Introduction

The role of Chief Financial Officers (CFOs) is evolving at an unprecedented pace in 2024. The way that a company manages its people can significantly impact the company's financial health. This is especially true for those CFOs who have to make important decisions related to their workforce, such as a restructuring process or reduction in force.

In this guide we will walk through the process of determining the optimal number of people in each function (including the finance function). The full list of topics that we will discuss include:

• How to Determine the Number of People Needed in Each Function
• How to Convert the Number of People in a Function into Costs
• The Top Three "Use Cases" for Functional Analysis
• Conclusion

How to Determine the Number of People Needed in Each Function

Finding the right workforce size for each function is no easy task. In 2024, a data-driven approach is expected and can really help to set out the optimal headcount for each function. Here are the five steps that we recommend CFOs take to determine the number of people required in each function:

1. Functional Benchmarks

Start with functional benchmarks to gain insights into typical headcount for each function in comparable organizations. This is the starting point to size up each function from the top down. Benchmarking provides a reference point for understanding the staffing levels at the function level that are considered standard or optimal within a particular industry. Spend time sourcing relevant and trusted benchmarks (tip: check out CompanySights).

Looking for functional benchmarks specific to your company? Search here

2. Technology and Automation Integration

Evaluate the extent to which technology and automation can enhance the efficiency of each function. In 2024, technology plays a crucial role in streamlining processes and reducing the need for extensive manpower. This doesn’t have to be a detailed exercise, but at a minimum you need to understand and agree where technology is currently being used and where it will be used in the “to be” operating model.

3. Sub-Function Activities and Workload

The next step is to define the sub-functions, then specific responsibilities and human workload associated with each function. This will form the bottom-up exercise that can then be compared to the top-down functional benchmarking exercise outlined in #1. The size and activities within each function can be determined through discussion and further analysis of both approaches.

Different functions may have varying levels of complexity, tasks, and demands. The challenge for teams is to convert these tasks into the number of people required to perform them. Usually, this step requires input from functional leaders and sub-leaders within those teams.

4. Workforce Skills and Expertise

After you have the sub-functional activities in order, consider the skills and expertise required within each function. Some functions may demand specialized knowledge, while others may require a broader skill set. Matching the workforce skills to the function's requirements ensures that the team is equipped to handle its responsibilities effectively.

5. Strategic Business Objectives

The last step is to evaluate whether the size and mix for each function is suitable to achieve overall business objectives. Some key questions to ask yourself include; Is there more opportunity to leverage technology? Where is the most suitable location to have functional headcount? Have we missed any required areas of competency?

Functions should not operate in isolation but contribute cohesively to the overall goals of the company. Ensure that the workforce within each function is tailored to support and drive these strategic initiatives. After performing these five steps you should have a good understanding of not just the number of people required in each function, but the skills required by these people and the parts of the function that will leverage technology.

It is important to note that these five steps have been written with an assessment of your current workforce in mind. However, you can also apply them to future-state workforces (e.g. building a business plan, reducing your workforce size, or designing a target operating model following a merger).

How to Convert the Number of People in a Function into Costs

Understanding the financial implications of your workforce is essential for effective budgeting and strategic planning. It is the reason that CFOs get involved in people planning. This is how we go about converting headcount into costs:

1. Gather Data from HR: Start by obtaining detailed information on the base salaries, bonuses, and on-costs for all employees from your HR department. On-costs typically include but are not limited to health insurance, payroll taxes, employee benefits, and training expenses.

If you don’t have access to this sensitive information, then you can estimate the cost for individual roles using a salary data source like Glassdoor or Salary.com and apply a fully loaded cost multiple of 1.5 to these salary figures.

2. Calculate the Average Fully Loaded Cost for each Function: The next thing to do is aggregate the data by function and calculate the average base salary, bonus, and on-cost as a percentage of the base salary for each function. This will give you a comprehensive view of the average total cost for an employee in each function.

3. Total Function People Cost: The last thing to do is multiply the total cost for an employee in each function by the number of employees within that function. Summing up these costs will give you the total function people cost.

Top Three "Use Cases" for Functional Analysis

Understanding the optimal headcount for each function can be very powerful in certain situations. Here are the top three use cases where functional analysis can be a game-changer for CFOs:

1. Mergers and Acquisitions

During a merger or acquisition, determining the combined entity's headcount by function is important. A detailed functional analysis aids in seamless integration by identifying redundancies and optimizing the workforce structure for maximum efficiency.

2. Value Creation

Efficiency is the key to value creation. By analyzing each function's headcount and associated costs, CFOs can pinpoint areas where improvements can be made. This might involve reallocating resources, introducing automation, or implementing training programs to enhance employee productivity.

3. Restructuring / Cost Reduction

In times of restructuring or when cost reduction is imperative, functional analysis becomes a strategic tool. Identify functions with excess manpower or areas where technology can replace manual processes. This allows for informed decision-making, ensuring cost reductions with minimal impact on day-to-day operations.

Conclusion

In 2024, CFOs need to be strategic leaders armed with data-driven insights. The approach outlined in this guide provides a comprehensive method for determining the optimal headcount and associated costs for each function.

If you are a CFO and looking for trusted benchmarking data to size up your organization, then you should check out CompanySights here. By leveraging trusted industry benchmarks, CFOs can navigate their workforce and make informed decisions with confidence.