The Total Cost of Your Workforce

Most organizations have a limited view of their workforces in terms of both headcount numbers and costs. While HR typically reports headcount figures, the task of calculating the cost of the workforce is often left to Finance. Unfortunately, many HR groups don’t have the expertise or credibility to report costs and therefore defer to their Finance counterparts.

Headcount figures are important, no doubt, but this data alone only tells part of the story. Executives and line managers want to know how much they are spending on talent, and how different decisions will impact these costs. HR, in partnership with Finance, needs to take the initiative to calculate and report these costs.

The HR leaders at ConAgra Foods did not shrink away from this challenge. Until recently, ConAgra Foods struggled to collect accurate data about its workforce. Information was spread across the organization in siloed systems and was often difficult to reconcile (sound familiar?) In a relatively short timeframe, however, ConAgra Foods’ HR team has been able to leverage technology solutions to provide both current and projected headcount as well as total workforce costs.

To estimate these costs, the analytics team partnered with Finance (a key relationship for HR and analytics teams) to begin mapping all of the available data and processes. The company was using two principle systems: the HRIS, managed by HR, provided data on salary and benefits; and an ERP system, technically owned by Finance, provided cost data. Neither system held all of the necessary costs or details for accurate planning, forecasting, and analysis. The goal was to deliver all workforce cost data, regardless of source, to the cloud-based workforce planning system (Visier) to provide a complete picture of costs.

To calculate the total cost of the workforce (TCOW), the team developed a visual taxonomy of the different data elements that contribute to this figure (see Figure 1). The four major categories include direct compensation, benefits, employer costs for labor, and workforce overhead. Each of these categories, in turn, has subcategories with specific data elements. All of these need to be considered when calculating the total cost of workforce. Many times companies only look at payroll or compensation figures, but as this chart shows, that is only part of the total cost.

With all of the data in one place, ConAgra Foods’ HR and Finance teams are now able to see the impact of spending at a minute level and understand what impact its workforce costs have on its financial plan. They can also run different scenarios, for example, modeling workforce costs between two different locations, or modeling the cost of entering new markets versus continuing operations as is. In the past, this would have been a highly manual, time-consuming, and error-prone task.

If your HR organization is not able to do these types of analyses, it should work to get there. Increasingly business leaders are calling on HR to step up its game in using analytics to make better workforce decisions. Cost is a key component of these decisions. So if you don't have a strong relationship with your CFO, start building that relationship now.