7 Headcount Analysis Mistakes HR Should Avoid
HR is often called upon to determine whether the organization has the right amount of skilled employees to deliver on the business OKRs (Objectives and Key Results). Headcount planning and analysis help HR professionals to assess the current and future headcount needs within the budgetary needs of the organization. But it is also an opportunity to align financial planning and talent acquisition efforts to develop a future-focused HR strategy.
However, some common mistakes can occur when conducting a headcount analysis. We will outline these mistakes and actionable tips on how to avoid them.
Contents
What is a headcount analysis?
Mistake #1: Not factoring in your company’s future growth
Mistake #2: Not conducting a skills gap analysis
Mistake #3: You’re hiring for the short-term
Mistake #4: Only tracking headcount and not including additional metrics
Mistake #5: Lack of forecasting future costs
Mistake #6: Not getting stakeholder buy-in
Mistake #7: Not tracking progress
What is a headcount analysis?
Employee headcount refers to the number of people working in or for a company at any given time. This typically includes full-time, part-time, temporary, and contract/freelance workers.
A headcount report usually includes information such as job title, status, time in the role, age, location, and retirement age. Headcount analysis enables HR to closely monitor this data and look for key patterns and trends in the data.
Why is headcount analysis important?
Headcount analysis helps HR and business leaders stay to:
- Stay on top of and improve workforce and succession planning
- Remain compliant with local and national laws
- Improve efficiency and productivity across the business
- Avoid overstaffing
- Ensure there are adequate resources and an appropriate tech stack for the number of employees
- Make data-driven hiring, recruitment, and budget decisions.
It becomes more important to accurately measure headcount as an organization grows. HR leaders can then accurately grasp the number of workers and maintain an agile workforce.
The only measurable way to meet workforce goals is to use headcount reports and analysis. This analysis will help you to achieve optimal headcount numbers, ensure you have the right skills in your workforce and achieve maximum efficiency in your HR strategy.
Mistake #1: Not factoring in your company’s future growth
As your organization grows, HR policies and procedures will be affected and likely need to be updated. But a common mistake companies make is attempting to scale policies used in the startup stage or with under 50 employees. These policies will not be effective when a a workforce has grown to hundreds or even thousands of employees. This strategy is destined to end in disaster.
“You’re a 10-person company. You’re trying to move as quickly as possible . . . Then you get a little bit bigger, and the organization needs more structure, but your inertia can just continue to carry you forward, operating in the same way. [You need to say], ‘Okay, we need to slow down a little and be methodical because things have changed.'” – Dave Koslow, COO at DocSend.
Try this:
A clear organizational structure helps HR to develop more robust headcount plans, spot skills gaps early on, and determine an ideal span of control as the company grows. Common structures include functional, flat, matrix, and team structures.
Develop an org chart with management. This will visually display the organizational structure so that everyone can see the relationships, processes, and responsibilities and understand them. This also gives the entire HR team clarity on the most urgent hiring needs, talent shortages, and potential budget implications.
Mistake #2: Not conducting a skills gap analysis
A skills gap analysis is an often overlooked process when conducting headcount planning. Unless you know where you stand today, it’s difficult to plan for the future. This tool shows the difference between the current state of skills in the organization and the future (desired) state of skills.
A skills gap analysis helps HR identify the skills and knowledge missing or lacking in employees across the organization. You can then create a plan to upskill, reskill, invest in L&D, and conduct succession planning so that the organization is adequately prepared for the future.
Without conducting a skills gap analysis, you won’t have a clear understanding of the gaps in skill within your business. You also won’t be able to create targeted hiring strategies to address these.
Try this:
We have created an in-depth guide on how to conduct a skills gap analysis to help you through the process. It is also recommended to conduct a skills gap analysis using both qualitative and quantitative methods.
The qualitative approach is based on the organizational development process. You begin by identifying the skills needed in your organization and deciding how critical they are. The next step is to collect various data sets on your employee’s competencies and the organization’s future needs. The final step is to create the right strategy to address the skills gaps you’ve found. This may include training existing employees, recruiting new employees with critical skills, or doing a job redesign.
The quantitative approach, proposed by Antonucci and Ovidio, measures the gap in each competency for all subjects. After determining the size of the skills gap, the organization can develop and roll out self-training activities or look for a suitable training program.
Mistake #3: You’re hiring for the short-term
HR professionals often face huge pressure from business leaders and managers to address immediate, short-term hiring concerns. However, this is an ongoing need in all organizations, and immediately rehiring when a position becomes vacant doesn’t always benefit the company.
When doing a headcount analysis, long-term business objectives need to be considered. Who is the best fit for the company? Who possesses the essential skills, competencies, and behaviors that are likely to make them a top candidate for the organization? What skills do we need as technology progresses and as the business grows?
Sometimes, restructuring a team or redistributing work in the short term can be a better long-term decision.
