Anyone have recommendations, best practices on how to budget and plan headcount growth?

I would add pose these questions to HR and Business Managers: Can anyone be promoted to the "bigger job" to accommodate some of this growth? Is there any human capital "capacity" for this? This way you back fill with lower level positions and promote career growth.

I would say that the need to budget/forecast at the individual personnel level depends on how sensitive your budget is to hiring plans and timing. We do budget and forecast at this level as our compensation expense is by far our largest expense in our P&L and really the only item that can move the dial in terms of profitability (besides gross margin). We are also a high growth company so we're hiring a lot which makes our P&L that much more sensitive to hiring and timing.

We use Adaptive Planning and it has a great model that makes it easy to budget by person/hire; you can build something similar in Excel but this module is easier to maintain and it's done for you. Our HR department uses this hiring plan along with discussions with the hiring managers to plan for recruiting as well. We're starting to incorporate hiring/workload metrics to have a better indication of when an hire is actually needed (vs. the manager's gut feeling or purely driven from revenue growth). We also used headcount to budget for benefits, office and IT expenses as well as T&E which can easily be done at this level.

When forecasting out a ways, I also like to track expected (company) revenue per employee ratios and benchmark against the industry. This depends somewhat on realistic revenue targets. In small and quickly growing companies, it's easy for this to drift the wrong direction. It helps to set budgeting limits.

If you're growing rapidly, then you need a really solid foundation for your headcount plan. It needs to tie into your key business volume metrics. For example, if we do $X in sales, how many salespeople will be need? Does that jive with a realistic hiring plan and method for assimilating them into the organization? How many service delivery people does that then require? What ratio of supervisory people to staff workers do you then need? What impact will those headcounts then have on your administrative (i.e., overhead) headcounts (e.g., I.T. support, billing, HR, etc.). Sometimes its helpful to mock-up some org charts based on different revenue volumes and go through them with your management team. In theory, they should be leading the way with the growth plan. Unfortunately, however, a lot of people just don't have much experience with fast growth, so you may need to help them visualize it.

Ideally, from a planning perspective, you want to be able to drive your headcounts off of your assumed volumes using ratios, as discussed above. That may be more trouble than its worth in a smaller organization, though. In any event, once you are able to build your headcount levels under a few different growth assumptions, then you need a tool for modeling the multiple scenarios. I will back Carrie up in her advocacy of Adaptive Planning. It allows you to very easily maintain multiple scenarios and it gets you out of the problem of managing multiple spreadsheets (sometimes hundreds!) with their broken links, incorrect formulas, clunky reporting, and so forth.

Good luck!

If your processes, systems, activity and people are properly aligned, then when you budget for growth, you know where the headcount will increase.

James,
We recently implemented Host Analytics Planning & Reporting tool (my second time with this tool). It moves out of excel these processes and allows dynamic and very user friendly budgeting. It includes headcount planning, revenue planning, OPEX, capital budgets and initiative planning. I think it could be a great fit based on what you are looking for. It addresses your headcount planning questions perfectly. Brenda