“who wishes to fight must first count the cost”
― Sun Tzu

I recently opened a new topic category on the blog called „Strategy“ because I noticed I haven’t really been writing about that aspect (mostly because I, myself, didn’t experience it yet). Many other HR topics in the articles I wrote have structure, organized activities and thoroughly planned schedules (if not, it sure was the intention). The best topic to start this new category is with creating a basic budget needs for your HR department. More than any other activity, creating the budget is an essential part of managing, not just HR, but any department in a company because it’s a starting point of making  strategic, well-planned activities for the whole year. You need to allocate financial resources into each of the HR topics so you know exactly how, when and for what you would spend a random amount of funds on whatever topic is in question. Budget planning directly correlates to overall financial health of the department and organization. What steps should you take to create a balanced and effective budget for the whole year? What makes you sure you allocate enough resources into a random HR topic? Let’s dive into it.

Understand the overall strategy and the goal of the company

Before you make any decision, an HR leader has to know the business goals of the company, some kind of metrics which would help them prepare the necessary activities to achieve those metrics. For example, if the goal is to employ fifty new people in the current year, an HR leader would know how much costs to allocate for recruitment, salary compensation and even employer branding activities to attract that much workforce. A business goal could also be the retention of the employees so additional cost allocation could go to some new benefits or any other suggested, strategic activity which help retain existing employees.

Learn from past year(s)

To make sure you don’t make the same mistakes or even just compare the last year’s goals to the current ones, it’s easy to spot how much allocation was missed or increased without the actual need. Some allocations for different categories can be influenced by SWOT analysis, exit interviews or even the current labor market trends. It’s important to put all that into equation so the final numbers are as precise as possible.

Create contingency spending

Since the precision of the costs is controlled by many different aforementioned aspects, it’s really important that the allocated budget for each category has an emergency spending amount which can be used for „rainy days“. Of course, it’s not something to rely on but rather create security for events not in our control, which impact our results in HR activities.

Monitoring and reallocation

It’s important to track the spending we make in the whole budget. If for whatever reason you have more costs for a category in which you allocated less funds than needed, it’s beneficial to offset that amount from a different category. The key here is that the transfer has to be marked by decreasing the same amount from which the same was taken.

Preparation and presentation for the board

The final key here is to get that budget approved by the board. It’s very important that the budget, when the planning is done, is well presented with concise and clear form such as a chart in an excel sheet or a good powerpoint presentation. Each category’s spending should be numbered in details and have a corresponding argument on why exactly it’s good for achieving the business goal. It might also be beneficial  to present on why it wouldn’t be a good idea to not have such costs covered, to make a stronger case.

Takeaway

A well-crafted budget creates the main opportunity to reach the business goal a company presents to HR or any other department. It secures the optimal amount of activities which can be executed to support the companies’ needs. Control of spending and the right judgment on when and how much to spend on a particular activity is vital for the overall long-term strategy. The prediction on how much funds is enough is never easy and rarely spot-on but this is why the contingency spending is incorporated to evade such situations if they arise. The approval of the overall budget is as guaranteed as the one’s explanation and presentation on why the company needs a certain amount of funds for whichever category. If the argumentation is well-presented, there is a higher chance the board will approve it.