5 best practices organisations should consider for workforce capacity planning

In times like these, getting your workforce ‘right-sized’ is one of the toughest challenges to any business.

Getting it right with headcount in a business is one of the toughest challenges to manage. Too many, and you have idle staff – a significant cost, but also a group of potentially unmotivated people. Too few, and you simply can’t deliver to your customers.

To get it right, you need to responsive to changing market conditions and customer expectations. It requires careful planning, forecasting, recruitment, retention, and adjustment strategies. And it is a business-wide activity. Everyone has a role to play!

And one of the key processes to help manage this challenge? Workforce Capacity Planning.

In this article, I will introduce workforce capacity planning as a key operational planning process, but importantly introduce the value of integrating planning with finance to add real value. I will also lay out some best practices for getting up and running!

So what is workforce capacity planning?

Simply put, Workforce Capacity Planning is the process of figuring out how many people you need in the organisation to deliver on your goals. It is the process of ensuring the business has the right people, in the right place, at the right time. Both in the short term and the longer term.

It involves assessing the current and future workforce demand and supply, identifying any gaps or surpluses, and developing and implementing plans to close or reduce them.

And things are changing all the time. So this is a constantly moving target. And teams that are adopting a dynamic approach to workforce capacity planning are setting themselves up to win in the long-run.

So who cares about workforce capacity?

Some think about people planning and think about it as a HR process. Some think of it as being tied to financial planning. Some think of it as an operational process. The reality is that most people in the business care in some way, shape or form:

Human resources (HR)

In short, HR is responsible for attracting, hiring, developing and retaining the talent that the organisation needs to achieve its goals. They often will have a holistic view of the workforce. Workforce planning helps HR to align the current and future workforce with the strategic objectives of the organisation, identify and address any gaps or risks in the talent pipeline, and optimise the use of the people that are available to them. They have a key central interest in making sure headcount is the right size!

Sales

Sales is the function that is out there in the market trying to bring in business. But delivering on a sales target doesn’t just happen. You need a right-sized team that can go out there and get the job done. Too few, and you can’t hit the target and risk burnout. Too many, and people sit idol and many miss targets and walk out the door. Getting it right is a fine juggling act. In simple terms, Workforce Capacity Planning helps with allocating the right number and mix of salespeople to different markets and segments so that you can deliver on your goals.

Operations

Operations is the function that delivers the products or services that you sell to customers. You need to have a sufficient workforce in place to get the job done effectively! Workforce Capacity Planning helps optimise the headcount to meet the production and delivery requirements of your customers. And let’s face facts, these requirements are changing all the time!

Finance

Finance, like HR, often sits in the middle of a business. It is the function that manages the financial resources and performance of the organisation. The workforce plan can be converted into financial data to help understand the viability of plans. Is there cashflow in place to deliver on projections? Are the workforce estimates completely unrealistic? Where is the flexibility in the numbers? Where are the key risks? A workforce capacity plan acts as a key tool to help inform a financial plan that influences decision making.

What is the relation of workforce capacity planning to financial planning?

Let’s dive a little deeper on the relationship between workforce capacity planning and financial planning. This is an essential connection to enable a dynamic approach to workforce capacity planning. Getting it right can be a key strategic enabler for any business.

One way to view financial planning, is to think about it as a process of estimating how much money is needed to fund the organisation’s strategy and operations, and how it will be obtained and allocated. Workforce capacity planning provides a key input to this by first estimating how many people are needed to execute the strategy and deliver the products or services, and then converting these headcount numbers to a financial cost of employing them.

The two are very closely intertwined. Ignore one at your peril!

3 reasons why it is valuable to have integrated workforce capacity planning and financial planning

I’ve emphasised the value that comes from a connected workforce and financial plan. To outline a few benefits in more detail:

1. Improved alignment

A successful connected approach can ensure that your human capital strategy is aligned with your business strategy, and that its financial resources are allocated in a way that supports its workforce needs.

2. Enhanced agility

Businesses can increase their ability to respond quickly and effectively to changing market conditions, customer expectations, competitor actions, or internal challenges. It also opens up the opportunity to prepare for future opportunities or threats.

3. Increased efficiency

You don’t want to have duplicate plans. By creating ‘one source of truth’, you can reduce duplication of efforts, streamline processes, improve communication and collaboration across functions, and leverage data and analytics to drive more efficient decision making processes.

Getting started: 5 best practices for building and managing an integrated workforce capacity plan and financial plan

So how do you get going on this? Every business is different, but I have tried to outline a few steps that can hopefully get you think about how to get moving with development of an effective workforce capacity plan.

1. Establish a cross-functional team

If you want to plan collaboratively between departments, you need a cross-functional team from the outset. HR and Finance will almost always be a part of the team, and then sales and operations can join, based on where your capacity planning focus is. Create a clear structure up front, with clear mandate, that capture key things like roles and responsibilities, objectives, metrics, timelines and milestones.

2. Define a common framework

People need to know what they should be doing. A common framework should be defined to guide the integration process. The framework should include a shared vision, mission, values, goals, strategies, assumptions, definitions, methods, tools, data sources, standards, formats, reports, etc. Do not underestimate the value of clear communication of this framework.

3. Conduct a gap analysis

This is where you really start to get to work. Build the future ‘desired’ state of the workforce (can be based on demand, strategic goals…whatever you are aiming at), and build a dynamic comparison with the current picture of the workforce. Be sure to model your workforce using key dimensions – both for managing operational decisions, but importantly for enabling effective financial reporting.

Every business will have gaps or discrepancies between the present and future state. One way to refer to this is the ‘Workforce Capacity Gap’.

Remember, the key ‘value add’ is having that integrated operational and financial view of the workforce – it is a superpower for effective decision making.

4. Develop an action plan

An action plan should be developed to outline how the gaps or discrepancies will be closed or reduced. Make it easy to follow – specify the tasks, activities, resources, responsibilities, timelines, dependencies, risks, and mitigations – essentially have a simple to understand blueprint that helps you act on each gap or discrepancy, both in the short and the longer term.

5. Implement and monitor

The action plan should be implemented according to the agreed timelines and milestones. The progress and performance of the integration process should be monitored regularly using appropriate metrics and indicators. Any issues or challenges should be identified and resolved promptly. Any changes or adjustments should be communicated and documented clearly. Governance structures play a key role here!

Every business is different. But a structured approach that considers all stakeholders and emphasises clear communication will set you up for success!

Takeaway – this is a dynamic plan – to get the value you out of it, you need to work with it in a dynamic way!

Workforce capacity planning and financial planning are two interrelated processes that are vital for strategic planning. By integrating them effectively, a business can significantly improve the way that decisions are made in the business.

But you need to work together. Everyone has a role to play, and in challenging times like these, collaborative planning can have transformative power! So give it a go!

By Iain Main

Iain has been working at Bedford since 2021, and partners with customers around Europe to help them get the most out of Anaplan by utilising it in new ways across their organisations. He has also implemented Anaplan with a number of customers.

Prior to joining Bedford, Iain worked in various roles across finance in both large multinationals as well as start-ups and is passionate about the role that finance teams can play in driving organisational performance.