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Chhaya Sehgal
The Winning Edge
Manpower Planning
Manpower cost is derived from the manpower planning exercise, which is to be carried out by an
organisation. This is an important activity for an organisation to grow, as it needs to plan its
manpower utilisation and future requirement. This exercise is necessary as it is linked to all other
growth plans of the organisation. It can be explained with a simple formula:
Manpower Planning = Present Requirement + Future Requirements
Present requirements:- Present requirements information for an organisation is gathered through an
exercise of Manpower Inventory. Just as any company takes stock of its inventory at the end of a
financial year, so too they must take stock of the manpower that exists within the company. The
manpower inventory exercise can be carried out anytime of the year depending on the requirements
of the organisation and its size. An organisation could conduct such exercises every year or every 2
years. Most organisations take stock of their manpower once every 2 years.
The information from the manpower inventory exercise reveals what is the present state or what is the
present or immediate requirement for the organisation. The information could be like :
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the levels of attrition – if it is a manufacturing company then the attrition level would be low,
whereas if the company were in a service sector like a BPO company then the attrition level would
be considerably higher.
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the competent personnel – the exercise also identifies who are the competent personnel within
the organisation & how they are progressing. This would be necessary so to plan on how they
could be fully utilised in their current position or in another position.
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the dead wood – personnel who are not performing upto their capabilities or cause a distraction
to other employees are also identified. It becomes necessary to identify such personnel, as they
would cost the organisation more in the long run if their services are still continued. For the
organisation, it must plan effectively as to how such personnel are to be released without getting
into legal wrangles.
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Promotions or vacancies available – Positions that are open need to be identified and filled with
the competent personnel identified.
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Training & development needs – It becomes important for the organisation to identify the
various training & development needs of its personnel. Not only should the organisation identify
the training needs, proper arrangements should also be made to provide such training. Personnel
would benefit from such exercises both personally and professionally by contributing towards the
growth of the organisation.
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Counselling – Counselling would help employees to address their various issues (personal or
professional). As mentioned earlier, people are important assets for an organisation, it therefore
becomes critical for the organisation to provide a suitable working environment and try to address
any issues faced by its employees at the workplace.
Future requirements:- Future requirements depend on the growth strategies that are designed and
adopted by the organisation. Information critical for future requirements could be:
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Utilisation of present personnel – This is an important as an organisation must be able to utilise
its existing manpower effectively & efficiently for its future growth. When identifying its competent
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personnel, the organisation must also think of ways & techniques to efficiently use such
manpower in the future.
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Retention of competent personnel through good career paths– As stated above, competent
personnel usually perform better if they are aware of where they are going, i.e. they are aware of
the good prospects provided by the organisation. It therefore becomes important for an
organisation to prepare good career paths or provide good opportunities for its personnel to help
them grow personally & professionally.
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New projects in the pipeline – An organisation must identify what are the new projects in the
pipeline and how they are to be implemented, as this would help the organisation achieve it
growth strategy.
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Type of manpower required - When planning on new projects, an organisation must also plan
the type of personnel required. This is done to find out whether the organisation has the required
people within the organisation who could be utilised or should they hire new competent personnel.
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How to release dead wood – When the dead wood personnel are identified, the organisation
must plan in the long run how such employees are to be released, i.e. whether they are to be
provided with retrenchment pay (additional working capital may be required) or whether they can
be placed someplace where they would perform to their capabilities or do not cause disturbance
to other employees.
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Attract new blood – An organisation would always grow when new blood & new (fresh) ideas are
infused. It must a have a proper mechanism in place to attract new people as & when required.
For this also costs would have to incurred to put the mechanism in place which could be HR
consultants fees, policy changes etc.
Manpower Budgeting
Controlling manpower costs has become important for organizations, particularly when we are
required to look within for cost savings to sustain organizational growth & profitability. By developing
the HR costs spreadsheet we can understand the magnitude of HR costs in an organization. At the
macro level, net value added per employee is an indicator of cost efficiency.
Budgeting
Budgeting is a quantified, planned course of action over a definitive time period. It is an estimate of
expected expenditures and the revenues for a stipulated period. Manpower budgeting aims at
indentifying current and future human resource needs for an organization and quantifying the same in
monetary terms to achieve organizational goals.
Factors to be considered while preparing manpower budget
Remuneration:
Remuneration includes basic pay, dearness allowance, city compensatory allowance, hour rent
allowance, conveyance allowance etc. To retain and attract talent, organizations may also give
various fringe benefits to their employees.
Recruitment:
Right from developing job specifications to describing job requirements, it includes costs of
recruitment. It also includes cost of head hunting, evaluation, interviewing, induction and orientation.
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Chhaya Sehgal
Training Cost:
Training cost includes remuneration for the trainee and the trainer, cost of developing training
material. To ascertain cost of training it is necessary to develop a checklist or a worksheet, delineating
all direct and indirect cost of training. Relative benefits of such trainings also need to be evaluated.
