A Budgeting Solution to Help Non-Profits Manage Staffing Costs

While June marks the beginning of summer, it is also the time when many non-profits develop budgets for a fiscal year that begins in July.  Non-profit budgets are driven to a large extent by personnel costs, which can account for as much as 80% of a non-profit’s budget. That cost, in turn, largely determines the real cost of delivering services. As a result. Accurately projecting and managing personnel costs can mean the difference between financial sustainability and ruinous losses. Many organizations I have consulted with cannot differentiate clearly between the number of positions they have and the number of employees in the organization, even though this difference is critical to accurately estimating – and then managing – costs.

Organizations often have many more employees than FTEs (full-time equivalents) because full, part-time, and occasional/temp staff count as employees, but FTEs are based on actual hours assigned or worked by those employees. In addition, because of attrition, in a single year multiple people can fill a single position. Some organizations job-share, with two employees filling a single position. Organizations that cannot track positions often experience rogue hiring (where a manager hires more people than the budget anticipated, but without any red flags being raised). Others cannot budget potential revenues accurately because they are unable to analyze productivity by position within a budget/reporting unit. Both can lead to cost overruns, under-projecting or over-projecting revenues.

Enabling Visibility for Better Budgeting

Position-based HR systems provide maximum transparency when creating budgets in several ways.  

First, assigning a set number of positions within a unit allows for quick estimation of personnel cost: the sum of FTEs associated with each position times the average salary plus any salary enhancements (e.g. COLA) yields a proposed personnel budget for the unit. It is not affected by any turnover during the year.

Second, the calculated number of FTE times expected productivity per FTE, adjusted for attrition or other factors, yields an estimate of potential revenue for that unit.

Third, a data system that can report actual productivity and revenue by position number allows for better management of the unit’s financial performance.

Fourth, data at the position and employee level combined can ensure accountability of each staff and a comparison of high and low performing staff holding a position or within a unit. Knowing the actual productivity of a position during a fiscal year allows managers to adjust the number of staff within a unit to ensure service needs are met with the least number of staff. Conversely, it can also show that staff is highly productive and cannot keep up with demand.

Finally, a system based on positions (not people) requires that hires occur only when a vacant position exists or after approval for a new position has been given, thus preventing inadvertent – or rogue – hiring.

Given the importance of personnel costs in any non-profit organization’s budget, ensuring the effective and efficient allocation of scarce human resources can make the difference between a financially successful or problematic budget. Using Position Control as a tool for managing staffing (not employees) allows for maximal accountability and transparency. Position Control can also help an organization better deploy resources and maximize the work staff perform, thereby maximizing revenues and sustainability.