A simple count of employees should be a fairly straightforward process. After all, how difficult can it be to get an accurate number of the people your business employs?
Harder than you’d think.
Finance and HR routinely produce headcount numbers that don’t match. And that’s a problem. When you don’t know who works for you (and where in the organization), you lack visibility into the health and performance of your business.
Knowing who works for you at a given time
For example, consider this scenario: You’re in a meeting with executives to discuss last quarter’s budget, when a few seemingly straightforward questions come up. What’s our current headcount? What did they cost? And how did that compare to what we planned?
Simple, right? Not so fast. HR and finance often have different ways of measuring headcount. Does that include contractors? And what about the “0.3 FTEs” who only work 15 hours a week?
Ultimately though, the real challenge arises when it falls to finance to explain what the company’s headcount costs actually are and why that deviated from plan. It requires keeping track of who you’ve hired, for what roles, at what compensation levels, in what regions—and being able to tie that all back to the original plan you put together. It’s an exercise that, for most organizations, is challenging, if not impossible.
How to explain headcount variance
Even the best laid plans never unfold exactly as scripted. Maybe you ended up pushing out the hire date to later. Or you couldn’t fill the role at all. Or maybe the compensation package changed because the job requisition was created for a role in Austin, TX, but filled in San Francisco. Perhaps attrition grew more than expected, or there were unplanned leaves. In any case, there are plenty of reasons why plan and actuals don’t align. And that’s to be expected.
However, when it comes to explaining this variance, often, the best report finance can produce is a simple “budget versus actual” analysis of salary expense. If they’re lucky it’s by department, which can shed a little light on where in the organization the variance is. If they’re really lucky, maybe there’s an FTE plan versus actual that can also shed some light on whether the variance is price or volume driven. Regardless, none of these offer much insight into whythe variance arose. And that’s because, fundamentally, there’s very little connection among the GL, HR, and planning systems that manage this process.
Further investigation into these variances is highly manual—emails back and forth between finance and HR sorting through which positions and requisitions went where—and often difficult to quantify in terms of dollars. But what if you could easily understand and track the underlying root causes that are impacting the largest expense in your business?
Visualization to the rescue
Here at Workday, we can see what this visualization can tell us via a waterfall chart. Specifically, we can see the reconciliation of the variance between budget and actuals, and see the relative impact of each of the underlying factors. And we can do this both on a FTE count basis as well as on total compensation expense. Did we have higher than expected attrition? Did some hires happen sooner than expected? Did levels or location change?
These root causes aren’t easy to come by, so at this point you may be wondering how we did this. With Workday Adaptive Planning, it starts with ingestion of the current personnel roster and the creation of a detailed hiring plan, built on a detailed driver-based model that automatically calculates and rolls up myriad assumptions about who we’re going to hire, when, and where we’re going to hire them, as well as what we’re going to pay them. We’re able to use the position ID to reconcile positions across different versions and against actuals. In addition to this, a “reason code” was tagged at the line item level—automatically updating the waterfall chart.
- Publish planned positions from planning directly into HCM and automatically assign position IDs.
- Kick off email notifications.
- Reconcile newly created positions back into the modeled sheet in planning.
- Drill seamlessly from planning into HCM to investigate and resolve questions.
And all this features a unified look and feel, so you can follow your train of thought and collaborate between departments.
The bottom line: To prepare an accurate budget, you need to get the headcount reconciliation process right.