Headcount planning is a complex and dynamic process — which has historically made it a huge headache. You need to balance company goals with budget constraints and hire at just the right pace while bringing together hiring managers and team members from Finance, HR, and Talent Ops. And you need to be able to pivot quickly when things change, because they will, more than once.
Headcount planning is complicated, but it doesn’t have to become a headache. With a solid process and the right tools, we’ve seen companies turn headcount planning into a process the whole team is excited about instead of one they dread.
When headcount planning is streamlined and collaboration is easy, everyone is empowered to make better strategic decisions that support business growth and scalability. This guide breaks down the headcount planning process with tips from Talent, People Ops, Human Resources, and Finance leaders at companies that have scaled successfully.
What is headcount planning?
Headcount planning is the strategic process of mapping out how your business is going to increase your workforce to support your business goals. A good headcount plan serves as your business roadmap to hiring the right people with the right skills in the right roles at the right time, all while staying within budget.
Since employees often represent the largest portion of a company's operating budget, typically 70% of OPEX, effective headcount planning is essential for maintaining efficiency and productivity. Businesses must carefully assess how workforce changes impact financial performance and operational success.
What is the difference between headcount planning and workforce planning?
Many organizations use the terms headcount planning and workforce planning interchangeably, but they aren’t exactly the same. Headcount planning is part of workforce planning, but workforce planning covers a broader scope.
A headcount plan is a detailed map of how a company is going to grow their team. It outlines how many new positions you intend to fill in a given time period, what the estimated compensation package and start dates would be for those positions, and who each new hire would report to.
A workforce plan, on the other hand, maps out how a company’s existing organizational structure will need to change in order for the company to reach its goals. A workforce plan includes a headcount growth plan for new hires but also accounts for organizational restructuring, acquisitions, internal employee transfers from one department to another, succession planning, and attrition. Workforce planning is more common at large organizations with ~1,000+ employees.
Why it’s important to get headcount planning right
Headcount is the largest expense for most companies at ~70% of total OPEX. And effectively planning for that expense can literally be the difference between a company thriving or going under.
Get your headcount planning right, and you set your company up to reach your revenue and growth goals.
Get the headcount plan wrong, and your business will either be under or over-resourced. Either imbalance diminishes your ability to scale, adapt, and ultimately survive. Under-hire and you could miss your revenue and growth targets or fail to raise your next funding round. Over-hire and you risk burning through your cash runway too fast and ultimately looking at layoffs.
As Somrat Niyogi, Partner at Recall Capital and former General Manager & Head of Business Development at Gusto, told us on our podcast, “...in order to achieve any business outcome, you need to have the right people in the right roles with the right functional design, with the right levels, and the right management structure. And so to me, planning, particularly around what type of organization are you actually trying to build, can really dictate the success of your business.”
The headcount planning process in 8 steps
We recommend using a hybrid approach that combines top-down and bottom-up budgeting and goal setting when creating a headcount plan.
1. Understand your top-down business needs
Your headcount plan needs to align with your company’s high-level business objectives and annual budget. Before Finance, HR, and Talent teams can start planning, executives need to provide the high-level business goals that the headcount plan will roll up to.
Make sure your headcount planning team can answer the following questions:
- What are our investors' expectations?
- What are our business and revenue goals for the next 12 months?
- What are our business and revenue goals for the next 24 months?
- What is our current number of employees?
- What is the structure of our existing org chart and should that change?
- What new roles do we require to meet our business objectives?
Jim Miller, VP of People & Talent at Ashby, explained on our podcast, “You have to know what the outcome you're trying to reach and when is, and then you reverse that and you plan all the way back with milestones set all the way.”
Miller added, “The C-suite should not be the audience of your headcount plan… It's integral that they are the owners of their business and therefore, the owners of their portion of that plan. It doesn't get delivered to them. They're part of the building of it.”
2. Understand your bottom-up business needs
Next, determine what various departments require in order to support the broader business goals. Talk to different department heads and managers to ensure you can answer the following questions:
- What are our current workforce skill gaps?
- What kind of talent and types of roles do we need to address each department’s needs?
- Would it make sense to move any employees between departments to fill gaps?
- Is anyone currently overburdened?
- If a team member is overburdened, is there software or automation that could solve the problem or delay the need for an additional hire?
3. Agree on a single source of truth for data
Once you fully understand your strategic goals and resourcing needs, it’s time to dive into the numbers. You’ll need to agree on a single source of truth with accurate data that all teams will operate out of.
