labor requirements business plan

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Qualitative and quantitative labor requirements planning

With a regular, systematic labor requirements plan, you can ensure that your company is able to continue operations and secure its long-term success.

Qualitative and quantitative staff planning means you will have the right number of the right people with the necessary qualifications – at right time and place.

The experts at Ingenics offer decades of project experience in factory and production planning. With the right tools, Ingenics can also actively support your company when it comes to efficient and successful labor requirements planning. The resulting staff structure is made transparent for all the relevant areas.

Based on this requirements plan, your potential can be identified and quantified. Appro-priate measures are then established to achieve this potential over the long term. These include regular audits and inspections using key performance indicators (KPIs). Offering added value, Ingenics will also present you with the optimal organizational structure for your production and administrative departments.

Methods of qualitative and quantitative labor requirements planning

First, basic information is collected and analyzed so that a requirements plan can be developed. This basic data should include relevant information such as the number of units to be produced, the shift pattern, and the number of working days per week and year.

The qualitative perspective takes into account responsibilities concerning work tasks as well as the mental and physical demands on employees. One tool that is used here is a qualification matrix to identify skills and qualification levels.

Furthermore, quantitative staffing needs play an especially important role in labor re-quirements planning – the determination of gross and net staffing needs, among other things. With respect to net staffing needs, a further distinction is made between direct and indirect employees.

The results of the qualitative and quantitative labor requirements plan are documented in the form of job charts, organizational structures, and organizational charts. At the same time, the required staffing needs are monitored over defined periods in a process known as “calendarization”. This breakdown of capacity planning makes it possible to determine in advance which (and how many) employees have to be available in the immediate future, and in what areas of the company.

Appropriate measures are derived from the labor requirements plan so that the company remains sufficiently staffed at all times now and in the future, while also avoiding expensive overstaffing situations. Ingenics actively supports your company with the creation of a structured, clear, and transparent labor requirements plan. This also serves as an early warning system so that you can estimate future developments, identify risks, and introduce new measures where appropriate.

Johann Kablutschkin

Associate Partner Phone: +49 731 93680 225

Dennis Schunigl

Associate Partner Phone: +52 222 549 32 19

The New Ingenics Magazine Is Available Now!

The newly released ingenics magazine no. 11 / 2024 is now available for download..

Business Plan Example and Template

Learn how to create a business plan

What is a Business Plan?

A business plan is a document that contains the operational and financial plan of a business, and details how its objectives will be achieved. It serves as a road map for the business and can be used when pitching investors or financial institutions for debt or equity financing .

A business plan should follow a standard format and contain all the important business plan elements. Typically, it should present whatever information an investor or financial institution expects to see before providing financing to a business.

Contents of a Business Plan

A business plan should be structured in a way that it contains all the important information that investors are looking for. Here are the main sections of a business plan:

1. Title Page

The title page captures the legal information of the business, which includes the registered business name, physical address, phone number, email address, date, and the company logo.

2. Executive Summary

The executive summary is the most important section because it is the first section that investors and bankers see when they open the business plan. It provides a summary of the entire business plan. It should be written last to ensure that you don’t leave any details out. It must be short and to the point, and it should capture the reader’s attention. The executive summary should not exceed two pages.

3. Industry Overview

The industry overview section provides information about the specific industry that the business operates in. Some of the information provided in this section includes major competitors, industry trends, and estimated revenues. It also shows the company’s position in the industry and how it will compete in the market against other major players.

4. Market Analysis and Competition

The market analysis section details the target market for the company’s product offerings. This section confirms that the company understands the market and that it has already analyzed the existing market to determine that there is adequate demand to support its proposed business model.

Market analysis includes information about the target market’s demographics , geographical location, consumer behavior, and market needs. The company can present numbers and sources to give an overview of the target market size.

A business can choose to consolidate the market analysis and competition analysis into one section or present them as two separate sections.

5. Sales and Marketing Plan

The sales and marketing plan details how the company plans to sell its products to the target market. It attempts to present the business’s unique selling proposition and the channels it will use to sell its goods and services. It details the company’s advertising and promotion activities, pricing strategy, sales and distribution methods, and after-sales support.

6. Management Plan

The management plan provides an outline of the company’s legal structure, its management team, and internal and external human resource requirements. It should list the number of employees that will be needed and the remuneration to be paid to each of the employees.

Any external professionals, such as lawyers, valuers, architects, and consultants, that the company will need should also be included. If the company intends to use the business plan to source funding from investors, it should list the members of the executive team, as well as the members of the advisory board.

7. Operating Plan

The operating plan provides an overview of the company’s physical requirements, such as office space, machinery, labor, supplies, and inventory . For a business that requires custom warehouses and specialized equipment, the operating plan will be more detailed, as compared to, say, a home-based consulting business. If the business plan is for a manufacturing company, it will include information on raw material requirements and the supply chain.

