How to properly forecast your HR budget

Forecasting is a skill that is highly marketable because of the value it brings to an organization. There is no area where this rings more true than in budgeting, where it is both tricky and vital to forecast accurately. It requires a solid understanding of the past, a grasp on the current position of the organization and an ability to utilize those factors to peer into what the future will hold.

In addition to all those things, budgeting for your HR department brings a unique set of challenges. In order to forecast accurately, you also have to do a bit of forecasting of the success of your organization and also the expected market changes so that you are able to anticipate staffing needs and budget accurately for recruiting, staffing of your department and more. While there are many aspects involved in properly forecasting, it’s not as tough as it might sound. Take a look at these tips for properly forecasting your HR budget:

Start at the beginning

Before you even begin your forecasting, it’s important to gather all the facts so you can make an educated estimation. Looking at the last three to five year’s budgets is a great place to start as it will provide you with a good idea of what your department’s average expenses are.

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Anticipate staffing needs

The largest expense your department will likely have is your staffing costs for the year. Because of this, it’s vital to forecast whether or not the company will increase, decrease or stay the same in the next year. Additionally, is the company coming out of or expecting success or are things tighter than the year before? The answer to this will determine salary adjustments that you’ll need to factor in as well.

Plan for changes

Change within your organization is inevitable, so you’ll want to consider what changes will be made in your forecasting as well. This can be one of the trickiest things to accurately estimate but if you are in tune with what is going on within the organization and your department, changes will be easier to anticipate. For instance, if you know your current software is beginning to feel outdated, now is the time to plan for when you will need to replace it rather than getting to the end of your rope with it but not having money in the budget to replace it.

Outsource strategically

Part of your forecasting also includes determining what services will be outsourced and what will remain or come back in house. To forecast outside services, you’ll want to look at what makes the most sense financially, which isn’t always the cheapest option. Something may makes sense financially because it frees your employees up to do other tasks or helps you recruit the best candidates. This is one area where you have to evaluate what is best for your department or organization and build it into your budget.

Plan B budget

In that dreamland where everything goes as planned and there are no fire drills, a plan B budget is completely unnecessary. In the real world where no matter how well you forecast, unexpected expenses will come up, a plan B budget is a necessity. The intricacy of this budget is really dependent on how much leeway you have. For instance, if your budget is flexible and can adjust to meet demands, you may just need to plan for a 10 percent contingency. However, if you are out of money when the budget is maxed out, you may want to decide ahead of time which line items you can cut or cut back on should an unexpected expense arise. Planning for the worst while hoping for the best will save you from many future headaches.

What forecasting tips can you add to this list? Let us know in the comments section below.

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2 Comments on "How to properly forecast your HR budget"

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Verlyn Loh

I am currently working as HR executive in Parsons Brinckerhoff and I am looking towards to learn more about good practices in compensation & benefit practices.


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