Basic services are compensation and benefits, payroll administration and employee relations. Talent management services are recruitment & selection, training and development, succession planning and performance management. Strategic services are employee engagement, workforce planning, workforce measurement and employee wellness programs. Funds are required to provide the above mentioned services. In order to get funds from organizational coffers budget is prepared. Budget provides an estimate about income and expenditures of a specific period of time. The services and functions that an HR department performs are treated as items of budget. Estimates of expenses that are going to be incurred upon providing different services are mentioned along with mentioning departmental revenues or savings. In some cases estimates are made by keeping data about costs and revenue of previous years, whereas in other cases it is purely guess work. It is prudent to consult every source of data available before preparing an HR budget.
- Keep an eye on company’s strategic goals for the next budgetary year, knowledge of strategic goals helps to align HR costs in accordance with it.
- Next step is collection of data that is required for creating budget. Data about cost and revenue of the previous year and of the coming year is collected. The coming year’s data is collected on the basis of forecasts and on the basis of previous years’ trends. Following things are important in this regard:
- Forecasts about number of employees and employee turnover rate for the coming year.
- Employee benefits programs that are planned for the next year along with existing costs in this regard.
- Changes relating to law or regulation that may affect cost.
- Actual costs relating to human resources that have taken place in the current year.
- Data about savings that are being made in terms of recruitment expenditure due to reduction of employee turnover, by providing in house training or with the help of social media training etc.
- Conduct cost benefit analysis (CBA) for justifying the expenses that are going to take place. Analysis of costs must be done with utmost care.
- Now prepare a draft based upon projections of costs and revenue.
Thing about expenditures/costs that needs to be kept in mind is that at the time of estimation it must be kept in regard that what expenditures/costs are fixed and what are variables. In case of variable costs attempt must be made to determine that up to what levels such costs can vary. HR Budgeting: Best Practices for Budgetary Allocations provides details about the ratios of items of an HR budget.