“Having a source of truth that is not a spreadsheet is really helpful. Because when we think about headcount planning, it is generally something that is driven by both finance and recruiting or the people team, but you also need to create transparency for your hiring managers or for your executive leaders.” Amanda Gregg, VP of People Operations at Parallel Bio and former VP of People at Second Front Systems, shared on our webinar.
“You need to be able to have different lenses for your different audiences and pointing everybody to a spreadsheet where somebody might accidentally delete something or make a comment somewhere that then creates a spiral is just not scalable and efficient… Having a tool and a source of truth that can be used at multiple levels cross-functionally across the organization is massively helpful.”
TeamOhana unites data from your FP&A, HRIS, ATS, and payroll systems into one collaborative platform, so everyone has access to real-time, accurate data. If you are still using spreadsheets, you’ll need to manually pull data from all of these other sources before you can begin to formulate a plan.
4. Identify your key hiring metrics
It’s impossible to measure the success of your hiring plan and track your progress throughout the hiring process if you don’t know which metrics are most important for your business. It’s best to have a dashboard with real-time tracking, so you can monitor these metrics in real-time. We recommend including these metrics:
- Time to fill - the total time from "ready to hire" to "butt in seat”
- Hiring time variance - the difference between your target start date and the actual start date for new hires
- Compensation variance - the difference between your budgeted and actual compensation for new hires
- Competitive compensation by job function - how closely your pay scales align with market and industry benchmarks
5. Bring all of your stakeholders together to forecast and plan
For headcount planning to be effective, you need input from HR, Talent Ops, Hiring Managers, and Finance. It’s imperative that all of these teams work together.
Run different headcount forecasting scenarios to see what the predicted impact of different hiring options could look like. Based on the predicted impact of these different scenarios, collaborate with stakeholders to determine:
- What roles you are going to hire for and when
- Based on past hiring cycles, when do you need to open a role in order to fill it on time?
- What the target compensation and benefits packages will be for each role
- What skill sets are absolute must-haves for these new hires and which ones are nice-to-haves
- If you have enough available recruiter capacity to execute your plan
TeamOhana makes it easy to run different headcount scenarios and collaborate cross-functionally without exposing sensitive information to the wrong people. You can use access controls to manage individual collaborator permissions, so they’re only able to view and edit certain roles, and they can see metrics that are relevant to their department but not others.
6. Reconciliation
Once you begin to put your plan into action, you’ll need to track your progress closely and make sure data is reconciled across all of your software. TeamOhana provides automatic reconciliation, but if you’re using spreadsheets, you’ll need to manually verify that data is up-to-date across your ATS, HRIS, and other platforms.
7. Update your plan
Hiring is a dynamic process and things change rapidly. For instance, maybe the budget for a new leadership position gets approved, but then the decision is made to promote internally instead. You’ll need to update your plan and adjust your budget accordingly as things change.
TeamOhana also helps with making updates by streamlining communications and adjustment requests. If you need approval from a CFO to increase the salary for a particular hire, for example, you can submit this request within the platform instead of needing to send emails or Slack messages.
8. Review your process
Periodically review your headcount planning process and workflows. Assess how your process and metrics compare to industry standards and headcount planning benchmarks. Look for trends and patterns that can better inform future planning cycles. Pinpoint areas where projections either fell short of or exceeded expectations so that you can mitigate the financial risks associated with inaccurate projections.
Emily Sung-Simon, Senior Recruiting Operations Manager at Postman, recently advised on our webinar that, “Recruiting Operations people need to be strategic. At the most forefront we need to look at recruiting as a landscape… from a hundred thousand feet up above view. Look at the landscape, not just at your own company, how you're recruiting, but looking at the region, looking at the companies that you compare to and thinking about that and thinking about your recruiting strategies in that way.”
End the headcount headache with TeamOhana
Headcount planning doesn’t have to be a massive headache. Say goodbye to spreadsheets, manual processes, hours spent reconciling data across multiple software systems, and headcount data you can’t trust.
TeamOhana eliminates the complexities of planning headcount and managing spend by giving you real-time access to accurate data. Connect your FP&A, HRIS, ATS, and payroll systems with single-click integrations and save time on the backend with automated reconciliation.
Our headcount planning software is designed to unite Talent, HR, and Finance teams and make collaboration across multiple departments easy. Access controls make it easy for everyone to operate out of one system while protecting sensitive information, and ensuring each collaborator only has visibility into the data and metrics they really need.
TeamOhana has helped companies like Docker, Metronet, and IonQ reduce their time spent managing headcount by 60-80 hours per month. Find out how TeamOhana could help improve your headcount planning process. Request a demo today.
