A Very Special Christmas Post on Headcount Planning

As the number of children has grown over the last hundred years, Santa’s workshop has turned into more of a massive logistics complex. At his North Pole HQ in the run-up to Christmas, you can usually find him rushing from building to building, checking in on preparations.

In the Candy Cane building, he checks in on his naughty or nice accounting team (they do great work but don’t follow GAAP principles, and naughty and nice are never in balance). Over at the Shining Star sleigh maintenance shed, he checks in with the pit crew to make sure the runners are waxed and the harnesses taught. In the biggest building—Wrapping—he meets department heads daily to make sure they have enough capacity to keep up (this year especially—we’ve all heard about the supply chain headaches!). In short, preparing for Christmas is a lot of work for Santa and his crew. And as with any organization, it requires him to take headcount planning very seriously.

• What are my objectives for this year?
• Who do I need to make it happen?
• How many helpers do I need and what skills do we need to meet our targets?
• Which departments need to be involved in headcount planning?

These are just some of the questions racing through Santa’s mind on the subject. We’re proud to say that Santa is a long-time customer (pro bono, of course), and we thought some of the best practices we have worked with him on might be helpful to you as well.

Headcount planning: definition, who needs to be involved, benefits, and best practices

Headcount planning is a vital component of strategic workforce planning, whether you hire people or elves and reindeer. It’s how you make sure you have the people and skills you need to meet your goals within your budget. 

For many organizations, including Santa’s, headcount is the single largest expense. That’s why it’s paramount that Santa understands his labor costs and can tie headcount planning to his FP&A process. 

Doing so lets him align talent acquisition efforts with his ambitions. For example, I heard he’s jealous of Elon Musk’s and Jeff Bezos’ adventures in space, and has a skunkworks project on rocket-powered reindeer going on somewhere in Antarctica, far from prying eyes.

Notwithstanding that long-term vision, we all know his main priority is getting presents to every kid that’s behaved well on Christmas morning, so he’s got to know  exactly how many elves, reindeer, and other team members need to be involved to make that happen.

The benefits of headcount planning

Here’s what Santa gets from carely headcount planning: 

• On a talent level, he can respond swiftly to emerging challenges across the globe. He can also make sure he has a productive team with the right skill set. Are there more children to give gifts to this year compared to the last? Who has the skills to take care of, maintain and repair Santa’s newest AI-controlled sleigh? Who can take over handing out gifts in case Santa gets sick (it hasn’t happened in 1,000 years, but you never know)? Headcount planning allows him to account for all of these questions and more.
• As the North Pole’s Greatest Employer (according to Glassdoor reviews), Santa is always looking for promotional and rotational assignments to keep his team motivated and innovative. But from a headcount planning perspective, this raises complicated questions of budget allocation when someone moves, promotion timing, and so forth. By building these into his model, he’s covered.  
• A way to keep an eye on, and better understand, his costs by directly connecting talent expenditures with his goals of making children’s Christmas wishes come true. There’s a lot that goes into this. It’s a little-known fact that Santa has an advance team in almost every city, town, and village around the world. Each team is in a slightly different labor market—with different compensation expectations, standard benefits, payroll taxes, and more. WIthout factoring this complexity into his planning, he could get caught under budget. How embarrassing. 
• Continuous monitoring of turnover and building a pipeline to fill important roles including succession planning. Sometimes, an elf may find a better gig working in a Lord of the Rings or Harry Potter movie (You didn’t think the Great Resignation ends at the Arctic Circle, did you?). What’s Santa to do then? Headcount planning can help him find the answer.

What team members should be involved in headcount planning?

There are usually four groups that should be involved in headcount planning.

Spearheading the entire process is HR, as they’re the main source of information for all things related to the process. 

It’s operating executives’ role to influence overall goals, strategic efforts, and budgets. To use an analogy, HR is tasked with providing a map, and the executive team decides on the destination.

Departmental leaders like operations, sales, or production leads also need to present their department’s perspectives, budgets, priorities and strategies. This includes Mrs. Claus from HR, Rudolph the red-nosed reindeer, Shinny the elf, and others.

The finance and FP&A department also play a critical role since they’re the ones who create the company-wide budget and advise on the best course of action.

5 Steps to Create a Successful Headcount Plan

Here are the five steps Santa uses to perform effective headcount planning you can use yourself:

1. Identify business challenges

Santa first leverages scenario planning and forecasts to understand factors such as children’s needs, new technology, growth within existing and new markets, innovations, potential supply chain difficulties, and others. All of this information informs the headcount planning process.

To identify his business challenges, Santa can ask questions like:

• How many children need presents this year compared to the last? How many helpers do I need to make that happen?
• If we hire X more elves, how much more efficient are we going to be?
• In the unlikely case Rudolph takes time off, what steps do we need to take to make up for that?
• If we hire an elf that can both wrap presents and keep track of the naughty list, how should we split their time? Will we end up saving on labor?

2. Monitor the right metrics by tying them to business objectives

Santa is data (and reindeer) driven. It’s the only way to stay at the top of his game for so long. To achieve his goals, he knows he needs to keep an eye on workforce metrics such as:

• Performance ratings, so he makes sure every elf and reindeer are “pulling their weight”
• Position requirements, skill sets, certifications and licenses–all the forklift-operating elves, Santa’s mall doubles…everyone needs to be certified and have the right skills to achieve their goals.  
• Overall attrition rates and attrition rates by department. Are too many elves leaving? Are Santa’s reindeer happy? With too much employee turnover, delivering all the presents may present a bigger challenge than anticipated. 
• Payroll data compared with other employers and geographic averages. This ties back to the previous point about keeping Santa’s team happy and well compensated.

3. Evaluate the current workforce

Once he’s established these metrics, Santa does a thorough job of evaluating his current workforce against them. This process can reveal that it’s time Santa’s team got a promotion or additional training. It can point to the cause of high turnover rates, uncover whether Santa needs to hire more helpers, and help him address other issues.

4. Iterate on the headcount planning process

Santa reviews, revises, and improves his headcount forecasting processes as his needs and goals change and new data becomes available.

5. Understand headcount costs

Once Santa has a good overview of his “business” requirements and the current resources at his disposal, he needs to decide on realistic salary and benefits ranges. Only then can his finance team start to forecast the costs of labor.

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Ed note: Want to dive deeper into essential FP&A topics? Check out OnPlan’s most popular posts of all time here:

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• An Introductory guide to rolling forecasts 
• Sales forecasting in Excel: How to do It + free template download
• How to use a headcount planning model to determine your next office location
• Best practices for building a remote-first workforce planning model
• Bookings vs billings vs revenue: What’s the difference?
• What does the SaaS magic number mean for business growth?
• How CFOs can prepare for the Great Resignation