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What Is Headcount Forecasting? Benefits & How to Forecast Headcount

Headcount Forecasting

Managing headcount can be complex and challenging, but its impact on the business is immense and cannot be understated. In fact, it is a driving force that ensures sustainable growth and enhanced performance.

Organizations must keep track of total employees, contractors, approved fill-in positions, offered and declined positions, varying pay bands, and compliances and obligations.

However, processing the current personnel structure and developing an efficient headcount forecasting model requires time, ample resources, and effort. This article will discuss types of headcount forecasting, its benefits, and critical considerations to note when working on it.

So without any further ado, let’s get started!

What is headcount forecasting?

Headcount forecasting is reviewing an organization’s workforce structure and analyzing if it can meet the defined goals (both long-term and short-term) and objectives within the set budget.

To put it simply, “headcount” refers to evaluating if an organization has the right people with relevant skills to execute its strategies for growth. It also enables the leadership to inspect and take action if the organization needs restructuring or if there are any gaps across departments.

Types of headcount forecasting

There are various ways organizations can approach headcount forecasting, but it can be typically categorized into the following strata:

As-is forecasting

As-is modeling is the process of analyzing the current state of any processes or capabilities. Similarly, As-is forecasting is the current assessment of assorted headcount data and analyzing it against the company's structure, functions, grades, age groups, etc.

Headcount demand forecasting

Demand forecasting is a future estimation of the number of personnel and the likely skills an organization will need. Here are two approaches to consider when forecasting demand:

  • Quantitative forecasting determines the workforce quantity required at a given time in the future. Here companies must observe workload and workforce data. For instance, workload analysis evaluates the workload and gaps (if any) of each department across the organization. It can be estimated with the help of reports from across departments, such as sales forecasts, productivity reports, expansion plans, etc. On the other hand, the workforce approach is concerned with workforce analysis wherein organizations determine if the current staff would stay employed throughout the year. If not, there should be a solid strategy to make provision for such losses, which is also known as succession planning.
  • Qualitative forecasting is concerned with the quality of the employed workforce. Organizations must determine if each employee's interests, skills, and aspirations meet the organization's future needs.

Headcount supply forecasting

Followed by demand forecasting, supply forecasting estimates the supply of human resources considering the current HR inventory (both internal and external).

The availability of Internal human resources can be assessed after considering the following factors: transfers, promotions, retired employees & rehiring laid-off employees, etc. On the other hand, external human resources estimation depends on the labor market and hiring process or strategies.

Recruitment forecasting

Followed by demand and supply forecasting, identifying any gaps and preparing the right hiring strategy is crucial to make skillful and valuable recruitments.

Benefits of headcount forecasting

Here are some of the critical benefits of headcount forecasting:

Better financial planning

Without a doubt, company headcount forecasting saves you money. It would be an immense help in financial planning if organizations knew what roles in which departments they would need to onboard.

Let’s take an example in terms of HR and recruitment. Suppose an organization estimated they must hire three developers for their development team to achieve their set goals. They can save expenses by making an informed decision to employ all three at once:

  • They can post a single ad for all three open positions and save advert costs.
  • They can partner with a staffing agency for three hires and save agency fees.
  • They can also onboard all three simultaneously and save on onboarding costs.

Improved employee satisfaction & productivity

Navigating and balancing the complexities of human capital ensures your employees experience a healthy workload, directly impacting the satisfaction and productivity rate. Consequently, accurate headcount forecasting enables you to score higher on metrics such as - employee retention, customer satisfaction, employee engagement, etc.

Smart hiring

An organization needs to have a headcount model in place to avoid misalignment in hiring needs, the availability of the current workforce, and workload and growth strategy. Visibility into current and future expenses and collaboration among finance, HR, hiring managers, and leadership fosters a better approach for new hires.

Enhanced HR strategies and policies

Salary increases, health insurance, incentives, promotions, and adding new tools depend on accurate headcount data and future planning. Headcount forecasting is necessary if an organization wants to avoid overstaffing, reduce hiring expenses, and boost the learning & development budget.

Improved services

The right number of employees working towards achieving the organizational goals boosts the development and implementation of strategies for improved customer service.

Besides, a satisfied customer means a profitable business, so it only makes sense to use headcount forecasting and project labor across departments accurately.

Keep compliance and obligations in check

Founding and operating a company can be a simple task for passionate and deeply engrossed people. Once the company is on track and doing good business, the real hurdles arise from several exhaustive obligations, compliances, mandates, rules, procedures, and protocols.

For example, some state labor laws dictate a minimum number of professionals for a project of a certain size to avoid any inhumane workload and violation of human rights.