8. Financial Plan

The financial plan is an important section that will often determine whether the business will obtain required financing from financial institutions, investors, or venture capitalists. It should demonstrate that the proposed business is viable and will return enough revenues to be able to meet its financial obligations. Some of the information contained in the financial plan includes a projected income statement , balance sheet, and cash flow.

9. Appendices and Exhibits

The appendices and exhibits part is the last section of a business plan. It includes any additional information that banks and investors may be interested in or that adds credibility to the business. Some of the information that may be included in the appendices section includes office/building plans, detailed market research , products/services offering information, marketing brochures, and credit histories of the promoters.

Business Plan Template

Here is a basic template that any business can use when developing its business plan:

Section 1: Executive Summary

• Present the company’s mission.
• Describe the company’s product and/or service offerings.
• Give a summary of the target market and its demographics.
• Summarize the industry competition and how the company will capture a share of the available market.
• Give a summary of the operational plan, such as inventory, office and labor, and equipment requirements.

Section 2: Industry Overview

• Describe the company’s position in the industry.
• Describe the existing competition and the major players in the industry.
• Provide information about the industry that the business will operate in, estimated revenues, industry trends, government influences, as well as the demographics of the target market.

Section 3: Market Analysis and Competition

• Define your target market, their needs, and their geographical location.
• Describe the size of the market, the units of the company’s products that potential customers may buy, and the market changes that may occur due to overall economic changes.
• Give an overview of the estimated sales volume vis-à-vis what competitors sell.
• Give a plan on how the company plans to combat the existing competition to gain and retain market share.

Section 4: Sales and Marketing Plan

• Describe the products that the company will offer for sale and its unique selling proposition.
• List the different advertising platforms that the business will use to get its message to customers.
• Describe how the business plans to price its products in a way that allows it to make a profit.
• Give details on how the company’s products will be distributed to the target market and the shipping method.

Section 5: Management Plan

• Describe the organizational structure of the company.
• List the owners of the company and their ownership percentages.
• List the key executives, their roles, and remuneration.
• List any internal and external professionals that the company plans to hire, and how they will be compensated.
• Include a list of the members of the advisory board, if available.

Section 6: Operating Plan

• Describe the location of the business, including office and warehouse requirements.
• Describe the labor requirement of the company. Outline the number of staff that the company needs, their roles, skills training needed, and employee tenures (full-time or part-time).
• Describe the manufacturing process, and the time it will take to produce one unit of a product.
• Describe the equipment and machinery requirements, and if the company will lease or purchase equipment and machinery, and the related costs that the company estimates it will incur.
• Provide a list of raw material requirements, how they will be sourced, and the main suppliers that will supply the required inputs.

Section 7: Financial Plan

• Describe the financial projections of the company, by including the projected income statement, projected cash flow statement, and the balance sheet projection.

Section 8: Appendices and Exhibits

• Quotes of building and machinery leases
• Proposed office and warehouse plan
• Market research and a summary of the target market
• Credit information of the owners
• List of product and/or services

Related Readings

Thank you for reading CFI’s guide to Business Plans. To keep learning and advancing your career, the following CFI resources will be helpful:

• Corporate Structure
• Three Financial Statements
• Business Model Canvas Examples
• See all management & strategy resources
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Workforce Planning Is Essential to High-Performing Organizations

In today’s talent-based economy, the workforce itself is arguably the most important tangible asset of most organizations. Despite its importance, this asset is often not carefully planned, measured or optimized. This means that many organizations are not sufficiently aware of the current or future workforce gaps that will limit execution of business strategy. Yet at the same time, boards of directors, CEOs and chief human resources officers will frequently declare that workforce planning and data- driven decision-making is a top priority for their organizations. While it is difficult to understand this apparent gap between intent and execution, the most obvious cause is a lack of consistent objectives regarding the outputs of workforce planning, and a lack of consistent process by which organizations conduct workforce planning and predictive modeling. Organizations need an approach that moves workforce planning from the domain of “futurists,” where only a few people live, to the domain of operational effectiveness, where management is accustomed to spending its time and energy.

This article outlines what a pragmatic and operational workforce planning process should look like—as well as predictive tools that help organizations measure and respond to their workforce gaps. Using this model and tools, high-performance organizations can use workforce planning to ensure that they have the required talent to drive business objectives.

