Budgeting is never easy. It requires you to balance competing needs and make predictions about the state of your organization a year or more down the line. One of the largest expenditures in most companies is the cost of their human workforce, which can account for up to 70% of total labor costs. This is also where many expenditures in a budget fluctuate. For this reason, data from HR is essential for making budgeting easier, more accurate, and more effective.

How To Use HR Budgeting To Predict Hiring Costs

Employees come and go. They get promoted or move to new departments, creating holes in your workforce. This requires you to plan for costs for recruiting, onboarding, and raises. In many companies, departments pad their budgets as protection against changes like these. The problem is padding ties up money that could be used in other ways. Another common issue is that departments tend to spend what they are allocated. As Danielle DeLee, a contributor to BizFluent, puts it, “Recurring projects, especially, spend money unnecessarily in order to use up their entire budgets. That way, the approval committee does not cut their budgets in the following year.”

A better solution is to use HR data to set aside the right amount of money for personnel changes. By looking at data from the past few years, you can make accurate predictions about your company’s voluntary and involuntary turnover rate, even breaking it down by department. In many cases, HR can actually predict which employees are most likely to leave within the year.

Another way HR data can help you create a better budget is through better employee screening during the hiring process. Data from your HR department can help you decide whether you are recruiting from the right applicant pool, or whether employees from certain pools have poorer fit with your organization. Poorer fit is likely to lead to higher turnover, whereas selecting for better fit can help reduce employee turnover, reducing hiring costs.

Perhaps one of the most important metrics for predicting hiring costs is employee productivity. As we discussed in a previous post, employee productivity is a measure of the effectiveness of an employee or group of employees. It’s an important way of determining whether your company has the manpower it needs to function optimally and is central to predicting the type of hiring your company will do in the near future.

How HR Budgeting Predicts Training Costs

Training is essential to creating an effective workforce. Good training will make employees more accurate, efficient, and productive. However, good training can be expensive, and with employee turnover, training is a continuous expense most places.

Using your HR department’s data on training efficiency, you can determine what training you will need to offer new hires. Further, by looking at data on employees from different applicant pools, you can predict whether new hires will need only the minimum training or more extensive training. For instance, applicants from pool A may be more computer literate than applicants from pool B, meaning that if your company plans to hire from pool B, they will need to budget for additional computer training. Knowing what applicant pools your company draws on and how past employees from those pools performed enables you to budget more accurately for training.

Data on applicant screening is also essential to creating a more precise budget, and we talked about how HR data can do this in our post “3 Ways To Use HR Data To Become More Strategic.” Companies should continually refine their applicant screening process, looking for ways to land stronger candidates with better fit. This improves employee engagement and satisfaction, increasing the likelihood employees will stay. In turn, this lowers recruiting, onboarding, and training costs. Long-term employees also develop more experience and higher efficiency. In short, hiring better employees to begin with can be cheaper in the long run.

How HR Budgeting Predicts Benefits Increases

The cost of employee benefits can increase for a number of reasons, but even this can be predicted accurately if you use data from HR. Utilizing information from either your HRMS or HCMS, you can determine which employees are likely to receive promotions with raises or bonuses, allowing you to build those increases into your budget.

Similarly, demographic data on employees can help you determine what benefits employees are likely to use. For instance, younger employees are more likely to expect access to yoga, meditation, and chiropractic care than older employees are. Data like this can be used to closely estimate the cost of health insurance packages for your employees, particularly as your workforce changes over time.

If you’re ready to start making your HR data work for you, then stop building messy HR reports and spreadsheets. Instead, click here to learn how to pull and view all your people data in one HR analytics dashboard.

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