Relocation cost:
Many organizations have their policy on periodic relocation of employees, as part of restructuring
exercise. Such decisions from organizational point of view involve costs related to disturbance
allowance, cost of housing, cost of travel etc. Factories have spent in one year Rs 40 crore for
relocating their employees.
Support Costs:
Some of the employee support services are statutory, while others are offered voluntarily by the
organizations. For computing support costs, therefore, it is necessary to distribute these under two
different heads & then study their impact. Employee support services have direct effect on employee
motivation, cost curtailment decisions must have reference to this aspect.
Personnel overhead Costs:
This cost is spread over personnel record keeping, costs for maintaining Human Resources
Information System, cost of personnel decisions and overall costs for maintaining personnel
department.
Separation Costs:
There may be other reasons for separation, which may be either for organizational initiative or for
individual employee’s reasons. Since, separation requires replacement, immediate cost effect is on
loss of production. Other costs of separation are redundancy benefits, ex-gratia payments, etc. Since
separation follows immediate liquidation of fringe benefits, saving of the organization on this count,
now replicated global practices, to go for large-scale redundancy. This may prove to be effective for
obvious reasons of savings on manpower cost, it may also have the ill effect of skill mismatch with
new recruits, which will further add to the cost of separation.
Other Factors
Availability of required skills:
It is very important that the skills those are required should be available in the market. It so happens
that due to change in the business environment the demand for certain skills increase and it’s supply
is very scarce. E.g. After the private players were allowed to enter into insurance market there was
demand for actuary officers who develop the insurance policy. However since the LIC was only life
insurance company there was no such demand for actuary officers in India.
Company’s ability to spend:
Company’s ability to spend on manpower requirement also is the important factor in manpower
budgeting. Manpower budge cannot exceed the approved limit.
Training:
In case company is not able to recruit from external source, it is also possible to train the internal staff
for the required job.
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How is the monetary value derived
Monetary value is achieved by below mentioned steps.
Classification of job
Classification of job is done by identifying the work or job content and time requirement for such job or
work unit. Work or job content classification helps in breaking jobs in different components, which
together completes and operation. However this may not be useful for service jobs like, customer
service, managerial jobs, clerical jobs etc. For such job existing time required can be taken as
benchmark for existing organization based on past experience or benchmark with others.
Forecasting the number of jobs
After classification of job and its work contents and its time requirement, in the next phase job
forecasting in quantitative terms for a number of jobs is done for a time period. This is done based on
demand projection.
Converting the projected jobs in man-hours
Multiplying the time requirement of each job with the number of projected jobs, man-hours for jobs are
computed.
Converting the man-hours into manpower requirement
In the final phase of workload analysis, aggregate man-hours are converted into manpower
requirements. This is done considering leave reserve, normal fatigue allowance etc.
Determining quality of manpower requirement
Quality of the manpower refers to the skills, academics, experience etc. Once the manpower
requirement and job classification is done then what would be the proper manpower for the given jobs
needs to be evaluated.
Cost of the manpower required
Once the quality of manpower required is determined the cost required to hire the manpower has to
be estimated. This cost has to be estimated by taking into consideration the above-mentioned cost
factors
Manpower Costs
There are various costs incurred for the maintenance of human resource. These can be called as
MANPOWER COSTS.
Manpower costs normally would include Present and Future Costs.
consists of:
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Present Costs normally
salaries
various allowances (like house rent allowance, lunch allowance, Leave travel allowance etc)
perquisites etc (vehicle provided by company, accommodation provided etc)
additional costs like employee welfare costs (staff parties etc)
attrition costs
new appointment costs (job posting advertisement costs, interview costs, consultants fees etc)
voluntary retirement cost (scheme management costs etc)
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While Future Costs consists of:
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Cost of developing Expert Knowledge Systems, which could mean developing Subject Matter
Experts (SMEs) - this means training resources as experts who could identify process
improvement areas and increase productivity.
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Streamlining procedures costs, standardisation costs - identifying processes that be
improved e.g. a process which would take 10 steps could be streamlined and reduced to 5 steps,
this would save processing time and release the additional manpower that could be used
elsewhere, also by standardising processes the time taken for a process can be reduced and
productivity can be improved.
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ISO certification, Six Sigma certification costs if any – processes that have been improved
would need to be re-certified so as to benchmark the organisation with its competitors. It is
included as manpower costs because requisite certification training would need to be provided to
certain individuals or experts of the said process.
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Cost of rotation of employees so as to retain them – organisations now realise that it is
cheaper to retain existing competent employees than to hire and train new employees, therefore
they are willing to incur the costs for rotating the employees and provide them different jobs in the
organisation. This helps the employees to recognise their potential and self worth.
The future costs mentioned above might be incurred so as to derive any future benefits that may help
the organisation to grow.