Overcoming Traditional Barriers to Workforce Planning

Workforce planning has topped the wish list of HR executives for years, but it has consistently been one of the most difficult programs to launch within HR. There are myriad reasons, but the most common are:

• Time frame. Many managers are focused on executing current-year results, but workforce planning has typically addressed a longer time frame and doesn’t show immediate gains that can help meet this year’s results.
• Data integrity concerns when “getting out of the gate.” Managers are reluctant to review future plans when they feel that they can’t get a proper view of current head count.
• Control. Some managers have gut feelings and don’t want to reference data without a compelling data story. There is no opportunity to shift this stance until managers experience the actual pain that could have been avoided through workforce planning.
• Detail. Organizations have a hard time settling on the appropriate level of granularity of workforce planning, or their job taxonomy. It’s generally understood that a workforce plan has to distinguish one type of job from the next, but is it sufficient to look at broad labor categories, narrower job families, individual jobs, or actual skillsets? So many organizations get into self-imposed delays in rolling out their planning program by trying to find the perfect level at which to plan. From a planning perspective, however, if organizations could start by planning out high-level job categories, this is a great start, and may be enough.
• Forecasting. Traditional forecasting methods are poor at predicting the actual individuals at risk for turnover and retirement, and, thus, are not sufficiently actionable.

Two recent trends serve to moderate—and sometimes even eliminate—these potential roadblocks. The first is a broad-scale acceptance of data-driven decision-making that is infusing the culture of organizations and making workforce planning inherently more attractive. The second involves recent advances in predictive analytics and modeling technology. These advances provide more compelling near-term actionable information about granular employee-level supply risk, while simultaneously helping with demand-based scenario planning. Coupled together, these trends have a profound ability to move workforce planning from a “nice-to-have” status to a critical program for high-performance organizations. Diagram 1 outlines a workforce planning process that combines end-user-based demand planning with predictive supply analytics.

Following the workforce planning activities outlined in the diagram results in these benefits:

• Aligns strategic planning with head count and talent planning.
• Creates a clear view of talent demand and supply issues by expense area, reporting relationship, and by location.
• Provides managers easy-to-use reports and tools to determine the impact of their talent decisions and prioritizes future workforce investments.
• Provides leaders the right metrics—identifying talent risk before it impacts business objectives.
• Helps control unplanned talent costs and highlights issues that limit employee productivity.
• Builds competitive advantage through planned versus reactive talent management.
• Gives business leaders consistent reporting of results to quantify measurable and meaningful outcomes.

The concepts of planned versus reactive risk management, and developing the right metrics are perhaps the most crucial levers to drive support for workforce planning. By shifting workforce planning from a top-down strategic exercise that is only geared towards provoking thought about the future to an operational exercise designed to manage talent risk, workforce planning becomes a concrete activity with specific financial implications. By providing metrics to quantify the risk, it provides something even more concrete for leaders to manage.

Demand Planning

Within the demand planning component of workforce planning, an organization determines the head count it needs in each job role for each organizational unit. Traditionally, a single person has conducted this work or a center of expertise has created plans and reports for internal customers. However, the future is inherently uncertain.

According to Peter Cappelli in his research on workforce planning, “The error rate in the U.S. on a one-year fore- cast of demand at the stock keeping unit (SKU) code or individual product level, for example, is over 30 percent” (“A Supply Chain Approach to Workforce Planning,” Organizational Dynamics ). Considering this uncertainty, centrally-generated reports and plans are interesting, but understandably have not resulted in the business gaining long-term adoption of the plans, or the workforce planning process.

There are two keys to moving beyond this demand planning impasse. The first is cultural. Organizations should avoid confusing planning with the plan, and should value planning as much, if not more, than the actual plan. The plan will not happen. The future is far too uncertain. Planning, however, is a competency that helps managers deal with such uncertainty more quickly and effectively.

The second key is to move from top-down planning to bottom-up planning, which requires technology that al- lows end users to evaluate various factors and define talent demand for their business area. This bottom-up planning can be rolled up for various corporate-wide outputs such as the corporate workforce plan, the budget feed, the real estate plan, the reforecast, and more. But, it also can be conducted as needed as part of a frequent recalibration of talent needs based on the state of the business.

According to Quinn Thompson, global director of Talent Acquisition and Diversity at International Paper on the shift to user-defined input driving their workforce planning process: “It starts with the benefits created by a center of excellence (CoE), but is based on software that allows end users to create their own workforce plans and end-customers to leverage predictive analytics for their customized gap analyses.”

A lower-performance organization will have managers decide in a vacuum on their need for talent. In this setting, the industry experience of managers and the amount of data available to make the decision defines the quality of the output. In a high-performance organization, managers are guided through the decision-making process.

For example, a manager may be led through a decision tree based on strategic objectives and job criticality. Alternately, a manager may be provided with demand drivers and conduct what-if scenarios that help determine the appropriate number of workers for the workload based on a combination of historical staffing levels and productivity objectives.

