Why Is It So Hard to Get Finance and HR Aligned?
Defining headcount isn't as simple as it appears
Why is it so hard to get a headcount number? This seems to be a common theme at many companies. When I mention the challenge of getting HR and Finance on the same page, I often see heads nodding in agreement. I wonder if the HR folks think Finance is the problem and vice versa.
When I talk of alignment, I’m not talking about the need for HR to speak the language of business. That is critical. While it can be challenging to measure the financial impact of HR projects, that shouldn’t stop HR from trying to build those business cases. If you want more info on speaking the language of Finance, check out Module 5 of Orgnostic’s Masterclass for a great primer on the topic.
Rather, I’m talking about the simple alignment of a headcount number. You go to a meeting and one person says our current headcount number is X and someone else says it is Y and 30 minutes are wasted debating and trying to reconcile the numbers before the conversation can continue. That is if it ever gets reconciled before people give up in frustration.
Is there a way out of the quandary? Yes.
But let’s dig into why headcount numbers might be different. Among the many reasons are the hidden assumptions and different motivations for calculating a headcount. We’ll get to some other reasons in a bit. Assuming X is the number from a financial analyst and Y is a number from an HRBP, consider the potential different motivations. In general, Finance speaks the language of money and HR speaks the language of people. So when you have two different languages, there’s bound to be some miscommunication and mistranslations. With enough miscommunication, you lose trust and connection. No wonder you might see those groups at odds with each other.
Starting with the metrics the groups care about, Finance will be looking at the investments that are being made. For many organizations, it is the investments in people that are the largest item on the balance sheet. Finance is trying to forecast and project the money that will be spent so they care about things like labor costs, productivity measures, hiring to budget plans, and workforce planning. HR is trying to ensure a great work environment and cares about things like engagement, diversity, onboarding effectiveness, and retention.
So the financial analyst might be calculating X as the FTEs (full-time equivalents) by counting part-time people as something less than 1 FTE per person to track how much money will be spent on salaries and benefits. The HRBP is counting Y as the number of people to plan for in setting up onboarding programs for new hires whether or not they are full-time.
I have found it helpful to treat headcount and FTEs as two different values and not use them interchangeably to highlight the nuances between people (headcount) vs the costs of those people (FTEs). Keeping those as separate terms allows us to use the right one for the right conversation.
In addition, distinguishing them gives us more nuance in the possible metrics that use them. So if I’m doing a revenue per employee headcount calculation, the FTE number in the denominator probably makes more sense than headcount. If I’m calculating the percentage of leaders who are women, then I’d want to use the headcount number in the denominator.
Setting aside the FTE term for now let’s assume you are both talking about headcount as the number of people. So what do you do if HR and Finance are still not aligned? Here are two more things you can try.
Align on who should be included in the definition of headcount
Recognize the wide variety of people who are doing some type of work for your organization. Depending on your industry, you may have groups of employees who are regular, full-time, part-time, temporary, interns, apprentices, contingent, seasonal, contractors, consultants, freelancers, or students. They have a variety of contracts and employment agreements in place and have different costs. They will be treated in different ways for financial purposes. For example, you may have some contractors who are paid as part of a service fee your organization pays to some third-party vendor while others you may pay directly. Perhaps summer interns are paid out of a recruiting budget rather than by the business groups. So headcounts by business groups would not include summer interns.
Once you recognize the different groups, then you can focus on which groups to include in your headcount number. You may have to align that number with those groups of employees who are being counted in the financial reporting. In general, HR should align those groups to financial investments. So if HR wants to talk about onboarding or diversity representation, then include those groups of employees that Finance cares about in your onboarding metrics. Once you’ve got that alignment, make that your headcount metric where the calculation is consistently done the same way with whatever software tool you use.
All of this assumes that you are aligned with any definitions of groups that you might use in headcount breakouts. If you are trying to slice and dice the headcount by business groups but no one is using the same definitions of business groups, don’t be surprised by the differences you will inevitably get
Standardize the data source so the same data flow is used by HR and Finance
Aligning on the definition is not sufficient, you also have to align on the data source. If you have a standard HRMS in use, then that should be easier to align with the data source. But even pulling from the same HRMS is not sufficient. There may be a variety of data tables and data transformations done on those tables. The data tables have to be the same and the data transformations have to be the same. This is where data engineers are extremely important in building consistent data workflows to ensure the same data is used by everyone.
Yet there is still another factor. I intentionally use data flow because when you pull the data is just as important as how you pull the data. You have to align on when the data is pulled. For example, pulling the headcount data on the last day of the month will not give you the same results as data pulled on the first day of the month.
So you’ve got to align the data source, the data tables, the data transformations, and the timing to make sure everyone has the same data going into the headcount calculation.
What if neither of these gets to alignment? Then you will probably need multiple definitions and then your focus is to be clear about which definition you are using in which context. While not ideal, at least it can reduce some of the time spent trying to reconcile things.
Remember that there are some fundamental differences in counting the number of people (headcount) versus counting the amount of worker productivity (FTE) and that both are necessary for different goals. If you need both, then use both. Both can be presented or shared in reports or dashboards or used in different places as needed. Just be clear about which is which and ensure that they are labeled correctly.
Can HR and Finance get aligned? Absolutely. I’ve seen it done. But that may be a story for another time.
If you want more articles on the topic, here are two additional perspectives.
From Richard Rosenow - https://www.onemodel.co/blog/why-your-finance-and-hr-teams-cant-seem-to-agree-on-headcount
From Cole Napper - https://directionallycorrectnews.substack.com/p/the-four-horsemen-of-hierarchy
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