Basics and preparatory considerations
One possible form of personnel cost planning is compensation planning. This involves planning the specific remuneration components for employees. The method is obvious and widely used, it delivers reliable results – if done well – and combines the necessary decisions on remuneration with personnel cost planning.
Before you start to create a corresponding model, you should be clear about how the relevant remuneration components are calculated in the company and what other information you need, e.g. for evaluations. Examples are
- Personnel number, surname, first name, date of joining, date of leaving
- Organizational assignment (cost center / department / company, etc.)
- Employee group or management level
- Weekly or monthly hours
- FTE and headcount (calculated)
- Contract type (tariff, AT, trainee, etc.)
- Contractual fee
- Allowances, possibly several depending on their significance in the total amount
- Bonuses, variable remuneration for 100% target achievement, etc.
- Vacation and Christmas bonus (accrual-based)
- Vacation and Christmas bonuses (accrued for provisions)
- Social insurance
You should also think about who will do what with the personnel cost planning or the data from the personnel cost planning and when:
- Who participates in personnel cost planning and how?
- Who receives results from personnel cost planning and in what form?
- Which evaluations should be delivered to whom and what information do they contain – also e.g. for subtotals, etc.?
- How can the data be split for different recipients so that not every recipient receives the same data?
You also need to decide which employees you want to plan individually. In parts of the organization, this may not make sense, e.g. if you make intensive use of temporary staff with uniform remuneration and high fluctuation. Here it is better to plan at cumulation level (cost center, branch, etc.) using FTE and cost rate.
A remuneration planning system should therefore not have to work exclusively on individual employees. In some cases, planning by cost center is necessary or makes more sense; this applies to the temporary staff already mentioned, as well as to personnel costs that cannot be meaningfully planned for individual employees, such as employer’s liability insurance contributions, overtime, etc.
Periodicity in planning
It is advisable to plan on a monthly basis in order to be able to reliably plan for intra-year changes.
Intuitively, an Excel spreadsheet is often created first, in which one row is offered per employee. However, this is not very effective: Imagine you wanted to plan for an employee to receive €7,500 in full-time pay from January and then be transferred to another cost center from April, working 50% part-time, and his pay would not be halved, but would be set at €4,000. Calculating the costs for the planning year in one line per employee becomes a real challenge. In addition, we now have two cost centers for the employee during the year.
We have seen solutions that offered a few columns with “New pay” and “from month” and “New working time” with “from month”. New cost centers were created by new lines for the same employee. This significantly limits the possibilities for planning – you can hardly offer several such columns for each planned size without creating a confusing table. In addition, it is virtually impossible to introduce actual values into such a structure at a later date.
As long as the organization is small enough, you can proceed in this way. From a certain size, however, it becomes critical. The main reasons for this are:
- Ensure that all values are always calculated correctly, regardless of when they were changed
- Ensure that a transferred employee is still calculated correctly in the total across both cost centers (and not in the first cost center until June and in the second cost center from April)
- Ensure that Excel files distributed to managers can be reliably consolidated – not to mention data protection concerns
- Remain capable of evaluation and simulation without massive effort
Evaluations, e.g. target/actual comparison
As already mentioned, it is very important to have all the information you want to use for evaluations available in the system. In short: you can’t use what you don’t have. It is annoying when you realize at the end of a planning round that the information according to which the data is to be evaluated is not available.
In addition to the employees themselves and their properties (contract type, employee group, department, cost center, job family, etc.), you often also need hierarchies of elements such as departments or cost centers, managers, etc.
For a target/actual comparison, you need the actual values in addition to the plan. This raises the question of the level at which target/actual comparisons are to be made. At cumulation level, e.g. cost center, this is relatively simple if both the planned and actual values are compared exclusively at this level. It is then no longer possible to show which employees caused the deviations – the cost center is the end of the line. This deprives the evaluation of a considerable part of its informative value, and evaluations at cost center level can be provided by Financial Controlling without any HR input.
It is advantageous to include the employee data in the target/actual comparison in order to show the planned values of the employees together with their actual values. However, we are not aware of any case in which actual values have been linked to planned values (i.e. per employee with all planned details such as cost center, working hours, remuneration components, etc.) in a spreadsheet program in a practicable way, so that a meaningful target/actual comparison down to the employee would be possible on a regular basis and without great effort.
If a larger organization requires regular target/actual comparisons down to employee level, there is probably no way around using a solution that specializes in HR controlling.
Planning by surprise
We often see solutions that we refer to as “planning by surprise”: There is a lot of work at the beginning and a big surprise at the end, as the result becomes visible for the first time – which is often not what the management had imagined. This results in time-consuming, repeated planning rounds until the goal is achieved.
This must be avoided. Every planning follows a goal and every change should be evaluated immediately with a view to the overall goal. Accordingly, subtotals and final totals must be clearly visible and calculated in the event of changes.
Permanent projection (forecast)
A literal target/actual comparison, i.e. comparing the actual up to the last payroll run with the plan up to this month, is not very helpful. A plan/forecast comparison is much better, as it allows you to compare the plan for the entire year with the forecast, made up of the actual and projected months up to the end of the year. You can see how you will “get out” and not just what it looks like “so far”.
If this is to be achieved, the remuneration planning system must not only be able to permanently load actual values at employee level, but also derive a reliable extrapolation from these. To this end, actual measures (hiring, transfers, changes in working hours, etc.) must be identified and evaluated together with measures still planned for the remainder of the year.
Conclusion
Remuneration planning as the basis for personnel cost planning is generally a good idea. The use of spreadsheet programs is conceivable, although in practice it is more complex than initially thought, especially for larger organizations. But regardless of whether you stick with it or not, Excel is well suited to describing the required model – even if you do the “heavy lifting” with a more suitable application.
Remuneration planning with spreadsheet programs is practicable in small organizations with up to approx. 200 employees if this is done centrally, the planning data is sent to financial controlling at cost centre and account level and the Excel files with the remuneration planning are never opened again after planning or if you are prepared to put a lot of manual work into the spreadsheet model.
Outlook
Perfect remuneration planning takes many other aspects into account, e.g. the planning of measures and their use in variance analyses, retroactive accounting in payroll, planning of NN, integration of job planning, etc. pp.
We will address these aspects in future articles. So it’s worth stopping by here again.
If you would like to find out more about HR controlling and our 4PLAN HR product before then, please click here.
