How to build a People Operations budget

Knowing where and how to allocate capital is essential to your People Operations strategy.

Budgeting sounds daunting if you don’t like numbers and if you’ve never done it before. Even more so, when you are not dealing with your personal savings but with the earnings of a group.
If, like me, you don’t have a background in finance, it’s going to be a learn by doing process. Here are some lessons I learnt over the years and  tips to get you going 💁

Adopt the right mindset

Defining a baseline to start from can help you understand on which initiatives you should tighten your spend and where you can invest more. From that, you can review benefits and allocations to ensure you are putting capital where it matters most.

Three things that have formed my spending habits to date are:

1. My first manager, who had a "you can always negotiate a better deal" mentality. This has definitely stuck with me throughout my career. I'm always looking for a better deal or a way to save more; of course, without sacrificing quality.
2. Fairness. I want to ensure everyone gets what they deserve. It is essential for people to know that the process through which resources are being allocated is proportionate to the contribution they bring.
3. And, as strange as it may sound, sustainability. Companies tend to think of social responsibility as if it was an abstract goal that only (maybe) a few departments need to consider. This can start at a smaller scale, but in order to be meaningful, it needs to be practiced at all levels. Preventing waste is an important component of budgeting.

There are multiple approaches one may take, and many factors that could influence them personally. But boiling it down, budgeting is planning and it requires you to know, how much capital you will need in order to achieve your milestones and business’ goals.

HR is often seen as a cost centre (i.e. a department not accountable for the profitability of the organisation). From a financial perspective, this is definitely the case. But there are so many ways in which HR can ensure they are not a "cash-burning-centre"! For example: by reducing turnover the company will save on the cost of hiring, training and a lot of time. And again: by having the right wellness plan in place, and ensuring these benefits are used, HR can save thousands of dollars and keep employees happy and healthy. The list goes on.

How do we set up budgets and start saving?

Depending on your company’s policies, each department would be allocated an X $ amount. Budget is usually given based on a specific time frame (e.g. yearly with quarterly reviews). Knowing your company’s deadlines will help you understand when you will be allocated capital, when it will be reviewed, etc. With this in mind, you can start planning for what you want to achieve during this time.

The amount will be based on business goals and financial availability, and/or previous budget allocation. I personally prefer a mix of the two, where the budget is informed by previous spends to give you an idea of what you are facing, but also requires the budget holder to justify new spends or cuts. This will help you understand why and what is valuable, and if it’s still needed at this stage.

It may sound obvious, but the requirements and financial resources a 50 people company has are different from those of a 250+. Your figures will have likely changed, together with your needs and expenses. For example, company-wide initiatives you used to run with a company of 25 people based in one office, are perhaps no longer sustainable, effective or practical with a company of 150 distributed across 3-4 offices internationally.

Know your categories (aka: where the money goes)

It all comes down to money, and what you are going to do with it. 🤑

The HR department is a slightly atypical budget holder. Its spend has two components:

• The department’s spend: how much does it cost to run the HR function
• The overall people operations spend: how much does it cost to run specific company wide initiatives and services (managed by the HR functions)

It is important these two expenditures are considered, but it is even more important the latter is communicated and discussed with other departments as it could impact them as well.

The more articulated is your strategy, the more items you will have. Below are the core building blocks of your People Operations budget:

• Number of employees and expected head-counts growth for the upcoming budgeting period (e.g. 3, 6 or 12 months)
  Employees are one of the greatest expenses for a business, so knowing by how much the total headcount will be increasing (or decreasing) will impact the total expenditure. Keep aligned with the Heads of department and Finance.
• Salaries, overtime, bonuses and increases
  You can make projections based on previous years and benchmark your current salaries with the rest of the market to ensure you are offering the most competitive package you can afford. Again, involve managers as they know best what expectations and performances their reports have. One item that is often forgotten is Paid Time Off. If your policy allows for carry overs or for untaken time off to be paid out at the end of the year, make sure this is factored in or you’ll have an unpleasant surprise at year end.
• Benefits (existing)
  How much do they cost, and are they are going to increase (e.g. healthcare, gym, pension, food, travel, etc)?
  These will generally be part of your total compensation package, but it’s good to look at them separately as they are more “flexible” than the more strictly “financial” compensation. Remember there are some benefits that are mandatory in certain countries, others which are "expected".
• Benefits (new entries)
  Once you figured out how much your benefits are costing, and how much value they're driving, you can consider if it makes sense adding more. Having larger numbers means you will have the upper hand with providers, so make that count when negotiating for a (better) deal.
  Pro tip: benefits (depending on type/value) are often taxed at both company and employee level. Make sure you factor this in and inform your staff.
• Reward and recognition
  Motivating performance through small incentives does not necessarily need to be costly. Employees will appreciate receiving an Amazon voucher, but can feel appreciated with more personal tokens and means of acknowledgment. To help you budget, you can create a tier based system or a total pool for peers and/or managers to recognise outstanding contributions 🏆 (read more of what we wrote around recognition)
• Learning and development (conferences, travel, licences)
  If you are a small company your L&D budget per employee will tend to be generous. This is due to the fact that each activity will be at individual level. Once your company starts growing, you will be able to make some gains by having in-house training – for groups or by investing in an e-learning platform. There would be cases where individual training will be beneficial. Here is a short read on L&D budgeting.
• Hiring costs (agency fees, referrals, advertising, merchandising, career fairs, etc)
  There are conflicting views on whether the recruitment spend should be allocated to HR or to the individual department. Personally I believe having one owner does help streamline the process and provide clarity around this costly area.
  Regardless of your company’s process, having a good understanding of how much your overall recruitment efforts are costing is essential for the Talent team to inform their strategy.
• Software spend (HRIS, ATS, Performance Management, Collaboration, and Engagement tools)
  HR is responsible for a few company-wide adopted software. These all tend to be priced per seat, which can become quite a hefty expense if you are scaling quickly, and very easy to get unnoticed. These tools are valuable as they reduce human error, ensure compliance and automate tasks. Having the right ones in place can save both time and money.

Consultants, team building activities, company events, D&I programs, Health & Safety, partnerships, you name it. The more you grow the longer your list will become. If everything is working correctly, your budget will be growing in tandem.

Conclusion

You now have your spending items. Some of your costs will be fixed and necessary (e.g. salaries); others will be variable (e.g. training); others will be one offs (e.g. off-site). Group them all together, rebalance them, cut off where you can, add on where you want. Monitor and repeat.

Golden rule: Don't overspend, but don't be stingy. Simple.

Plans don’t always follow through. You might be given extra cash (hurray!) or might be told you need to lower your spend. Be prepared. Always have a plan B and have a buffer (set aside x% "just in case").

"Expect the best, plan for the worst and prepare to be surprised." – D. Waitley

Good capital allocation is a must to achieve success. In People Operations specifically, mastering this ability can positively impact employees satisfaction, wellbeing, and the overall business outcomes.

Hope you found this helpful, and if you have thoughts or opinions to share, drop me a note on Twitter @Lauren31v. And to stay updated on all the latest articles, follow us on Twitter @HumaansHQ.

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