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Labour Planning by Individual – What’s Right for Your Budget?

Budgeting by PersonLabour costs represent somewhere around 60 – 70% of the operating costs for most organisations. Therefore having a well built model for them is vital to great corporate planning. In most of the budgeting, planning or forecasting models we build, there is a need for some sort of workforce planning – and often the labour planning will be the most carefully built element of a budgeting system.

We have three types of workforce plans that we usually build – either by person, and or by role, or using a driver based method.  In this first of three emails, we will be discussing planning for each individual in an organisation.

Budgeting by Person

Planning by individual usually involves having a data feed from a payroll or HR system, then listing each person, their title, cost centre(s), their salary, bonus, on costs etc, start and end dates (if there is one) and so on. Then we calculate the total cost per person per period, add those up for a cost centre and pass that onto Operating Expenses.

One of the complications that we often see is having people split across multiple cost centres. How do you, for example, model a person, then split them into 2, 3 or more cost centres and then allow for the portions or cost centres to change at multiple points in the future – all whilst operating in a high frequency rolling forecast environment? The method needs to be really carefully planned and agreed up front – definitely not something you want to try and do in Excel and have it refreshed monthly!

This type of planning is great for “lumpy” individuals. Those that are either expensive or where there are only a few people in a team and averages just don’t work.

Pros and Cons of Workforce Planning by Individual

The advantage is that you have clear visibility by person and can make quite finite changes. The disadvantages are that it is very detailed and therefore can be time consuming and possibly offer little benefit to an overall plan. Further, it doesn’t really allow for using drivers to test the impact of changes on your business, limiting flexibility for scenario modelling.

What method do you use for your workforce planning? Take our two question survey here.

Stay tuned for our next discussion on role based, as distinct from individual, labour planning.

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John Vaughan

John Vaughan is a highly experienced Accountant and Consultant. He has experience in the pharmaceutical, FMCG, distribution, professional services, manufacturing and financial service industries. With over 25 years of commercial experience and 20 years working with the Cognos products, he...

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