Human Resources is in many ways an imperfect science, but it is not one to which planning and budgetary considerations cannot be applied. Generally speaking you are looking into the future when planning your Budgeting for HR. But with the right processes and considerations in place, you are not flying blind.
HR is an important part of any organisation and if you are a manager you need to fully understand the costs related to the job. This is an area of business that affects all employees and one that comes at a cost. When you understand the costs to your company you are better placed to make the right decisions.
Key Essentials in Budgeting for HR
There are four key areas that need to be addressed when planning your HR Budget, these are:
A. Employees Salaries
Without doubt this is the greatest cost to any employer’s HR budget. By giving it prominence in your planning you are starting off on the right foot. You need to nail down the costs for the following year including compensations, bonuses and commission rates.
By making use of the company’s employee records you can use historical data to plan forward. Bear in mind that promotions are a regular part of business life and come at a cost. In addition, salary increases within your company and within the given field in which you work also need attention.
When budgeting for HR make good use of your HR managers, financial directors and business owners to plan and subsequently approve your budget.
B. Training and Development
Before any new employee even starts earning money for your company there is the cost of training and development. Again historical data from your employee records will come in handy here. Work out how many conferences, training courses, seminars and certifications will be required for each post in the coming year.
C. Employee Benefit Costs
Along with employee salary costs come the inevitable benefit costs. Check the company policy on all such benefits and plan the costing for sick leave, insurances and holiday pay.
Make sure you stay constantly in touch with your company’s insurance provider to make sure you stay ahead of the game on likely premium increases. Play it safe to ensure you don’t underestimate any increases in the following year.
You also need to be fully aware of your company’s policy towards each position. Different levels of employee responsibilities often means different levels of insurance cover.
In addition to health insurance make sure you have a comprehensive understanding of the tax liabilities in whichever country you are operating. A promotion might well push them into a higher tax bracket, which needs to be fully understood when budgeting for HR.
D. Paid Leave
Often this will fall in the remit of the accountancy budget rather than directly to HR. However in the case of an employer not taking all of their paid leave, then any extra payments will fall to your HR department.
E. Recognition of Tech Budget’s Higher Costs
Budgeting for HR needs to recognise the additional costs of technology. As the use of technology impinges more and more in our daily lives, so it has become essential in the world of HR planning. There are some superb applications for use in your HR department. Up front costs on this need to be addressed, but it will save you money in the long term. The use of phone and tablet apps means that you can streamline many of the administrative tasks of your HR department. By planning and analysing data more efficiently you will increase the productivity of your HR department.
Main Best Practices when Budgeting for HR
The purpose of this article was to provide the correct ammunition for HR staff to work in a cohesive and productive manner when budgeting for HR. Hopefully this will enable you to prepare your HR department to better work , rather than try to become a single HR budgeting guru. Teamwork is key.
1. Cohesion Between Corporate Strategy and Budget Development
A company’s Budget is directly linked to corporate strategy because how you allocate resources, it is important to recognise development and progress. It is imperative that whatever their level, managers take the lead in developing strategic goals. Therefore they need to become active in all aspects of the company. Customer and competitor information, changes in technology and economic demographics are of primary importance.
Set realistic goals before you even start the budgeting process. Then your HR workers at all levels will find it easier. The whole system then becomes not just efficient, but less stressful.
2. Make Your Incentives Meet Performance
Good performance is not simply measured by hitting targets. This is too one dimensional. Sure, you should use a balanced set of performance indicators to measure progress towards your strategic goals, but why not then use the same measures to assess incentive programmes.
It is not just about the direct profitability but also things like eliminating defective work, and speeding up your delivery processes. Always ensure that all levels of staff are fully trained in understanding the reasons behind the incentives.
3. Allocate Your Resources Strategically
When designing and reviewing the operating of capital budgets, ensure that your managers have an insight into how changes in one budget directly affect the other. Of course all this varies from industry to industry, however they should take into account the your averages costs of capital. Always monitor everything as you progress in order to refine and improve company procedures as you go.
4. Link Your Cost Management to Your Budgeting
Budgeting for HR works much more efficiently when you take into account the cost management efforts that you have in place. Planning, estimating, budgetary restrictions, financing, and managing, all fall within this. The better your cost management the better the accuracy and effectiveness of your Budget processes.
By standardising cost management systems throughout your organisation you will improve the link between them and budgeting. Variance analysis studies the differences between forecasted behaviour and actual behaviour. It serves as a very useful tool for linking cost management to budgeting. You will be able to identify areas of weakness in your processes and rectify them to improve performance.
5. Always Embrace Change
Develop your budget to embrace changes within the industry. Changes to the way your competitors work may have a negative effect of your profitability. In addition your HR people should need to know that they have an element of flexibility. This reduces the need to “pad out” budgets to covers changes.
The more realistic the budget, the better it will be. Constant reviews and reporting will ensure this is kept tight. The best companies will always revise budgets instead of adhering to one that doesn't reflect current conditions.
Today’s amazing software enables companies to create assumptive conditions and then run a projection based upon them. Pre-warned is fore-armed, creating the conditions to respond should these conditions arise.
Hopefully you can see that when budgeting for HR it is imperative to keep an open mind and look at all possibilities, scenarios and outcomes. By keeping a tight rein on your finances, allocating the budgets correctly, making allowances for extra expenses in tech companies and using best practises, you will improve your HR budgets immensely.
Embrace modern technology and flexible thinking, work as a team and success will come. Be proactive instead of reactive, streamline your processes and the elusive success in budgeting for HR will be delivered.