Also, companies deal with issues on minimum wages, severance packages, bonuses, overtime benefits, etc. All of which have prescribed rules and regulations that must be adhered to mandatorily otherwise could lead to unwarranted fines, penalties, litigation, and in some cases, imprisonment.

A competent and well-executed headcount forecasting would take care of all the above-mentioned tedious yet compulsory tasks.

How to successfully forecast headcount?

Don’t overcomplicate the process; keep it simple and understandable. Here are six points to consider when planning headcount forecasting:

Review the organization’s goals and objectives

Reviewing your organization’s goals and objectives can be tricky but necessary. You must clearly understand the future plans and current or potential challenges. When you identify an opportunity for a change, you must act to grow and evolve with the market trends. Once you have an insight into this, start by answering the following questions:

  • Is there a skill gap in the organization teams?
  • Do you need new employees with specific skills?
  • Do you need learning and development programs to train existing employees?
  • Or do you need to downsize for better performance?

Define headcount metrics and keep your reports organized

Without proper metrics in place, organizations will suffer from uncertainty. “What Ifs” are not cut out to help leaders make informed, data-driven decisions.

Here are some of the factors that must be taken into account when organizing an employee headcount report:

  • Revenue goals
  • Department-wise budgets
  • Employee count
  • New hire requirements
  • Performance ratings
  • Skill gap analysis
  • Salary scale distribution
  • Employee turnover rate
  • Department hierarchy analysis
  • Voluntary vs. involuntary turnover data and more.

Involve the right people in the headcount process

Although the HR department typically owns the headcount process, several other cross-functional teams are actively involved.

For instance, HR needs this forecasting to strengthen its recruiting strategies, whereas the finance department needs it to project the corporate budget. Along with these two functions, department managers and top-level executives are crucial participants in headcount forecasting.

Involve the right people in the headcount process

Assess your current workforce

Once you have all the data, you must analyze it and your corporate team structure. This will help you understand the following:

  • If you need to add or cut positions in any department.
  • If you have the proper budget to support your current workforce.
  • If there are any current skill gaps or those that might arise in the future.
  • If there are any potential departures in the organization.

Organizations also should focus on critical positions in the company that directly impacts the implementation of business strategies. Such functions are most vital and could turn out to be a strong tree stem that holds the company down to its roots in case of an unforeseen storm.

Utilize the right tools

Implementing a company-wide headcount forecasting may initially sound like a simple and linear task. But when handled professionally and practically, it can develop into a whirlwind of complex and tedious tasks.

An organization would require to process a complex and abundant amount of data which would be simply unfeasible to deliver through spreadsheets. However, working with the right headcount management software can help organizations simplify and customize headcount planning and forecasting, along with efficient collaboration and a dashboard to visualize the forecast better.

Take uncertainties into account

The future is hardly predictable, and organizations must be ready to sail through any uncertainties that might come their way. These may include mass resignation, rising inflation, and changing work demands, among other things. Headcount forecasting is a way to anticipate various uncertain scenarios and develop contingency plans to mitigate such risks.

Conclusion

Headcount forecasting is crucial and must be conducted to produce reasonably accurate data that reflects growth. A proper and efficient headcount implementation throughout the organization is highly beneficial.

An organization can only hope to fulfill, manage, or expand the most core and crucial positions through its successful execution. That’s why you should continuously review your headcount forecasting plans and ensure your organization is ready to respond to uncertainties at random times.

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Author

  • Anupriya Singh

    Anupriya Singh

    Anupriya is a content writer well-versed in researching and writing on an array of topics. She works closely with businesses and helps them get rapid and organic growth through compelling digital marketing content. When not working, you can find her reading or sketching.

Frequently Asked Questions

The primary goal of headcount forecasting is managing and planning the workforce effectively. Moreover, accurate forecasting ensures that you strategically meet the company's future goals while ensuring that current and future human capital aligns with it.

FTE or Full-Time Equivalent estimates the total number of full-time employees by counting “hours worked.” For instance, if a company defines a full-time schedule as 40 hours per week, then employees working 40 hours per week will be considered full-time employees, and anyone working less than hours will be considered part-time employees.

On the other hand, headcount is simply the count of the number of individual employees.

Follow the steps to effectively manage headcount -

  • Define the company's growth goals
  • Determine the employees you might need to meet those goals
  • Highlight any skill gaps
  • Assess the financial capacity
  • Hire the right employees

Some of the best headcount forecasting software is - WorkDay, ChartHop, SAP SuccessFactors HXM Suite, etc.

Types of headcount forecasting

  • As-is forecasting
  • Headcount demand forecasting
  • Headcount supply forecasting
  • Recruitment forecasting

Capacity estimation calculates how much work the current employees can finish within the given period. It can be calculated by multiplying the number of employees by the number of hours they work per week.

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