Headcount Planning: An HR Practitioner’s Guide
Well-executed headcount planning helps your organization grow sustainably and improve performance. Let’s explore what headcount planning is and how you can implement headcount planning best practices at your business.
What is headcount planning?
Headcount planning refers to creating plans to ensure that your organization has the right number of people with the right skills to meet organizational needs in short- and long-term.
The process ensures that the organization operates with the set budget to hire or retain the correct number of people with the appropriate skills and competencies to achieve its goals.
Headcount planning involves setting hiring targets, creating reskilling and upskilling plans for current employees, decreasing employee turnover, and analyzing worksite occupancy and company-specific objectives and strategies.
HR practitioners drive the headcount planning process, collaborating with the business leaders and managers to understand the organization’s needs and goals.
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Why does your organization need headcount planning?
Engaging in the headcount planning process has multiple benefits for the organizations. Here are some of them:
Essential for financial planning & analysis
Organizations can do their financial planning effectively when they know what people in what roles they will have on board.
Let’s have a look at what this means in recruitment. Mapping out a strategy of all the positions you need to hire and the recruitment expenses that go with it (job ads, staffing agency fees, onboarding costs) enables you to make an informed decision in planning your budget to account for your staffing requirements.
For instance, if you determine that you need to hire five engineers within the next three months, you’ll save on expenses with a single ad and onboarding all these five engineers simultaneously.
Or, if you’re a startup and need additional funds from investors, having a clear organizational chart with the roles you need to hire will help demonstrate your vision for the company and the plans for achieving it.
Solid recruitment plans
Headcount planning helps you determine the roles you need to hire. You can plan your recruitment efforts realistically, like when you need to increase your hiring budget for part-time or temporary retail staff during important holidays or seasons.
For example, you’ve just launched a new service and would need after-sales people. You can use your headcount plan to hire people based on forecasted business performance and changes in the market. You can also use it to identify the specific skills and experience of the salespeople and the overall team structure.
Other opportunities for headcount planning include upskilling staff, career promotions, salary adjustments, or company restructuring.
Effective use of your (future) talent
Forecasting should be part of your headcount planning to evaluate previous trends, the present situation, and future events. It helps you manage expectations and create plans to address them.
In addition, you get a good understanding of how to best utilize your talent. That way, you’ll create an effective, productive workforce that helps you achieve your goals.
As an HR professional, you should also spend time planning and analyzing your future workforce. In part of your analysis, you should include:
- 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
When you know what changes you can expect in your workforce, you also see how you should adapt your techniques, procedures, and policies.
For example, HR financial planning impacts salary increases, health insurance, and monetary incentives (like sales incentives and retention bonuses). HR and management can collaborate to make financial decisions based on accurate headcount data and future plans.
And as your organization expands, you might need to add new tools to your HR tech stack to manage people’s schedules, hire more qualified candidates or deliver a better employee experience.
Or, if your company wants to successfully develop and promote employees, redistribute labor, diversify its workforce or onboard new hires, headcount planning is crucial. It helps you avoid overstaffing, reduce hiring expenses, boost L&D budget and maximize the efficiency of your overall Human Resources strategy.
Headcount planning best practices
1. Review your organization’s plans, goals, and challenges
You need to understand where your organization is headed and what challenges it’s facing.
If you’re expanding to new markets, you’ll have to gain a lot of insight into what kind of people you need. Do you need to find new employees with specific skill sets unavailable within your current workforce, e.g. local language skills? Or are you perhaps better off providing training to existing staff to gain those crucial competencies, which also boosts your employee satisfaction and retention?
Or, if you target to increase your profits by 40% this year, you know you need to hire more people to hit your sales goals.
2. Put your headcount reporting in order
Quality headcount reporting is fundamental to your headcount planning process, as it gives you accurate information about your current workforce, which you need to build on.
It provides qualitative and quantitative information on different employees in your organization, which is helpful during business planning and projection so you can work on improving the work efficiency of your workforce.
Headcount report usually has information on every employee relating to:
- Job status (active or inactive)
- Job title
- 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
This headcount data is typically sourced from your company’s HRIS. This HR software helps manage and process all the employee details above —along with HR policies and procedures—which you can summarize into a single, easy-to-understand report.
When preparing your headcount report, keep in mind the following best practices:
- 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
As we’ve already mentioned, HR typically owns the headcount planning process but needs input and help from other people and departments. These include the company leadership, department managers, and finance teams. You need to determine whose insights and help you need and engage them.
In the case of startups, though, or small companies, usually the CEO or managing director will be responsible for headcount planning.
4. Gather sufficient data
Examples of data you need to collect and analyze in your headcount planning include:
- Revenue goals
- Forecasted expenses and budget for recruitment
- Current number of employees
- Role requirements
- Employee skills
- Employee salaries
- Organizational hierarchy
- Performance ratings
Review the data you have in your HRIS, ATS and your headcount reporting. Look for team sizes and ratios benchmarks, and combine the data with your company’s growth plan. For example, you might need to consider the ratio of sales to marketing employees. You will need all this for effective headcount planning.
Or it can also help you discover inefficiencies in your company. Let’s say you notice a spike in people working overtime. Then it’s perhaps time to hire additional staff.
5. Find the right headcount planning tools
It might be enough to download or create a headcount planning Excel template if you have a limited budget. You may save on expenses, but it’s time-consuming and prone to errors.
So as your business grows, you can benefit from dedicated software with headcount planning functionality like Charthop or Anaplan. It will help you automate tedious and repetitive tasks, e.g., managing a team’s schedule, which includes allocating a certain number of people per shift or project. It can also make critical metrics visible and generate real-time reports on demand.
So as your company expands, headcount planning is an ongoing process that you can make easier and more effective using the right software.
6. Prepare for multiple scenarios
As we’ve seen in the past couple of years, the future is hardly predictable. Mass resignations, employees changing work demands, remote and hybrid work, and rising inflation have been happening, among other things.
Anticipating different scenarios helps companies prepare for developing long-term and contingency plans, evaluate consequences for workforce and skills requirements and hiring plans, build strategies to fill skills gaps, and create potential budget requirements.
As such, leadership and the HR team should develop headcount plans that address these changes and help make informed decisions on the best way to allocate resources and staff. These plans should compare headcount requirements for various situations to find similarities and differences in staffing levels and create a range of workforce plans.
7. Continuously review your headcount plan
Many companies do headcount planning annually. However, your company might have gotten an investment or is ready to launch a new product sooner than expected. Or worse, you experienced a setback like failed ventures or unpredictable events like COVID-19, which has shown us how quickly the labor market changes.
Your company’s workforce should be agile to able to respond to these random times.
These are good moments to review your headcount plan, make sure that it still reflects your headcount needs and if not, make adjustments.
Management and the HR team must track and adjust the headcount plan using real-time data to identify immediate and long-term staffing needs.
A final word
Headcount planning taking into account multiple scenarios makes your organization future-ready and helps you prevent layoffs and downsizing due to insufficient planning. While it requires a lot of research and collaboration, a productive, optimally-sized workforce is a result well worth the effort.