Do you have the people you need to get the job done? Are the right people in the right roles? Can your finances sustain your workforce and keep you profitable?

These questions might seem straightforward, but the path to answers can be very challenging. 

In this article, we will define headcount planning (and other key definitions) so you can start building your own roadmap.

You will also learn how headcount forecasting benefits a business and enables your organization to be more streamlined and effective in accomplishing goals. 

Along with addressing common challenges, we will help you adopt headcount reporting best practices using a step-by-step guide. 

What Is Headcount Planning?

Headcount planning is a way to map out your current workforce and determine whether you have the right number of people in each department or role. 

It is also the first step in determining if you have the best people with the right skills in the ideal roles to execute a business strategy. 

Businesses use headcount forecasting and workforce planning to identify skills deficits in their workforce. They inform recruiting efforts, guide professional development initiatives, and help bridge the gap to achieve optimal staffing levels.     

Headcount Planning vs. Workforce Planning

You might wonder how headcount planning differs from general workforce planning. 

Both headcount planning and workforce planning are used to generate insights about your current workforce, with an eye to the future. They can identify where staffing is adequate and where there is a deficit or surplus. 

However, let’s explore some key differences:

Headcount Planning	Workforce Planning
Determines the number of people in each department (and optimal staffing capacity). Helps forecast budgeting and resource allocation.  Identifies staffing costs versus a department’s ability to drive revenue and boost profitability.	Consolidates information about skills and experiences (and where gaps may lie). Informs recruiting efforts and professional development initiatives. Clarifies future needs, especially if the business wants to scale up or down and/or leverage technology.

The Importance of Developing a Headcount Planning Strategy

Your team members bring special skills, experiences, and even quantitative outputs that impact the organization – all of which can be leveraged to accomplish business goals.

Headcount planning is often used to determine budgets, resource allocation, and staffing needs. It is critical to understanding the company’s overall efficacy.   

Through headcount analysis, businesses can determine if they have enough manpower to accomplish their goals. 

Headcount management provides an overview of the number of people spread out across departments and teams. Leadership develops a clear understanding of over- and understaffed areas, which informs budgets and forecasts.

Benefits of Headcount Planning and Forecasting

Some organizations use the information for budgets and resource allocation. However, headcount management can also help leadership start to understand skills deficits within their workforce. 

Here are some other benefits of analyzing your headcount planning insights:

• Improved employee retention: When employees have cohesive teams and adequate support, they are simply more satisfied. This can help reduce turnover and attrition.

• Budget optimization: Businesses that cut costs in the right places and make wise investments tend to see the most growth and profitability.

• Regulatory compliance: Laws may determine staffing requirements, and you need evidence of compliance. This is particularly important for things like labor limits and/or the need for licensed professionals on duty.

• Efficiency overhauls: Whether it’s wasteful spending or hours worked, headcount plans provide a great deal of information about where money and resources are being overconsumed. 

Financial Implications of Headcount Planning

One of the biggest drivers for companies to engage in headcount control is for financial insights. 

Even a very simple plan can provide valuable information about potential cost savings, investment opportunities, and ROI.

Some insights to be gained from staffing headcount plans include:

• Departmental ROI
• Departmental inefficiencies
• Future costs
• Potential cost savings

Sometimes, more qualitative insights can also be drawn, answering questions such as:

• What ROI do my low-earning, mid-earning, and high-earning employees provide?
• Do I need more employees, or would freelancers/contractors suffice?
• Is my staff inefficient due to skill deficits or from something else?

Headcount Planning Legal Compliance

Aside from internal benefits, headcount planning is also conducted to ensure organizations comply with all legal and regulatory requirements (e.g. labor laws, EEO, safety). These could be mandated at the local, state, or federal level. 

It’s important to have the right number of people in your workforce and people with the right certifications, experience, and licenses (if applicable). 

Terms to Know: Headcount Planning 101

Before you start headcount budget planning, familiarize yourself with these key terms:

• Full-Time Equivalent (FTE): A measurement based on the organization’s full-time status and the hours an individual employee actually works. This will help you calculate how many and what kind of employees you have and still need to hire.

• Attrition rate: The rate at which employees voluntarily or involuntarily leave an organization. This metric can help you evaluate low or high turnover rates. 