Personnel Budgeting
When conducting the manpower planning exercise, personnel budgeting exercise is also carried out
to identify the types of manpower costs that are to be incurred.
Activities and expenses that are normally budgeted for are :
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Manpower costs - such as salaries, allowances, perquisites etc
Training expenses - all types of training expenses are accounted for based on previous year’s
expenditure pattern
Recruitment & selection
HRD initiatives - consultants fees etc.
Staff Welfare
Communication - information pertaining to employee relations & organisational announcements
and Other Administrative expenses
Inputs from various functions / departments are taken while estimating the expenses for the budget.
Case Studies:
Prudential (UK): some of the standard and additional costs that are normally incurred are as follows:
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Salary
Expenses like
car & fuel expenses
Allowances like
home working allowance
meal allowance
reducing town allowance i.e. transferred out of London
shift allowance
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Chhaya Sehgal
Overtime
Bonus
Pension
Car
Pru Discounts (tie up with stores for sale etc.)
Shares in Pru (esops = employee stock options)
Holiday Expenses
On job training costs
Retention / attrition costs
Whereas future costs would be inclusive of:
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Migration costs for a process to India {Prudential Process Management Services (India) Private
Limited}
Travelling of trainers or SMEs
Their accommodation
per diem (daily expenses for trainers) etc.
New Product launches
Set up costs for new product or process
new recruitment
training costs etc.
The above future costs for Prudential would have been incurred by the organisation when they
opened their contact centre in Mumbai (India). Also currently manpower planning & budgeting of
costs are being carried out with regards to new product launches and shutting down of one contact
centre and shifting the business to other centres. These also include having dialogues with trade
union representatives to provide appropriate retrenchment packages or alternative work for the
retrenched employees. (As these are confidential exercises, further details were not available for
discussion.) Though these costs were or are currently being incurred by Prudential, they are actually
potential savings in the long run.
Unilever would also incur similar types of standard & additional costs mentioned above. For 2005 the
company had envisioned reducing its world wide employee strength to 212000 employees. The
future costs that would have been incurred are as follows:
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Internal restructuring costs
Job rotation costs
getting rid of under-performers through various pay out schemes
Redundancy costs to be incurred when outsourcing support functions like HR, Finance & IT
Costs involved in finding alternative employment for retrenched employees
or giving them redundancy pay etc.
Similar to Prudential carrying out a manpower planning & budgeting exercise, Unilever would have
done the same in either 2003 or 2004 to achieve their focus for 2005 i.e. reducing employee strength.
The results for Unilever confirm this, as they were able to reduce their employee strength by 17000,
reduce the management strength by one-third, and transfer jobs from 20 European countries to IBM.
This transfer affected 750 people for whom Unilever provided alternative employment.
By reducing its manpower Unilever would have saved huge recurring costs on manpower, also costs
at the senior management level would have come down considerably.
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WHY EMPLOYEES LEAVE ORGANISATIONS? - Azim Premji, CEO- Wipro
Every company faces the problem of people leaving the company for better pay or profile.
Early this year, Mark, a senior software designer, got an offer from a prestigious international firm to
work in its India operations developing specialized software. He was thrilled by the offer.
He had heard a lot about the CEO. The salary was great. The company had all the right systems in
place employee-friendly human resources (HR) policies, a spanking new office, and the very best
technology, even a canteen that served superb food.
Twice Mark was sent abroad for training. "My learning curve is the sharpest it's ever been," he said
soon after he joined.
Last week, less than eight months after he joined, Mark walked out of the job.
Why did this talented employee leave?
Arun quit for the same reason that drives many good people away.
The answer lies in one of the largest studies undertaken by the Gallup Organization. The study
surveyed over a million employees and 80,000 managers and was published in a book called "First
Break All The Rules". It came up with this surprising finding:
If you're losing good people, look to their immediate boss .Immediate boss is the reason people stay
and thrive in an organization. And he's the reason why people leave. When people leave they take
knowledge, experience and contacts with them, straight to the competition.
"People leave managers not companies," write the authors Marcus Buckingham and Curt Coffman.
Mostly manager drives people away?
HR experts say that of all the abuses, employees find humiliation the most intolerable. The first time,
an employee may not leave, but a thought has been planted. The second time that thought gets
strengthened. The third time, he looks for another job.
When people cannot retort openly in anger, they do so by passive aggression. By digging their heels
in and slowing down. By doing only what they are told to do and no more. By omitting to give the boss
crucial information. Dev says: "If you work for a jerk, you basically want to get him into trouble. You
don 't have your heart and soul in the job."
Different managers can stress out employees in different ways - by being too controlling, too
suspicious, too pushy, too critical, but they forget that workers are not fixed assets, they are free
agents. When this goes on too long, an employee will quit - often over a trivial issue.
Talented men leave. Dead wood doesn't.
"Jack Welch of GE once said. A company's value lies "between the ears of its employees".
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