(5 minute read)
One of the biggest challenges for an organization when it comes to the overall planning process is aligning all plans across the organization, also known as a collaborative planning environment. The P&L statement must contain a view across the organization – from revenue, to costs, to human resources, and so on.
Accurate planning for human resource costs is essential, since employees are the single biggest expense for 90% of organizations. It’s not just about salaries; it’s also important to factor in the cost of benefits such as medical, dental, life insurance, 401(k) matching, etc. These are known as ‘burden expenses.’
Most organizations separate the HR portion of the overall annual plan into its own process. These plans are typically put together in one of three ways:
- Employee level planning includes specific, named employees in each cost center, along with their individual salaries and benefits.
- Job code level planning moves away from actual named employees, instead focusing on the job position or title.
- Headcount level planning is based on an average salary and headcount number. For example, if I plan to have x employees at an average salary of $x – that is what the cost is going to be.
No matter which of these three methods are used, human resource planning is always challenging. Because HR is such a big cost for the organization, it takes a lot of time and effort to pull transactional data from HR information systems (HRIS) – SAP HCM, SuccessFactors or a third-party system such as Kronos or ADP – and marry it with the transactional finance system for planning and reporting purposes.
Integration of Operational and Financial Data is Key
A good analytics solution can make the difference for integrating operational and financial HR information into one system. It can bring transactional HR data together with transactional financial data for comprehensive planning and reporting. It can also apply rules and an approval process for promotions, merit increases and transfers to keep these activities within boundaries and ensure data integrity.
Planning for human resources is always a challenge, because you have to keep track of open positions, promotions, transfers and terminations and their effective dates. Headcount often consists of both exempt (salaried) and non-exempt (hourly) employees, with each of those categories being handled a bit differently. In addition, the rates for merit increases, bonuses and other burden expenses can be different for each entity.
Add to that the complexity of calculating FICA (Social Security and Medicare tax), FUTA (Federal Unemployment Tax Act), and SUDA (State Unemployment Tax Act), along with 401(k) and benefits. All of these calculations must be taken into account when you add or remove headcount – how do you calculate that, and at what rate? Are you making general assumptions, or are you trying to look at where each of the employees are, based on certain tax rates?
Many of those calculations are very cumbersome, but you can build a way to manage some of the assumptions into the system, so that it calculates total cost by multiplying out based on the number of people. By using standardization and defining drivers in the planning system, you can take the individual systems out of the mix and bring information together into one common human resource planning and reporting solution for HR.
This is similar to revenue planning, but the planning is usually done in a separate model that is HR-specific because you are looking at employees, job codes and that level of detail. Ultimately all of this information needs to roll up into the corporate financial plan so that the executive team can see the overall budget or forecast for the entire organization.
Integrated Headcount Planning
itelligence offers a starter kit specifically designed to help with headcount planning and financial forecasting. This solution allows you to integrate operational HR planning from SAP SuccessFactors with SAP Analytics Cloud, allowing you to add the financial information for headcount – salaries, benefits, merit increases, etc.
Our Integrated Headcount Planning solution utilizes SAP SuccessFactors’ Employee Central master data for salary, headcount, FTEs and positions as the starting point for salary planning for existing employees. Within SAP Analytics Cloud, users can view current employees by position, cost center or location. They can plan salary increases, merit increases and burden expenses based on location, or override at an individual employee level to create “what-if” scenarios and modeling within SAP Analytics Cloud. Position management information displays all current vacant positions and open requisitions for FTEs. Leadership can plan and forecast salary and starting dates for when these positions will be filled.
As leadership plans headcount at the employee or position level, the financial impact is updated in the financial plan. A cost center manager can see the impact of a new hire or salary change to the cost center financials. Because the plans are linked, this ensures there is no disconnect between vacant positions planned in the financial budget, and non-approved positions are not included in the headcount planning process.
Learn more about SAP Analytics Planning Solutions
If you’d like to learn more about the capabilities of SAP BPC and SAP Analytics Cloud solutions, check out our video series that features a fictional company, Aster Snack Brands, visualizing and analyzing their data with these tools. You’ll be amazed at the business insights that can be uncovered.