Budgeting and Human Resources
The author suggests that human resources are managed differently than other resources used in a project or process, and with the increasing use of "body shops" (services that provide contract workers), the sands are shifting.
The degree to which the front-line manager has authority to make decisions varies among companies: HR departments control not only full-time employees, but also contracts with body shops, and the manager who needs the resources has been excluded from these decisions.
It's a problem, but one over which the front-line manager has no control - and the net result is that the manager will either have the authority to make decisions, or he must negotiate with those to whom this authority has been granted.
HR Management and Services
The author distinguishes between two basic tasks: HR management is a more strategic function that deals with organizing staff positions within a company, whereas HR services concerns itself will the bodies that occupy those positions - hiring, firing, and the like.
Outsourcing
Outsourcing work, or using body shops to bring in contract workers, is often considered an attractive option to creating full-time positions. The author suggests that there are three basic approaches:
- An entire department or service may be outsourced to a third-party service (payroll, maintenance, IT support, etc.) such that the vendor provides and manages the personnel who perform this service
- A department may have a core staff of permanent employees who are supported by contractors. The contractors are managed by the employees, and are in many ways like a temporary employee.
- When a specialized task needs be done, one or more contractors may be called in to do the job.
These are three of "several" variations - the author does not document any others.
Departmental Control
In cases where departmental managers still have control (or in case they ever regain it), the manager will make decisions about human resources as a part of the budgeting process: defining what needs to be done, who will do it, and how that person will be obtained (contractor or employee).
In such cases, it is common to have separate budgets for staffing and expenses, and to be unable to shift funds between them, and it may be necessary to produce budgets and negotiate for funding on the two separate budgets.
If there is no departmental control, budgeting may not be involved: the manager must present a business case to the HR department, and that department will make the decisions and, based on those decisions, seek its own budget, and the manager will be wholly uninvolved in that process.
EN: The author provides some vague and sloppy advice for making some basic HR decisions (how much to pay, whether to hire or contract, etc.) I'm skipping that, because it's largely a moot point, and there are more systematic and authoritative sources of information on that topic.
Putting it All Together
The method for including the cost of human resources will vary from company to company. In some instances, departments "pay" budget dollars to HR as if it were a contracting service; in others, the actual cost of salary and benefits is paid by the department from its own budget.
There are generally four causes for variances in the HR budget:
- Salary increases that take effect in mid-year can cause a manager to go over budget. This can be considered in advance.
- Vacancies may decrease the budget. In some cases, a vacancy can be foreseen and accounted for in advance. In others, it may be unforeseen (an employee quits, retires, or is fired) and temporary in nature (the seat is empty while you hire a replacement).
- Lower cost of new hires. Experienced employees generally draw a higher salary than new hires, so when an employee leaves and is replaced, the labor cost may be less.
- Changes in benefits - The HR department may change vendors or renew a contract, or rates may be changed. There is no control over this, and it will impact the departmental budget.