Budgeting That Matters for Human Resources

Real, strategic budgeting for Human Resources must done from three perspectives:

1. Internal, expense-based management of the function itself, including headcount and required resources for day-to-day management as well as planned initiatives,

2. Operationally, pushing out potential budgeting numbers to operating units, and

3. Organizationally, allowing the entire firm to complete budgets based on planned Human Resources initiatives, interventions, and planning.

The first of these is entirely tactical and functional, with emphasis pointed inside the human resources shop. The second shows meaningful synergies within the organization, while the third perspective is where Human Resources can have appreciable, strategic impact for the organizations planning, budgeting, and forecasted performance.

Internal budgeting is simple, and simply requires a determination of how much the discrete HR function will “spend” during the budgeted period. Headcount payroll, benefits burden, task vendors, some outsourced efforts, and paper clips. Much of this data is readily available, as prior budget “actuals” have historical spending patterns. Those may be used as a “go-by,” but any accurate budget – and all support functions, in my mind – should be “zero-base.” In other words, start with “nothing,” not with last years’ actual spending. Build the budget from the ground up.

Operational budgeting pushes some human resources costs out into the operational world. Frequently, many hiring costs such as testing, travel, etc., are charged directly to the gaining operation (not human resources), so sharing an idea of how many potential candidates may have to travel to interview, relocate, etc. is useful information. Other categories could apply here, also, including specific HR staff travel to an operational location, unique efforts for a single operation, and so forth. Sharing this operational budgeting information allows the organization to work together to roll up a more accurate estimate of true costs.

Organizational budget considerations are “the real deal.” Here, human resources leaders have to make a commitment, and prepare to held accountable for the results. If we say that, through our negotiations, we intend to reduce the Benefits Costs Per Employee by 8%, then the organization should plan on it. Further, if we are spending money and effort to increase real productivity through various means (training, hiring, performance management) in specific operations, those increased productivity numbers should be reflected in the period’s budget. Further, joint efforts should be reflected here as well.

At one company, I spearheaded a “Tiger Team” that was mobilized whenever we opened a new facility or had serious performance issues needing a turnaround. As the champion for that cross-functional effort, I was accountable for determining the financial value (ROI), and distributing that value correctly throughout the organization for budgeting and forecasting.

All three of these perspectives may occur somewhat seamlessly, but should be purposeful nonetheless. It’s another area where we can move the human resources effort from simple functionality to an integral part of the organization’s success.



Kevin Berchelmann

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