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Answer every what-if: The importance of scenario analysis in a strategic workforce plan

Every action has a consequence. What if you could simulate and forecast the consequences of various decisions before making the right one? Here’s how.
10
min read
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January 23, 2024
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What if? That’s the question leaders ask while solving business problems. 

What if we hire two junior resources instead of a director? What if we push the VP hiring two quarters down the line? What if we hire the sales team one quarter after the product team?

Each of these what-ifs creates a new business scenario. Analyzing them gives you the data you need to make the right decisions. This process is called scenario analysis/scenario planning.

Experts across industries use scenario analysis for various purposes. Portfolio managers regularly simulate a portfolio's value by manipulating factors before making investment decisions. Climate experts use it to evaluate the potential of various strategic interventions.

The tech industry, too, has been actively embracing scenario analysis lately, especially in workforce planning among growing organizations. “We do scenario planning to see different ways that organization design can help us achieve better outcomes,” says Somrat Niyogi, Startup Advisor and ex-GM at Gusto. And that’s just the start.

In this blog post, we explore how scenario analysis can help growing companies optimize their strategic workforce plan. But first, let’s define the idea.

What is scenario analysis?

Scenario analysis is the process of using known facts to simulate future trends to make long-term plans. It acknowledges that the causal relationships and feedback loops may be non-linear and that various inputs in conjunction create different futures.

How would scenario analysis look in a strategic workforce plan?

Scenario analysis allows business leaders across departments, such as finance, HR, and talent acquisition, to forecast headcount. Within the strategic workforce plan, scenario analysis can be about anything—how many to hire, when to hire, how much to pay, what equity to offer, and so on. 

Here’s an example: Gusto’s team prepares scenarios based on high, medium, and low hiring budgets. They use the budget as the fixed input in each case and simulate the team composition. They then forecast the outcomes that the new team composition can deliver.

This creates a clear line of sight between the hiring budget and business outcomes, based on which they can make decisions.

Why is scenario analysis important in strategic workforce planning?

Businesses, by their very nature, are future-driven, working towards creating value in the future. To ensure that things go as planned, they need to make plans that are likely to happen. This is where scenario planning helps as an effective headcount forecasting method.

Systems thinking

Scenario analysis demonstrates how multiple factors combine to impact future performance. For instance, the team’s ability to successfully build and launch a product depends on several environmental, financial, and behavioral factors. 

So, decisions are not as straightforward as ‘throw three more developers at the product to build faster.’ As Florian Gendeau, Head of Finance at Novo, points out in the Headcount Planning Playbook, “Typically, startups achieve peak productivity at about 40 employees. Beyond that, productivity per employee drops, even if overall production goes up.”

So, every headcount-related decision has a cumulative impact on the entire system. Good scenario planning builds systems thinking within the organization. It prevents ad hoc decisions and enables leaders to see the big picture of their strategic workforce plan.

Cost-benefit analysis

Organizations can easily overshoot budgets without a clear line of sight from input to outcomes. For instance, an extraordinary candidate might demand compensation over your planned budget for that role. Or, you might find an excellent senior developer when you had initially planned for three junior developers in that budget.

Scenario planning helps see the snowball effect of your individual choices on the strategic workforce plan. By running a scenario analysis, you can see the long-term impact of making these hires on your bottom line, helping you manage temptations better. 

Proactive preparedness

All growing organizations have one thing in common: They move fast. They regularly make important decisions at short notice. They also unmake and remake decisions as situations evolve. This can get tedious and ineffective very quickly.

Good scenario analysis prevents this. If you have a good strategic workforce planning tool with scenario analysis capabilities, you can quickly input evolving parameters and see how they’ll impact your business in the future.

Based on what you see, you can adjust your current posture and be prepared for what’s coming. 

Let’s say a recession is impending. Most organizations would cut back on all spending and launch a hiring freeze while waiting to see how it pans out. 

With robust scenario planning, you can optimize your spending for ideal outcomes instead of hurriedly pausing them all.

Risk mitigation

Workforce-related risks go far beyond just hiring. What if your VP of engineering leaves? Is your organizational design sustainable enough for engineering teams to function independently until you find the right leader?

Good scenario planning allows you to make qualitative decisions around organizational design, compensation structures, internal communication matrices, team-building activities, and more.

Workforce scenario planning helps identify potential risks and vulnerabilities in your plan, allowing you to develop strategies to mitigate those risks proactively.

Adaptability and agility

What’s a modern company if not agile? For your organization to be agile, your strategic workforce plan must be, too. Is Android changing its recommended app programming language? Is generative AI changing the way SEO is done? Are customers shopping more on Instagram than on your website?

Your ability to adapt to these insights and observations defines your success. If your strategic workforce plan allows you to see disruptions as opportunities instead of a stick in the works, you’ve got an enormous competitive advantage.

Good scenario planning enables precisely that. Scenario analysis makes your strategic workforce plan more adaptable and agile, allowing you to respond quickly and effectively to unexpected developments and opportunities.

To be fair, you’ve been running scenarios on spreadsheets—and asking what-if questions—forever, but mostly relied on gut instinct for answers. We still have to use our instincts, but we often use wrong or incomplete data, which obviously impacts what we glean from it.

The good news is: You can do better.

