It’s very natural for a business leader to approve budget for a revenue center faster than for a cost center. Top two reasons for this are unclear outcomes and lack of innovation in creating an impact on the ground. And more often than not, the HR budget falls in this category as they are looked upon as a cost center and lack a strategy.
The best way to get ink over the dotted line lies in aligning the HR budget to give clear business outcomes. This also means that HR planning needs to be at the core of the business planning process.
Just before that, let’s look at typical heads that appear in the HR budget. Unless your business is otherwise structured, your budget would typically include
• Hiring and Recruitment
• Training and development
• Compensation and Benefits
• Employee Relations and engagement
• Tech investment
Many organisations end up perceiving these key areas of HR to be fixed yet uncontrollable or they may also seem like intangible costs. But it doesn’t necessarily have to be that way. By executing a proper HR strategy, your organisation can reduce these costs and channelise the budget.
With the war for talent constantly heating up, human capital should have an important place in your budget. If you are a pi-organisation© (people intensive organisation), this should be the most consuming area of your budget.
However, at the same time, you will agree that investing in the right resource has the potential to give you higher productivity, and better engagement.
Another area of concern for business leaders is when and how much should be invested in technology. Of course, organisations would gradually need to shift to a more tech-driven environment. And, needless to say, this would need to be included in the budgeting.
Keeping these thoughts in mind, we bring to you ways in which you could optimise your HR budget.
First things first. What would you base your budget on?
Do you want to go the incremental way or the zero-budget way? Will increasing the margin of your last year’s costs help you achieve this year’s goals? Or should you just start from scratch? Whichever method you choose, you first need to review your needs primarily for this year, so you don’t short-change yourself when you need extra funds.
Start with plenty of data
Data speaks volumes and does wonders. In one of our earlier blogs, we explained why and how data helps in designing HR strategies. Because ‘data-driven decisions for human resources are more accurate and can largely affect your organisational outcomes’. This invariably includes the magnanimous task of budgeting. So, arming yourself with accurate data about your historical costs will make your budgeting task easier. In some cases, you may also see a need to have a cost head that did not appear before and how not investing in an activity has costed the company many folds over becomes a case in itself to have a new area of investment.
Next, get a detailed outlook
How does your resource allocation sync with your business objectives and helps drive the latter? The most pertinent questions in this regard are:
-Does your budget allocation support your important organisational goals?
-How are your competitors allocating their budgets?
-Does any of your HR activities/programs need to be restructured or redefined?
Answering the questions above will not only give you the right direction, it will also help in maximising the investment.
Allocating your hiring budget
Isn’t that what we do anyway? But constantly updating your allocation techniques can keep you ahead of the game. Let’s look at hiring for example. Traditional recruitment methods have transformed into digital hiring. Scouting for top talent across social platforms through innovative content can help cut down your hiring budget. So does referral programs and internal hiring. Another way you can maximise your recruitment budget is to optimise your career page. Let it speak of your employer brand and unique organisational culture (click here to read how your culture can help you attract the right talent). When these alternative channels are optimally used, your hiring budget stays in control, which consequently improves your HR budget.
Reassessing training costs
Yet another head of your HR budget which you cannot cut short. Typically, medium to large organisations look at investing around 2%- 5% of their salary budgets for training. Now, let’s align this same technique with small businesses. Will it work? The most obvious answer would be no. So, what do you do? Can you eliminate the angle of training and development? Impossible to think. In that case, you go on an ‘as per need’ basis. Set up your departmental needs, and once they are in sync with their individual goals, assess how much training is needed and for whom. Utilising your internal resources and current skills to train those in need of it, can help you offer lateral growth opportunities.
Instilling a sense of ownership in your team.
Not so much of a ‘strategy’ but, this behavioural change can bring about a sense of responsibility of your team members in the significant task of budgeting. Whether it’s the HR Admin or the Hiring Manager, specific budget sign-off and cost reviews will allow them to get involved as a cohesive team. This will also help increase their financial and business skills.
And, revise your departmental goals
Sometimes, what is obvious in front of us, might not have long-term outcomes. To be able to align your budget with the core HR objectives, it is essential to review your HR goals, before you embark on a cost analysis. You might need to answer these questions- Do you actually need that technology this year? If yes, how will it affect the department’s output? Is there a quantifiable measure to assess the success of a policy change?
On a fundamental level, the HR budget is a great way to reinstate and reinforce HR function as a strategic arm of the organisation. Our experience tells us that if HR budgeting is done with a genuine intent and focus, there will be a clear impact on the bottom line as engaged employees will give in their best to achieve business goals.
If you are looking at ways to make the most of your HR budget this year, reach out to us – firstname.lastname@example.org
Author Profile: Aparna Joshi Khandwala is a passionate HR professional. She co-founded Yellow Spark to work with like-minded people who believe in the power of leadership, which is the only business differentiator in today’s time.