforce.
Measuring additional metrics such as attrition rates, turnover, tenure, and risk of loss allows you to conduct a more precise workforce analysis. Using this information, you can develop a more detailed plan for the next steps to strategically steer the company in the right direction.
Consider the following metrics:
Average employee turnover%: The percentage of employees who leave a company (voluntary or involuntary). This figure has a direct impact on HR’s recruiting challenges.
Tenure distribution: The number of years of service in a specific group. This number denotes a specific group of employees or departments’ seniority and organizational knowledge.
Voluntary vs. involuntary turnover ratio: The percentage of employees who leave their jobs voluntarily versus involuntarily. A group of employees with a high rate of voluntary turnover can have a negative impact on business continuity and employer branding.
Salary scale distribution: The number of employees in different pay scales within a group. This can also reveal the level of seniority within a group.
Risk of loss distribution: A rating or score is assigned (either by managers or by a predictive analytics model) to predict a trend in turnover among a group of employees. This can assist HR in better preventing or planning for future turnover.
The span of control: Calculating the span of control gives you the number of employees who report directly to a manager and measures each manager’s overall effectiveness. This can assist HR in determining whether more managers or employees are required for any team.
Error No.5: Inability to forecast future costs
The pandemic served as a wake-up call for businesses, causing the market to become extremely volatile and unpredictable. Financial figures that were previously predictable are constantly changing, and businesses must maintain flexibility in their strategy to avoid being hit with unexpected costs (such as increased health care, remote worker costs, and tax rates).
People are the most expensive (and valuable) asset for most businesses, so accurately forecasting future costs and incorporating this into workforce planning is critical. Hiring too many employees and then firing them due to unforeseen costs creates an unfavorable “hire and fire” reputation in your company, which can undermine team morale and company culture.
Examine data on labor market trends to help you improve your budgeting for open positions and hire the right people with the right skills at the right time.
Before you hire, you must determine where your budget will be best spent. What will it cost the company to hire someone for a specific role? Which hires are most likely to increase the company’s revenue?
To make these decisions, you must use available technology and real-time statistical data to look into the future and plan your workforce. A detailed financial forecast that is constantly updated allows business and finance leaders to be more agile and adapt their strategies as needed. HR can better visualize a new employee’s expenses, such as compensation, hardware, and insurance.
Based on real-time data, financial forecasting software will assist HR and finance teams in developing the best hiring and workforce development strategy.
Error No.6: Failure to obtain stakeholder support
One of the most common mistakes HR teams make is conducting an employee headcount analysis and planning without consulting with the leadership team. However, obtaining the full support of stakeholders and business leaders from the start is critical in order to maximize your chances of success when it comes to acting on the results.
Furthermore, workforce planning is essential when developing an effective HR strategy, but it must be linked to the overall business strategy and goals. This is why your employee headcount strategy must be developed in collaboration with and supported by the leadership team.
Process, policy, and platform changes all have costs, so you’ll need your budget approved as well. However, without visible support from leaders, stakeholders, and line managers, it will be difficult to execute your plan effectively and bring all employees on board.
Combine the data and analytics you’re gathering with insights from business stakeholders and decision-makers. Include these key authoritative figures from the beginning to ensure complete support and backing.
Communicate the commercial benefits of your employee headcount plan as well as the risks of not carrying it out. Describe the metrics that will be used to inform your strategy. Regularly review and adjust the plan in response to real-time data from both internal and external sources.
Error No.7: Not keeping track of progress
Your employee headcount analysis should not be carried out once a year and then abandoned. This must be a flexible and dynamic document that can be referenced to inform key recruitment and policy decisions. Continue to incorporate financial models, OKRs, and metrics data.
Transform your employee headcount analysis from tactical to strategic by tracking and adjusting based on real-time data and the organization’s OKRs.
Schedule time each week to review your employee headcount analysis to determine whether it is assisting you in meeting the business’s OKRs and recruitment needs or if it needs to be adjusted.
If you need to make a change based on your analysis, make sure you communicate it to everyone involved to ensure a smooth transition. Ongoing collaboration with stakeholders and business leaders is critical, especially as changes occur and plans must be adjusted.
Calculating employee headcount, which is one of the important hr metrics, is critical for making informed workforce planning decisions. Knowing the number of people in a specific unit allows HR leaders to build and nurture a workforce of talented and passionate employees. Ensuring that everyone is counted assists the headcount team in developing a strong company culture comprised of the right people in the right positions.