HR Budgeting Best Practices for Employee Growth Next Year

HR budgeting season is coming into the home stretch, making it time to consider:

• Will your budget for next year be a rock-solid financial roadmap that helps your organization effectively allocate resources and prioritize objectives?
• Will it provide ample opportunities and resources for employee growth?
• Will it integrate necessary technology for development and efficiency?
• Will it instead lack enough foresight and lead to resource problems?

Time to Double-Check the HR Budget

They’re serious questions that HR, your CFO and those you partner with most will want to consider and resolve.

The business climate will likely be impacted by geopolitical uncertainty, shifting compliance requirements, a changing employment market, inflation and even cybersecurity threats. Those can affect your organization and directly impact employees.

So here are some best practices from several experts for one last double-check of your annual HR budget before finalizing it:

• Adequate key stakeholder involvement. How much effort did you make to get input from leaders impacted by the HR budget? This easy-to-overlook collaboration can help identify, quantify and address potential opportunities or risks throughout the organization. When you communicate with all stakeholders about the budget — and potential adjustments and subsequent performance — you can foster trust.
• Analysis of alignment with strategic objectives. It’s important not to lose sight of the need for your HR budget to be in sync with the company’s and overall strategic objectives that increase your organization’s and the people’s value. Are your expenses tied to specific objectives? Are you balancing employees’ needs and company expectations?
• Analysis of whether your budget targets are realistic. Most HR leaders anticipate an increase in spending year over year, especially when it comes to technology. Many organizations are focusing on strengthening cross-functional capabilities, according to the latest Forrester Planning Guides. It’s a practical — and often necessary — way to get the most bang for your buck in an HR budget.
• Training/upskilling budgets that correspond with tech investments. This could be the most critical step for HR pros — making sure your budget allows proper space for employee development. Because tech is one area where most companies won’t cut back, remember that you may need extra support to overcome resistance to new automation technologies (especially if employees fear it’ll threaten their job security). Controllers Council recommends allocating resources toward employee training and upskilling.
• A clear plan for measuring performance. No one watches employee performance more than HR. So you want to use that same vigilance when it comes to the metrics for evaluating the effectiveness of your budget. From there, you’ll want to also allow time and resources to identify areas for improvement.
• Reserves. Work with your finance pros to ensure you have some financial flexibility if there are cash flow disruptions or unexpected employee turnover. You might define when and how other funds are used — or when savings are implemented.
• Past performance. Spend time examining past performance, market trends, industry benchmarks and the local job environment to ensure you don’t overextend or underestimate the budget for next year. Ask:
  • What goals did we meet and miss?
  • What resources did we underutilize?
  • Where did spend too much?
  • What expenses did we overestimate and underestimate?

Evaluate Your Budgeting Tech

Your CFO and other company leaders are leveraging tech for more frequent, data-driven scenario planning to make the business agile and resilient so they can strategically shift when necessary. Today’s AI-driven and cloud-based fintech can help the company and HR prepare for potential risks and disruptive changes by developing multiple business budget scenarios based on different economic forecasts and market conditions.

This proactive approach, which ideally happens several times throughout the year, can help identify problems with the HR budget — or any department’s for that matter. Then it can suggest ways to adapt to the changing circumstances and make informed financial decisions.

For example, elevated interest rates and borrowing costs could lead to trouble funding major employee development plans. With scenario planning, you can work with the CFO to shed light on the impact and workarounds.

Can’t Afford to Set It and Forget It

Going back to the traditional, fixed budgets won’t likely work these days. You’ll want to do regular reviews of your budget throughout the to track progress toward targets, identify deviations and adjust when necessary. You’ll want to stay flexible and adaptable to changing circumstances so you maintain control over your HR budget.

Going forward, it may not be the most popular technique because of how time-consuming it is to justify every single expense, but the Controllers Council suggested using zero-based budgeting analysis to figure out if you need to shift your spending. Zero-based budgeting —  budgeting so all expenses are justified for each new period — is also helpful for realizing how much you can relocate in a worst-case scenario.

Most Popular Tech Budget Increases

Finally, for the tech-lovers, Forrester’s survey found leaders will increase tech budgets in:

• AI capabilities (86%)
• Cyberthreat intelligence (79%)
• Business intelligence and analytics tools (79%)
• Data infrastructure and management capabilities (79%)
• Customer analytics capabilities (77%)
• Network security (77%), and
• Client threat management (77%).