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Headcount vs FTE: Which Resource Management Model Is Better?

Arpatech Sep 17, 2019
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While making resource management decisions may not be as easy as falling off a log, some choices have yet to be made in this regard. The objective of the exercise is to choose a model that is affordable for the company and will yield the best results for capacity planning and project management planning.

What’s the difference between these two models and how do you determine the best fit for you? Here, we will draw a comparison between the two leading resource management models: headcount and Full-Time Equivalent (FTE).

Headcount vs FTE

While selecting and assigning resources for a project, an organization must think about the product it has to deliver, its budget, and how it can get the highest ROI. Headcount and FTE offer two disparate models for managing the time and cost of venture resources.

Headcount

This model calculates each person, in one role, working the full amount of time assigned for a role (supposedly 40 hours per week). Headcount is a perfect model for HR-related planning and scaling an organization, while companies that use headcount are focused on ensuring they have people in place to perform a general organizational plan. Typically, it seeks to fill roles, but doesn’t come down to aligning people with particular skills to project tasks. Eventually, headcount is more demanding for project planning, because having an individual in a role does not ensure they can or should be the only resource for a wide range of tasks.

How to carry out headcount planning

Headcount planning is a hugely strategic exercise that seeks to address the goals, objectives, and developments a business undergoes. There are numerous steps included in planning the workforce, such as defining your company strategy and outlining business goals and changes within industry with a potential impact on how a company will need to design and grow its workforce. Defining performance metrics to ascertain if you are employing teams with people with skills that can meet existing goals also constitutes part of headcount planning. Another key element of the entire exercise is to analyze your existing workforce and recognize strategic loopholes while using gap analysis findings to formulate a recruitment strategy.

What are the benefits of headcount planning?

One of the key benefits of headcount planning is that a company’s human resource department can align its workforce talent with the organizational strategies and objectives. In addition, loopholes in the workforce can be recognized, which helps focus on hiring efforts. Headcount planning also informs long-term workforce planning while creating performance goals against company metrics.

Headcount planning glitches

While headcount planning can help a company build and scale its staff, it also entails a number of risks.

  • The likelihood of not recognizing high-priority skills may compel a team to bring on supplementary resources, adversely affecting the budget.
  • It is nearly impossible to plan for the peaks and troughs of business needs, which leads to overstaffing and understaffing during the year.
  • There is a likely disconnect in why and how headcount is used. The business (HR) is focused on the model as a tactical tool, while project teams and process owners have to take a closer look at what is needed in reality.

How to calculate FTE

An FTE is the number of hours worked to equal one full-time resource. The model is used to translate the hours worked by part-timers or servicers into the equivalent of a full-timer. There are a number of ways for counting an organization’s FTE requirements, but it’s eventually simple division that is based on your structure. If your organization’s workweek is 50 hours, and you need a technical writer on your project team for 25 hours per week, divide 25/50. The answer, 0.5, is the FTE for that technical writer role.

This formula can be applied using your total number of project hours, or you can really reduce your burden by using a volume management tool.

What are the benefits of using the FTE model?

  • If you find project priorities fluctuating, you can fine-tune your resources as required without pulling a full-time person away from larger obligations. FTE offers visibility into the consequences of responding to those fluctuating priorities, such as whether or not you need to hire someone new because the number of FTE doesn’t match the number of hours needed to work each week.
  • You can involve resources that specialize in particular fields, and you don’t want to waste a full-time person because you need to overlap resources by hiring a temporary individual with a particular set of services.
  • It offers transparency for when you need to hire part-time resources for short-term ventures.

FTE planning glitches

While resource needs may be realistically fulfilled by FTE, project management issues can disrupt the effort. headcount. An organization’s resource budget may lack funding, restricting its capacity to bring on the FTEs is the need of the hour. Another problem is the overall project hours that may be under- or overestimated.

Conclusion

Experts believe that both headcount and FTE have their own pros and cons, it’s up to an organization to decide which one of them suits it given its particular resource management needs. However, an organization may be in a better position to decide which model is more affordable and produces the best results for capacity planning and project management planning.

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