Article originally published by HRMorning.org on January 22, 2025. Written by Michelle Sims.
New year, new plans. As organizations prepare for the year ahead, intentions are well set. Goals are established, budgets are finalized and teams bring fresh thinking to their strategies.
HR leaders collaborate with other departments to align projects and objectives. For HR, part of yearly planning includes headcount planning and forecasting for the year. These decisions impact the entire company as they have a direct bearing on the business’ productivity and success.
As much weight as headcount planning bears, sometimes it’s reduced to a line item in the budget without much strategy behind it. Equipped with the right tools and thinking, however, HR can effectively plan headcount and secure the right people to help the company meet its needs.
As HR works towards proper headcount planning, not only within their own department but with other company leaders as well, they can fall victim to common mistakes. The consequences often come with big costs for organizations.
Here are three of the most repeated missteps and how to avoid them.
Many companies think external hiring is the fastest way to fill roles when current employees are often very well-suited for those job openings. Internal candidates bring institutional knowledge that sometimes takes years to build. They already understand company culture, operations and processes. Coming to new roles with this knowledge can mean smoother execution, better collaboration and quicker buy-in from colleagues.
Hiring from within is often more cost-effective and quicker, too. External hires require additional ramp-up time and need to learn a new organizational culture. Furthermore, sometimes cultural alignment ends up as a mismatch. When hires don’t pan out as planned, costs start to skyrocket. The average cost of a bad hire can reach 30% of that worker’s first-year salary.
Overlooking internal talent for promotions, special projects, lateral assignments and new job opportunities brings yet another layer of cost to organizations. When current employees are repeatedly passed over for new roles or projects, it often leads to disengagement and turnover. By contrast, employees at companies with high internal mobility stay almost twice as long as those who feel their career paths are stifled.
With an uncertain market and changes expected, this unpredictability is likely to disrupt the most well-laid plans. In planning for the expectation of change, it makes sense to avoid locking in the number and type of hires. Alternatively, organizations can create hiring plans that are designed to flex throughout the year.
Instead of securing permanent hires, engage temporary staff that can adapt much more easily than permanent employees. In this way, organizations can more smoothly scale up or down to support key projects without being trapped in long-term financial commitments. This eliminates the stress and burden of keeping employees on the payroll when the business can no longer support them.
Temporary staffing can also take the shape of Statement of Work engagements. Bringing in temporary teams to complete a specific project allows organizations to reach their shorter-term goals without permanently expanding the workforce.
When temporary workers are successful, and the business feels comfortable continuing the engagement, their contracts can be renewed or they can be converted to full time.
Many organizations lock in hiring decisions as the new year unfolds without planning to evolve those plans later in the year. Rather than a predetermined plan, companies can adopt a more agile approach that uses milestones or performance benchmarks to adjust hiring throughout the year.
One way to apply this is to set — and then meet — revenue goals before expanding headcount. For example, agree to hire 10 more employees in Q2 only if revenue exceeds projections by 15%.
An additional option is to set product or project milestones, whereby companies match hiring stages to project stages. For example, a skeleton marketing team can be hired to begin work on a project and then a full marketing team can be hired by product launch.
Keep an open mind about these boundaries. Balance these performance thresholds with operational efficiency. For example, if it’s clear a manufacturing company needs several production line workers to gain efficiencies, they can hire who they need to immediately boost results and then expand further as metrics improve over time.
Armed with the proper knowledge and tools, HR can lead meaningful conversations about how to best plan headcount for the coming year. HR must align with other business departments to most effectively plan for the right-sized workforce. Planning for change means having a plan in place that allows the flexibility to scale up and down at many touch points throughout the year.
Educating peers and executive leadership about the strategy behind a headcount plan will enable HR leaders to serve as strategic business partners and position themselves as a key function for their organization to be nimble, competitive and profitable.