HR Budgeting and its Components

“And, we have no such thing as a budget anymore. Our manager freaks out when we show him the bill. We’re lavish to the bone, but all our money goes back into the product”……goes the famous quote

Is this your story? It sounds very familiar to somethings that you may also face in your organization… so what do you think is lacking in such organizations?

Budget, budgeting or whatever you may like to call it but it is true that the organizations which work with budgets are successful.

CWC BPO was facing the same problem, their recruitment costs were skyrocketing and there was a dearth of good manpower, the employee turnover was not coming in control even after implementation of a lot of measures. Employee engagement activities and other initiatives were happening on a regular basis, they in fact had the annual employee survey yet things were not under control.

The problem was that there was no budget apart from other things, no set budget for recruitment; hence they had one recruitment manager, one deputy manager, one assistant manager, 3 sr. executives and 6 executives in the recruitment department to handle the manpower requirement of approximately 100-130 employees per month. Apart from this 80% of the recruitment was done through placement agencies, so that was an additional cost. Whoo!!

The scenario shows that the budget was out of control, in fact when we asked the recruitment manager to give the expenditure of the last 6 months it took him more than 20 days to gather the data and prepare the same.

Having an HR budget can surely provide a remedy to such situations not fully but yes partially apart from other important solutions.

HR needs a budget for the following reassons:

Manpower planning/recruitment budget

Training and development budget

Compensation budget

Employee care budget (for employee engagement activities)

Performance Management budget

Operational budget for HR department for their day to day activities.

The essence lies in successfully measuring the tasks of HR department as it has a direct impact on the organization as a whole, but many organizations still have no budgets for the HR department and the Managers/heads have to sulk every time they have to take a clearance for even a small expenditure, which is a pity considering that HR can contribute enormously to a company’s overall performance. Though many HR heads say it would be wrong to quantify each and every function of their department’s performance as the HR also deals with intangibles. Though recent studies have shown that it is possible to establish a clear numerical relationship between good human capital management and enhanced financial performance.

Then why don’t we have an HR budget or why don’t we ask for one from the senior management?  It will surely improvise the functioning of other departments and be cost effective too.

Like in the case of CWC BPO if the department was given a clear cut budget to work on, don’t you think their reliability on external sources, such as placement agencies would have come down a little and the 16 people who were working in the department would have done a better job within the specified budget. In fact, this is what happened when their new HR head joined in and took things in his hand, within the first month after getting an approval for an HR budget they saved approximately 3. 2 lakhs in recruitments only.

Similar things can happen with Training budgets, how much for each department, how much for stationery, specific amount for External trainings and internal trainings. What if we do not have budgets, how do we make sure that the expenditure is going under which head, who will be responsible for over expenditure of training, how to develop a proper training calendar at the beginning of the year?

I would suggest that all the HR professionals should also know about the balance sheet, how to analyse it, basic know-how about cash flow, liabilities and depreciation as all these things really help in the strategic role of HR professionals and then my dear friends there will be no stopping and we can crave for the moon and need not be happy with just the stars.

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