Labour Budgeting by Role – Should You Use it?

Labour forecasting by role

As mentioned in our last post, labour costs represent somewhere around 70% of the operating costs for most organisations. So having a well thought out budget for it is vital to good planning.

We have three types of labour plans that we usually build either by person and or by role, or using a driver based method.  In this second of our series on labour budgeting, we will be discussing planning labour costs by role (as distinct from by person).

What is Labour Budgeting by Role

Like planning by person, planning by role uses a list, but instead of a list of individuals, we use roles. Then we simply plan the number of people doing the role and use average costs. From this we then calculate the monthly costs in the same manner as planning by individual and then transfer those costs to Opex.

Advantages and Disadvantages of Role based Labour Budgeting

Why would you do this, rather than plan by person? Well, if you’ve got 250 employees, of which 100 work in a factory and warehouse, 20 in a call centre and another 20 as reps, well you could plan by listing each person. Or you could have one line for factory and others for warehouse, call centre and reps respectively. So you then have four lines to plan, rather than 140 – making managing the plan a whole lot easier!

Using role based labour budgeting is great for largely homogenous roles. Say the 100 people who work on the factory line. However if the people are high cost, then this method would not be appropriate – imagine the management of the finance team, with the CFO, Controller, Management Accountant etc all being averaged.  Therefore, planning with a combination of role and by person is usually where we go with smaller organisations as it gives both flexibility and visibility.

Finally, it is more complicated to pull together the data needed to use averages – you need total costs and counts as an input – and that data preparation needs to be automated so that if you reforest regularly, those are calculated on the fly.

Scenario and Driver Based Planning

The next advantage of this method is that  you can start to use the volume of people in a role as a driver for scenario planning.  So, for example, if you plan to increase sales it might be valid to increase the number of sales reps or call centre operators in direct proportion to sales changes – but more on this in our next in our labour budgeting series.

For a discussion on which labour planning methods are right for your business, please contact Infocube on 1300 136 755 or via [email protected].

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

Stay tuned for our next discussion on driver based, rather than individual or role based, 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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