This time of year, enterprise IT and professional services teams are crafting their staffing plans for their 2019 budgets. Those of us who have been there know this process is like gazing into a crystal ball. We might have a relatively firm idea of currently known projects and priorities. However, while we work to develop a reliable forecast, our expectations are often clouded by unforeseen changes in demand and resource status and/or availability.
Trained resource management professionals build forecasts that ensure enough of the right people are in place at the right time to support demand. They know the annual budget process should contemplate the need for a fluid and constantly changing resource supply and demand. But, many of these groups fail in this regard because they rely on static and antiquated annual budgeting processes.
What you budget for in December can drastically change by January. The fact that the process is seen as a single annual event speaks volumes given the nature of what is really needed for effective supply and demand planning for human resources.
Almost every IT and professional service leader knows the one thing you can count on over time is that things will change. Yet we plan our budgets and resources for the next annual cycle based on a forecast and conditions that exist today. It’s like planning a two-week vacation and packing as if every day will be warm, beautiful and sunny.
To ensure funding and people resources are there when you need them, it's essential to work with finance for a flexible budget. Otherwise, you might find yourself with a budget for 80 employees when the business needs 100 for a few months and 60 after that … and so on. That’s why a flexible budget and staffing process is so important.
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Building a Flexible Budget
How do you build a forecast that is reasonably accurate and continuously updated? First — don’t settle for a static budget. That means working with finance to help them understand how and what changes over the next year can affect your demand for resources. This starts with a forecasting methodology that allows for and anticipates change.
Internal IT organizations are usually better off in this case when it comes to the operational keep-the-lights-on projects, which generally are more predictable. Planning for future discretionary initiatives certainly takes more planning and this ‘discretion’ process continues on after Jan. 1 as business conditions and needs change. Service organizations are not so lucky. Their potential for change can be drastically altered overnight based on sales successes or failures.
As we map out how to develop a budget that anticipates change, start by understanding and communicating some of the factors that can affect demand:
- Internal discretionary IT projects can be introduced and implemented within a matter of weeks, siphoning off dollars intended for other projects, resources and budgets.
- Sales may or may not occur for professional or consulting services projects.
- Competitors can introduce new products and services that decrease your market demand below forecasted shipments and sales, or your company introduces new products and services with no historical basis for forecasting.
- New regulations like the recent GDPR can affect where IT security focuses its labor and expertise.
- Changes in public policies such as immigration can impact labor costs and available talent in a positive or negative manner.
All of these likely factors have the potential to change the way we plan and execute budgets and resources. The challenge is getting finance to comprehend and factor them into the need for a flexible budgeting process to support the needed staffing/hiring process.
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A 3-Part Capacity Planning Methodology
A more modern approach to budgeting consists of integrating a three-part capacity planning methodology consisting of annual business planning, ongoing forecasting to anticipate changes to the annual business plan, and tactical staffing to address the here and now of project demands.
1. Annual business planning
The business planning stage is the first step of this three-stage process, spanning a planning horizon of six to 18 months. During this step, you'll establish the parameters and initial baseline of your planning. For enterprise IT, this means laying out ongoing operational keep-the-lights-on projects, and a best view of likely approved discretionary projects. For professional and consulting services, this includes an annual, long-range plan based on projected business growth aligned with key product or service offerings and known project backlog. Capacity needs are then planned at the broadest level possible by role, geography and skill set.
2. Ongoing forecasting
This is a living plan of one to six months that serves as a basis for decisions impacted by the inevitable changes to assumptions made in the annual business plan. Part of this process includes proactive planning of actual demand and delivery backlog and some what-if analysis making certain assumptions on which projects are most likely. All opportunities at various stages are tracked for resource planning over a six-month period where capacity needs can be revisited. Interlocks are conducted with the various constituencies including finance with input to this process.
3. Tactical staffing
This last stage, typically covering up to 30 days, carries out resource decisions in a proactive manner. During this time, resources are assigned on a day-to-day tactical approach based on open needs and positions. Active needs are acted upon based on interlocked demand planning that takes into account current resource availability, roles and skill sets. The resource assignment process can then be expedited in a ‘templated’ fashion. Interlocks again are conducted particularly where import and business trade-offs and choices are made.
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Budgeting for the Unknown
Using the above described three-part methodology will help you forecast resources for demand that exceeds what’s in your current work backlog, or perhaps where you have surplus resources. It also helps provide a realistic view of what’s in your backlog, especially as it relates to people resources on a granular level. When combining the backlog and forecast, you can implement a range of reasonable parameters covering a balance of where to apply resources first and a range of minimum versus maximum potential demands.
With these comprehensive insights you can introduce a plan to encourage finance to modify budgets as needed. Hopefully, you can drive an internal arrangement for a mechanism that enables you to adjust the budget as conditions around you change. While finance is generally averse to budgeting for the unknown, you have at least done fact-based due diligence to anticipate and respond to changes as they occur.
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