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Quality of HR planning – Part one: Strategic fit and the scope of HR planning

Posted by  Tijana Balotic Truong

Traditionally, the main driver of human resources (HR) planning is the future organisational structure. Financial HR plans reflect the costs associated with having such a structure, as well as having HR related policies in place.

Similar to the other functions, the quality of both non-financial and financial HR plans will depend on:

  • The strategic fit and alignment to the company’s objectives
  • A well-defined scope
  • A clear planning process and frequency of planning
  • Assumptions and inputs used

In this article we will be looking at the strategic fit and the scope of an HR plan. The planning process, its frequency and the inputs and assumptions required for an HR financial plan will be discussed in future posts.

Strategic fit

For a financial human resource plan to be useful in running the organisation, it is necessary for the plan to be in line with the objectives of the company as well as those the HR department. This is secured by:

  • Receiving clear guidance from key decision makers on:
    • Where the company is going and the strategies that will take it there
    • The role HR is expected to play going forward
    • The time-frame that the HR plan should cover
  • Reflecting this guidance in both the content of the HR plan and the planning process

The content of the HR plan and its associated financials are going to be very different if the company is expected to grow via acquisitions, compared to if the company’s focus is kept within existing markets, in the coming years, while looking for efficiencies.

In the first scenario HR would assess the expansion of the organisation, usually preparing for new hires and their integration to the company. In the second scenario, HR would primarily be involved in reviewing the existing roles and re-designing the structure. Identified efficiencies would ultimately bring cost reductions as a result of simplified or automated processes and leaner structures.

We are witnessing a transformation in many organisations where departments and functions are getting reshaped. However, instead of predominantly providing the back-office support, they are getting closer to the front line. This development is visible in both HR and Finance, where team members are becoming business partners and participating in strategic decision making.

Another trend within many organisations is an increase in flexibility which manifests in various ways. For example, with the introduction of remote working, people do not need to be physically in the office every day and parts of required operations are executed by teams in other locations. Offices now have free seating where employees can sit at any available desk and working hours are no longer fixed for everyone. There is the possibility to start work earlier or later and end the work day accordingly, meaning that the organisations are moving away from the traditional 9-to-5 model.

All of these changes have an impact HR and how it operates. They also require new types of costs to be included, relevant support systems and processes to be developed and abandonment of some past best practices. For the HR plan to be relevant, it needs to reflect the new reality of a human resources department as well as the one of the enterprise.

When talking about the time-frame for the plan, we know that there are still organisations that rely on annual budgets where others periodically update their plans (i.e. several times per year) or perform rolling forecasts (i.e. monthly). Some of the plans are made predominantly using high-level assumptions (e.g. % based on the latest trends), while others call for a full revision of all of the underlying assumptions and drivers. The level of detail included in the planning process often increases as the time horizon of the plan becomes shorter.

In order to secure the funding for more than one year and define an appropriate financing strategy, an organisation needs to have a plan which covers several years. This type of plan is often prepared on a high-level basis, and HR is expected to indicate only the main drivers within their scope of responsibility.

Although high-level planning does not require involvement from many functions in the company and specific inputs from HR might not be required, the HR department could still benefit from regularly updating details for their own performance management and progress tracking.

Scope

As we have just seen, the role of the HR function continues to change and evolve over time. Knowing what the organisation expects the HR team to focus on in the future helps define HR’s areas of responsibility. Besides clarifying HR responsibilities, it is required that the following is specified during plan preparation.

  • The areas that will be owned by HR during the period of the plan
  • The areas of the planning process that HR should be involved in
  • Any details that HR need to provide

Certain costs that are traditionally related to HR (e.g. training). might be categorised as the responsibility of individual department heads in some companies. If this is not discussed upfront, those costs could end up in both the HR budget and the department budget, causing costs to be overstated at a consolidated level.

Entities going through restructuring might, for confidentiality reasons, assign specific costs and responsibilities to HR on a temporary basis. Equally, there can be organisations that assign costs to HR for activities which intuitively do not relate to HR (e.g. meetings and conferences). If those items are not planned for financially, actual charges in real-time will come as an unwanted surprise.

Another element to consider is the degree of involvement required from HR in preparing the plans for other functions. If the time required for this is not factored in properly to the HR department schedule, planning might become a rather intense exercise and some important components may be missed.

As we have seen, there are many considerations to be made when preparing HR plans. Nevertheless, timely communication and information sharing are the underlying prerequisites. In the next article we will look at the details of the HR planning process.

Tijana Balotic Truong

Tijana Balotic Truong is a performance management and commercial finance specialist, with 15+ years of international experience in large FMCG companies.

She is strong in risk management and developing business partnering within markets, regions and HQ, and is now helping start-ups and SMEs in the domains of strategy and finance.

Tijana is also active in NGO sector, most recently focusing on enhancing fund raising strategies and programs that improve children well-being.

She is a Chartered Global Management Accountant and a Master of Management.