Financial Benefits of the Workforce Planning Process

As the economy continues along an unpredictable path, companies are increasingly looking for ways to manage expenses in order to remain profitable. Labor continues to be a top expense for most companies, especially as inflation and a limited applicant pool drive up wages.

As such, managing labor through workforce planning is imperative. Labor management is often done by “right-sizing” the company’s workforce to the business volume.

A Strategic Planning Process

Strategic workforce planning is the process of careful analysis and management of human capital. The process is an investment in time; however, long-term financial benefits make it well worth it. Appropriate workforce planning allows for accurate forecasting of labor costs, resulting in reduced unplanned expenses.

Advanced planning leaves room for the internal development of talent, resulting in reduced costs of recruitment and training. When workforces are the right size for business volume, absenteeism reduces through the balancing of work to staff.

In addition to helping retention, reduced absenteeism minimizes lost productivity and increases engagement. This strategic workforce planning process also allows for the identification and elimination of unproductive labor.

How to Complete the Workforce Planning Assessment

Workforce planning begins with assessing current labor costs. Identify the actual direct and indirect (e.g., benefit) labor costs over a set period, typically a year, and identify any anticipated cost increases or decreases. While reviewing, be sure to note any patterns or trends.

Assess Labor Costs

To get a more detailed understanding of labor costs, compare the data regarding current costs to historical data and budgeted labor to actual labor used. In doing this, companies gain the ability to accurately forecast and plan for labor spending. Consider also comparing the cost of labor to productivity by calculating the productivity ratio by dividing the output (amount of work completed) by the input (amount of labor put in).

Free productivity calculators are available online, like the one provided by Omni Calculator. Compare your productivity ratio to similar companies in your industry. Determining if the company’s labor ratio is in line with similar companies allows company leaders to know if labor is being used efficiently, and to begin troubleshooting if it is not.

Assess Staffing Needs

The next step in workforce planning is to assess your true staffing needs. Start by identifying labor needs that align with your business plan. This includes identifying associated labor costs based on market wages and your needed headcount.

Compare the needed headcount to your current headcount to determine if your company is staffed appropriately. Also, compare the current wages paid to the market standard to determine if employees are paid competitively. Paying employees too much will add unnecessary expenses while paying too little will result in increased turnover and thus increased costs on recruiting and overtime pay.

Consider also creating a talent and skills inventory and using it to begin succession planning. Using all the information which has been obtained, create an action plan to optimize labor efficiency.

Labor Efficiency Action Plan

Optimizing labor efficiency is important to workforce planning. Create goals using the productivity ratio to ensure that the company is operating within industry standards.

These goals can be used for performance management as well. The goals allow company leaders to identify employees with high and low productivity or gaps in training that help to recruit for the right skills. Rewarding employees with high productivity will encourage other employees while addressing deficiencies will help to either improve or eliminate employees with low productivity.

It is also beneficial to complete a productivity analysis to find opportunities for more efficient practices in the workplace. Use the information obtained to create streamlined processes for standard operation.

Where practical, eliminate “unitasker” roles by cross-training, up-skilling, and combining roles. When doing this, carefully craft the delivery method to employees so it encourages the learning benefit to them. Not paying careful attention to this step can result in discord amongst impacted employees.

An additional option is to consider automation and technology that may streamline processes. While automation and technology may be an up-front expense, the return on investment may prove to result in long-term savings.

Reducing Labor Costs

Once all applicable analyses and reviews are complete, opportunities to reduce labor costs should become apparent.

If cost reductions are needed and the company is currently hiring, for example, assess the open positions to determine if there is a true need to recruit. Slow or eliminate hiring where possible to avoid creating more labor costs. Consider if some of the tasks can be shared by current employees. A compromise may be to hire a part-time employee instead of a full-time employee.

Also, consider the current organization structure and determine if the headcount is appropriately distributed. Evaluate if employees should be transferred from an overstaffed department to an understaffed department.

Workforce planning requires strategy when exercising options to reduce labor costs, as an excessive reduction may have a negative impact on productivity, employee retention, and profitability. One way to do this is by reducing or eliminating overtime use.

Labor costs can further be minimized by reducing hours for hourly employees. This could include removing a few hours per week, converting full-time employees to part-time status, or offering time off without pay. Again, this must be done carefully as reduced hours or a change in status can have a negative impact on employees, leading to attrition.

When Drastic Reduction is Necessary

If a drastic cost reduction is needed, it may become necessary to furlough employees, eliminate positions in a reorganization, or lay off employees for a reduction in force.

Furlough is the process of temporarily placing employees on unpaid leave due to economic conditions. The employee is not working but is still considered an employee.
A reorganization may include the reassignment of duties or positions for some employees. In some situations, a reorganization may result in layoffs as a result of position elimination.
Layoffs are similar to furloughs as they often occur as a result of economic conditions and a shortage of work; however, they are not typically temporary since the employee is terminated.

Note that in a layoff situation, the company may be required to follow certain federal or state WARN Act notification requirements. It may also be necessary to conduct a pre-assessment to ensure there is not any demographic imbalance in comparison between those selected to be released and those who are being retained.

If an employee is laid off as part of a reduction in force, it is highly advised to not hire for the role for at least one year unless the position is filled by the employee who was laid off. Hiring within this time frame opens the company to legal risk for wrongful termination.

If furlough, reorganization, or reduction in force is needed, there is the potential for legal repercussions and the possibility of a negative impact on the company’s image. As such, it is highly advisable human resources professionals be included in the decision-making process to mitigate the associated risk.

Reduce Risk When Changes Are Needed

Strategic workforce planning offers a variety of both small and large savings to companies and helps company leaders gain control over the largest expense – human capital. The investment of time offers a long-term return on investment. The process is not without legal and public relations risks though.

To reduce time spent and mitigate risk, HR Service Inc. offers a step-by-step workforce assessment as part of the HR solutions package that provides guidance and forms to navigate dynamic workforce planning appropriately. To further save time, HR Service Inc. offers options for our Human Resource professionals to guide companies through the workforce assessment process.