As a senior executive of a growing business, it is very likely that you need to allocate more funds for each sections of your company. One of the most important here in this case is your human resources (HR) department. The funds that you allocate for the HR department should demonstrate your company’s projected ‘return on investment’ (ROI) and comply with its central mission. This implies that it should articulate the department’s overall performance with respect to your company’s mission. An HR budget that meets such a criteria, will be a tough one for the company’s decision makers to reject.
What do you understand by the term ‘HR budget’?
A systematic accumulation of financial data that helps in to project the amount of finances required to support a company’s mission or goals is known as budgeting. The same holds true for the HR department of any organization and thus, referred to as ‘HR budget’. A lot of commercial organizations use one of the following two ways to create a budget for their HR department:
- Zero-based budgeting - Each and every item that makes it to the HR budget should be evaluated prior to their inclusion. So, the process of creating an HR budget flags off with a clean slate that increases its chances of getting the final nod from the concerned people.
- Incremental budgeting - Keeping the present budget in mind, a fresh budget is prepared after making due adjustments. These adjustments can be upwards or downwards with respect to each item included in the budget on the basis of their expected ROI.
What information are required to prepare an HR budget
As far as budgeting for the human resources is concerned, you would require the some of the below mentioned data to get hold of a perfect HR budget:
- Expected annual turnover of the company.
- Projected cost increment for employee benefits.
- Number of employees slated to increase in the next financial year.
- Plans for fresh programs or benefits.
- Real cost to the company in the present fiscal year.
- Various other alterations in the company policy, its strategy, rules and regulations that may, in turn, affect the company’s cash flow.
Once, you’ve prepared an HR budget, then you’ll have to get the approval from the highest echelons of the organization before actually implementing it. However, it is during this time that you’ll have to manage the entire delicate process of negotiation to get your HR budget approved by the concerned authority.
Key ways to negotiate for your HR budget
Here are some of the extremely important tips to help you overcome the negotiation process efficiently:
1) Reveal the ROI of your budget - Arm yourself with all the spreadsheets that’ll demonstrate the ROI you are expecting as well as the cash efficiency out of the initiatives you are planning to invest in the coming fiscal.
Suppose, illustrate the dividends that may come as a result of investing the dollars to pay the HR executives. Reason out with other functional heads regarding the supportive work done by the human capital for the organization.
2) Club HR expenses with the company’s mission - You can’t expect the functional heads of your organization to connect the dot themselves to find out the role played by the HR department in furthering the company’s business objectives.
It is for you to do that in front of them at a time when you are discussing budgetary issues with them. For this, you may even have to make a budget presentation to drive home your point.
3) Align your budget with better profitability - Your HR budget should be in line with better profitability. Though cordial employee relations and work performance are great parameters, yet you’ll have to embody profitability in your reasons to come up with such a budget.
When you start speaking on the basis of revenue generation factors, only then will your answers be heeded by the decision-makers.
Apart from that, you need to include the scrapped clauses that you’ve removed while drafting the HR budget and add a scapegoat project to bring the conversation at an equilibrium. You should be prepared to drop one or more less important projects from the priority list to show that you are willing to downsize a bit in order to gain more.
Uzi Dawson
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