Bet that headline caught your attention! And, while all of us undoubtedly yearn for less pain around budgeting, we also bet that this headline is being met with the same dose of healthy skepticism as those late night infomercials touting millionaire-making deals with no money down! We'd like to suggest some survival tips in the form of new, slightly different, ways to approach budgeting for your people-related programs.
These are based on the point-of-view that a budget - whether for human resources or for R&D or marketing - is really a strategy made tangible. How you allocate dollars - whether for the running of your human resources department (operations), for hiring or developing your talent (typically what's considered a "program" budget) or for merit increases and bonuses (your compensation budget), all of these will determine, de facto, your strategy.
Where organisations invest money and other resources, as far as people programs are concerned, will therefore become their "people strategy". This can obviously have big implications for employee relations. If, for example, a company espouses a "people-are-our-most-important-asset" philosophy but then sets merit increases substantially lower than its competitors, the rationale may need to be carefully explained.
Seriously consider a zero-based approach as the foundation of your planning process. Or at least start by organising your expenditures into fixed and variable columns. And start with a clean slate, and at a high level, by asking questions including, but not limited, to the following:
- What is the essential strategy of our business?
- What activities are required to accomplish that strategy?
- What talent do we have to accomplish those activities? If there are gaps, do we need to build or buy or develop the right talent?
- What are the implications of the strategy on our investments in people and people-related programs? On the costs of such programs?
Typically, human resources budgets fall into one of three categories. While many elements of these are interlinked, it makes good business sense to approach each type of budget in a somewhat different manner:
The HR operations budget
This encompasses all that needs to get done in order to run the department itself. Some high level questions to ask at budget time include: Is the HR function aligned with the strategy of the business it supports? What activities are core to the business, and which are not? Are the appropriate investments being made in those that are indeed "core"? Is the function being run as effectively as possible? Is it being run as efficiently as possible?
The HR programs budget
Again, are these programs - whether relocation programs, training and development programs or new hire orientation programs - essential to the strategy of the business? Are these programs candidates for co-sourcing or outsourcing? Can and/or have returns on these programs been measured in a meaningful fashion over the years so that a link between investments made in year one of any given program can be made to clear returns in year two?
Note: The HR programs budget is where a zero-based approach makes the most sense. Our experience has shown that, more often than not, those budgets are created based on the prior year's spend plus X percent. This is also where most organisations fail to adequately measure ROI. And what we've found is that the programs budget is precisely where HR has the opportunity to have the greatest impact on an organisation's results.
The compensation budget
Compensation budgets are generally and traditionally developed for three different employee populations: executives, the sales force and all other employees. Annual budgeting, in most organisations involves calibrating merit raises, cost-of-living raises and other types of incentives among each of these groups in a fashion that is competitive in the external market.
However, in setting these budgets, companies often miss an opportunity to truly link pay to business strategy. By taking a value-based approach to compensation programming - and thereby paying closer attention to the activities and performance requirements of various groups of employees - companies can better differentiate their approach to compensation in order to drive business strategy.
Finally, we would be remiss if we didn't also acknowledge that every budget for people will also include a close look at the expense side. Following the same guidelines advocated above, start by focusing on what is most important to your organisation - in other words, those expenses that will have the biggest impact on the success of your business. For many of the organisations we work with, these cost-cutting measures currently seem to center on healthcare, absenteeism and the retention of top talent.