How to get strategic workforce planning right with scenario analysis

Based on our conversations and relationships with masters in headcount planning, here are some tips to optimize your scenario analysis process.

Unify your headcount data

Good scenario analysis incorporates all your ‘knowns.’ So, for your analysis to be accurate, you must bring together all the data you already have. This could be any or all of the following: 

  • Team composition: Employees, designations, and their reporting managers
  • Compensation: Salaries, bonuses, and stock options
  • Working model: In-office, remote, or hybrid
  • Location: Regional compensation trends and currency conversions
  • Hiring pipeline: approved roles, hiring in progress, offers sent and accepted, and backfills and internal transfers
  • Analytics: Offer-accept rates, burn rates, and attrition rates

Does all this data live in disparate systems, such as ATS, HRIS, and finance tools, that don’t talk to each other? If yes, it’s time to start evaluating strategic workforce planning tools to unify them.

TeamOhana’s strategic workforce planning platform integrates with almost 100 systems, unifying headcount data in a single source of truth. It is an ideal starting point for your workforce plan. 

Set up strategic workforce planning processes

Once you've unified the data, it's time to set up the strategic workforce planning platform to enable the right balance of visibility and control.

Data access: Ensure the right people have access to the right data points. For instance, every department leader can access data about their team and the allocated budgets.

Access control: Ensure that users see only what they should see based on their role. For example, a hiring manager should see compensation data for their team but not for individual contributors on other teams; recruiters should only see the headcount that is assigned to them. 

Process flows: Set up your workflow on the platform. Make decisions around:

  • How budgets are allocated
  • How compensation is set for future hires based on role, seniority, and location
  • Who creates headcount plans (execs only or team leads as well)
  • Who approves headcount plans, promotions, and merit cycles
  • When Talent gets involved

All of these questions are related to your overall process and inform who should see what. This ensures you create and execute responsible plans around your #1 expense.

For instance, Docker simplified internal transfers with TeamOhana. Previously, internal transfers—when an employee shifts to a new salary or title through a promotion, backfill, or inter-departmental movement—were confusing and tough to track in spreadsheets. Now, it is clear, efficient, and auditable. 

“At the most basic level, all that’s happening with an internal transfer is an employee is changing roles within the company. 

For example, a business development rep (BDR) gets promoted to an Account Executive (AE). Sounds simple enough. 

But even though it’s just one person, from the technical headcount side, it can incorporate up to three different positions: an existing BDR, a new AE, and potentially a new backfill BDR. While I’m thrilled for our newly promoted AE and excited for them to go sell, I now have three headcount in my spreadsheet, but only one actual person who has changed positions. That’s what makes it so confusing.

Today, just like with our original process, any of our admin stakeholders (Finance, Talent, HR, etc.) can initiate an internal transfer. We link the transferring employee to the open position and set the start date, and voila! 

The employee details, cost, and forecasts are automatically updated in the system. We can reconcile these changes to the HRIS, as well, to make sure the employee record is accurate everywhere.”

— Aaron Solomon, Senior Financial Analyst at Docker

Empower department leaders to scenario plan

Today, if a department head wants to run three different scenarios to demonstrate their respective budget impact, they need to seek a financial analyst’s help, which then leads to infinite back-and-forth of spreadsheets. This is time-intensive and forces highly paid resources like VPs and Directors to do low-value, manual work.

To prevent them from working in silos, it is essential to give department heads a self-service way to create different scenarios, see the budget impact, and adjust other variables, such as roles, compensation, or joining date, to design their perfect strategic workforce plan. If they could do this on their own, Finance and HR could simply serve as collaborators and approvers rather than needing to perform a bulk of the work.

TeamOhana’s Scenarios feature is designed to enable precisely this. Once the data is synced and the workflows are set, department leaders can run their own scenarios within their preset budget envelope. Here’s how.

Department leaders can try permutations and combinations of their hiring plan while staying within the headcount cap and budget cap allocated to them. If they exceed their budget caps, the meter turns red, guiding them to make changes. When ready, they can send it to finance for approval.

In the background, TeamOhana automatically calculates fiscal year impact based on the input. Once finance receives these plans, all they have to do is approve them and merge them into a single organizational headcount plan.

Enable agility in headcount planning with scenario analysis

Headcount planning is no longer a one-time activity at the beginning of the year. As the business evolves, department leaders must adapt their headcount plans to meet the new demands. This requires agility.

TeamOhana’s headcount platform enables managers to make edits to their headcount plan with real-time feedback and a risk-free sandbox. For example, let’s say you need to make a budget-neutral change to your hiring plan. 

With TeamOhana, you only need to set up a new scenario and add your expected hires. TeamOhana will then show you the budget impact in real time, based on which you can push target dates of ongoing hires or eliminate roles that haven’t begun hiring yet.

The fantastic thing about this is that you can do all this scenario planning without involving the finance team at all. Once you’re done, you can simply send it to finance for approvals.

Be ready for any scenario with TeamOhana

The TeamOhana Headcount Platform is designed to help you maximize your most critical operating expense: Headcount.

One of the most effective and low-risk ways to do this is scenario analysis. It helps leaders visualize the impact of present-day decisions on the future course of the business.

TeamOhana Scenarios is your answer to every ‘what-if’ surrounding scenario planning. 

See TeamOhana in action, or book a demo now!

To learn more about TeamOhana and strategic headcount management, contact us.

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