Try this:
Get more focused insights into your future workforce needs by collecting and analyzing data such as:
- Natural attrition rates
- Upcoming retirements
- Skill levels needed for future growth
- Employee engagement
- Tenure
Mistake #4: Only tracking headcount and not including additional metrics
Another common mistake made with the headcount analysis is only considering the ‘headcount’. This gives you a very limited understanding of your current workforce.
Measuring additional metrics such as attrition rates, turnover, tenure, and risk of loss helps you conduct a more precise analysis of your workforce. With this data, you can create a more detailed plan of the next steps to strategically steer the company in the right direction.
Try this:
Check out this detailed guide to identifying the other key metrics to help you with your workforce planning.
Some metrics to consider include:
- Average employee turnover %: The percentage of workers that leave an organization (voluntary or involuntary). This number directly affects HR’s recruiting challenges.
- Tenure distribution: The number of years of service within a target group. This number indicates seniority and organization-specific knowledge of a specific group of employees or department.
- Voluntary vs. involuntary turnover ratio: The ratio of workers who leave the organization voluntarily and involuntarily. A group of workers with high voluntary turnover rates can negatively affect business continuity and employer branding.
- Salary scale distribution: The number of workers in specific salary scales within a group. This can also provide insight into the level of seniority within a group.
- Risk of loss distribution: A rating or score is given (by managers or a predictive analytics model) to predict a trend in turnover within a group of workers. This can help HR better prevent or plan for future turnover.
- Span of control: Calculating the span of control gives you the number of employees that report directly to a manager and gauges the overall effectiveness of each manager. This can help HR determine whether they need to hire more managers or employees for any team.
People Analytics offers HR professionals the ability to make data-driven decisions that help benefit the organization. Upskill yourself by taking the AIHR People Analytics Certificate Program, so you can make more fact-based decisions when analyzing your organization’s workforce.
Mistake #5: Lack of forecasting future costs
The pandemic was a wake-up call to businesses as the market suddenly grew extremely volatile and unpredictable. Financial figures that were previously predictable are constantly changing, and companies must remain agile in their strategy to avoid getting hit by unexpected costs (such as increased health care, remote worker costs, and tax rates).
Most companies’ highest cost (and asset) are people, so accurately forecasting future costs and integrating this into your workforce planning is essential. Hiring too many employees and then letting them go due to unforeseen costs creates an unhealthy “hire and fire” reputation in your business which can cripple your team morale and company culture.
Look at data on employment market trends to help you improve your budgeting for roles that you need to fill and hire the right people with the right skills at the right time.
Try this:
Before hiring, you must know where your budget will be best spent. What will hiring an employee for a specific role cost the business? Which hires are most likely to bring in more revenue for the company?
To make these decisions, you need to leverage the available technology and use real-time statistical data to look into the future and conduct your workforce planning. A detailed financial forecast that continually updates enables business and finance leaders to take a more agile approach and adapt their strategy accordingly. HR can better visualize the expenses of a new employee, including compensation costs, hardware, and insurance.
Financial forecasting software will help HR and finance teams work together to develop the right hiring and workforce development strategy based on real-time data.
Mistake #6: Not getting stakeholder buy-in
One of the common mistakes HR teams make is conducting a headcount analysis and headcount planning in isolation rather than in collaboration with the leadership team. But getting the full support of stakeholders and business leaders from the start is essential to give you every chance of success when it comes to acting on the results.
Additionally, workforce planning is integral when developing an effective HR strategy, but it must be linked to the overall strategy and goals of the business. This is why your headcount plan must be created with the leadership team and championed by them.
Process, policy, and platform changes come at a cost, so you’ll need your budget to be signed off too. But without visible backing from leaders, stakeholders, and line managers, it won’t be easy to execute your plan effectively and bring all employees on board with you.
Try this:
Combine the data and analytics you’re collecting with insights from stakeholders and decision-makers across the business. Include these key authoritative figures from the start to gain full support and backing.
Communicate the commercial benefits of your headcount plan and the risks if it is not executed. Explain the metrics you’ll use to inform your strategy. Review and adjust the plan regularly in response to real-time data, both from internal and external sources.
Mistake #7: Not tracking progress
Your headcount analysis should not be conducted once a year and then forgotten. This must be an agile and dynamic document that is always up to date and can be referenced to inform key recruitment and policy decisions. Ensure you continue incorporating financial models, OKRs, and metrics data.
Shift your headcount analysis from tactical to strategic by consistently tracking and making adjustments based on real-time data and the organization’s OKRs.
Try this:
Schedule time each week to review your headcount analysis so you can determine whether it’s helping you meet the OKRs and recruitment needs of the business or whether it needs adjusting.
If you need to implement a change based on your analysis, ensure that these changes are communicated to everyone involved to ensure a smooth transition. It’s vital to nurture collaborative efforts with stakeholders and business leaders on an ongoing basis, particularly as changes occur and plans need adjusting.
To conclude
An agile headcount analysis will allow you and your organization to adapt to business and market changes. Ensure that you are measuring what matters to your organization and aligning with the business OKRs and stakeholders to gain the maximum benefit from your headcount planning efforts.
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