• Hiring velocity: A company’s speed and efficiency in hiring, usually calculated by number of positions filled within a certain amount of time. Long hiring times may indicate that your efforts are inefficient and/or your job offers are not competitive.

Common Headcount Planning Issues (and How to Avoid Them)

As you dive into your own headcount management, you might be wondering what common challenges could arise and how they can be mitigated.

Headcount Planning Problems	How to Fix or Avoid Them
Data inaccuracies	Conduct occasional audits of manual or automated systems to ensure the right data is being collected.
Over-staffing or under-staffing	Readjust your finances, resources, or people to balance out.
Misalignment with goals	Reassess the strength of your workforce in quantitative and qualitative measures.
Misalignment with strategies	Determine if you have the right people in the right roles using the right skills to get the job done.
Constant workforce changes	Use automated tools, AI, and/or monitoring, so you have a reliable way to adjust the numbers in real time.

How to Do Headcount Planning: A Step-by-Step Process

Here is a guide to conducting headcount planning. It will help you evaluate your current workforce, identify skills gaps, estimate budgets, and collect necessary data.

We’ve also included ways to avoid common mistakes while following best practice guidelines.

Step 1: Engage Stakeholders in Planning

Gather insights from stakeholders, executives, managers, and frontline staff. You’ll have information regarding high-level direction, execution strategies, and input about what is working and what is not.

Some additional tips to gather the best information:

• Review your organization’s plans, goals and challenges: Pull from historical headcount plans and discuss top priorities. 

• Create questions based on goals: Think about what insights you want to draw from your headcount plan. For example: Is the focus on streamlining workforce costs or complying with new labor laws? 

• Start early: Reach out to stakeholders and staff early for their input, even months in advance.

• Make it easy: Simplify how stakeholders and staff communicate with you. While email messages and surveys can be effective and convenient, schedule time for live conversations as well.

Step 2: Set Up KPI Tracking

The most transformative headcount planning process builds in ways to collect, analyze, and track key metrics, including:

• Employee turnover rates
• Time-to-fill and time-to-hire 
• Attrition and retention
• Training time
• Revenue per employee

Even before generating your headcount, you’ll need access to these metrics to understand previous and current states.

Step 3: Integrate Strategic Business Initiatives

With a preliminary mockup of your headcount, start layering in your business goals. This could include market expansion, product launches, organizational restructuring, diversity and inclusion initiatives, and more.

How can headcount planning be tailored to support these goals?

• Track metrics that matter: As you create your plan, include ways to collect and store data insights right within your plan. You may need software like OrgChart to accomplish this.

• Fortify specific departments: See how you can leverage your current workforce and note where you need to hire new talent to ensure you have enough manpower. 

• Prioritize staffing changes based on doability: Determine which goals and needs are the most pressing. Then, you can prioritize certain staffing improvements over others, and get things done.

Step 4: Find and Research the Best Headcount Planning Tools

There are various headcount management tools to facilitate better data collection and mapping. For more information about easily creating org charts, explore our blog. 

Headcount planning software like OrgChart simplifies the process. Plus, it includes various features that solve common HR challenges, such as:

• HR system integration: Pull data insights within minutes.
• User-friendly interface: Make quick changes with drag-and-drop features and automatic staffing updates.
• Streamlined visual representation: Customize how you want your org chart to display for instant comprehension.
• Shareable formats: Send it to your stakeholders, or incorporate it into a presentation for easy distribution.
• Custom filters and insights: Choose what information you want pulled from your existing HR system: time until retirement, salaries, titles, and more.

Curious how OrgChart works? Book a free demo today. 

Future Trends and Technological Advancements

The future of headcount budget planning is fast, automated, and more informative than ever before. 

Headcount planning software like OrgChart gives you the latest features. 

These advancements allow HR professionals to incorporate more data-driven insights without increasing the workload. Headcount planning becomes a flexible and strategic roadmap to move the business forward.

Create an Org Chart for Headcount Planning

Headcount planning is the first step in forecasting and budgeting for staffing needs and aligning your people with strategic objectives.

Our best practices can help you create a headcount planner that empowers your leadership to make calculated, successful decisions. 

See how to make an adaptable, detailed org chart in minutes.

Book a Free OrgChart Demo

To learn more about other HR-related hot topics, explore more of our latest blogs, guides, and more here.