In the ideal situation, a manager could be provided a detailed proforma demand plan that describes the staffing level for job roles based upon how the organization typically staffs against work volumes and other demand drivers. Then the manager can be led through decision- making to ask questions such as:

• Do we typically staff against demand correctly? Specifically, do we hire too soon, too late, too much, too little—because knowing how the business is likely to behave in its staffing approach does not mean it’s the correct approach. It’s just a great starting point of the decision-making—and not the end, as there may be a need to not only know, but also optimize staffing levels.
• When we examine our business strategies and look at the specific ways we want to create value, does that describe certain roles that should be staffed up?
• Conversely, when we look at those strategies, are there certain staff areas that are relatively low risk for understaffing. Because it is not possible to staff everything generously, where can we “understaff” with minimal risk to the business?

In summary, a technology-enabled bottom-up approach to demand planning creates a more accurate plan and enables a planning culture where managers use data to make staffing decisions – and are more equipped to evaluate how changes to business objectives and environment should impact staffing levels.

Internal Supply Analysis

Within the internal supply analysis component of workforce planning, an organization evaluates whether it has the supply internally to meet its demand. On a quantitative basis, the process is to evaluate talent supply by job role after attrition: turnover, retirement and internal job movement. On a qualitative basis, it is important to also look at capability and performance, even within jobs that are fully staffed.

To derive a supply forecast, a lower performance organization will simply carry forward historical turnover rates or use industry benchmarks. This approach is not sufficiently actionable—at best it is only interesting data to consider as part of workforce planning; at worst, it is incorrect.

A high-performance organization will use predictive analytics to identify the risk of turnover, retirement, and workforce mobility of specific individuals. Machine learning statistics packages allow an organization to conduct complex multivariate analysis that incorporates employee demographics, employer actions and workplace conditions, and external economic conditions. Diagram 2 illustrates some of the factors that can be used for predicting turnover, retirement and mobility, as well as the rough importance of such factors in predictive studies.

Diagram 2. Drivers of Attrition.

An accurate internal supply forecast can thus be aggregated by any dimension and provide a much clearer line of sight into supply risks that need to be closed to fully meet talent demand requirements. Knowing which individuals are at highest risk for turnover provides an organization the lead-time to address future workforce gaps with minimal disruption to the business, enabling the following outcomes:

• Creation of targeted replacement planning and knowledge transfer for critical roles.
• Understanding which talent gaps are largest, highest priority and/or most difficult to fill externally.
• Proactive sourcing by the recruiting function based on prioritization of gaps.
• Road map of future open positions that can be fi through promotions and developmental assignments.
• Managed attrition programs that avoid costly work- force reductions for job roles that have a reduced staffing requirement.

As with demand planning, technology is a key enabler for internal supply analysis, since it provides a forecast of attrition and movement risk on an employee-by-employee basis. Furthermore, this approach helps organizations that are not currently proficient at demand planning to move towards proficiency by highlighting problems that require consideration of the importance of that problem, i.e., the demand. For example, if a certain employee is known as highly likely to turnover, a manager can ask what’s the risk to my work unit of this likely turnover event? Will we still get the required work completed? If the answer is no, is it because of the necessity of the role or the performance of the individual? If the answer is yes, is it because we are overstaffed in this role? Can we eliminate the role with the likely turnover event and hire for a more critical need? In short, reviewing turnover, retirement, and movement risks helps this hypothetical manager conduct demand planning on a micro level, and with the right tools and training, the manager will improve talent decision-making.

Gap Analysis and Action Planning

Within the gap analysis and action-planning component of workforce planning, an organization evaluates its gaps and determines what actions it can take to close those gaps. Traditionally, those actions consisted of recruiting, development and transition, but with modern predictive technology, an organization can also model the prospective impact of potential interventions in HR policies and talent management actions.

A lower performance organization may not understand its gaps, except in the most qualitative sense. This organization can have qualitative action-planning discussions that educate leaders about some workforce risks, but cannot quantify those risks or change any organizational behaviors based on these gaps.

A proficient organization can combine its demand planning and internal supply analysis as described above and gain a much clearer picture of the size, type, and timing of gaps between demand and supply. These gaps will lead to a high-quality directional recruitment plan and will highlight areas where an organization may wish to beef up its developmental programs where there are large and consistent gaps. This gap analysis will also highlight where there are job roles that are subject to career transition in one part of the business (demand less than supply) and requiring recruitment in another part of the business (demand greater than supply), so that an organization can reallocate resources and avoid some of the costly cycles of staffing up and down. Each of these responses to the demand-supply gap represents valuable organizational action-planning to address gaps, but do not go as far as making specific interventions to change and control the demand-supply gaps.

A high-performance organization will build upon the specific quantitative plan for build-buy-lease as discussed for a proficient organization and will also use technology to conduct what-if analysis to evaluate specific management interventions. The organization will understand how a number of factors drive retention, engagement and organizational performance, including:

• Pay strategy and annual merit increase.
• Career ladders and working structures.
• Promotions, lateral transfers and reorgs.

By understanding these relationships, a high-performance organization can seek to close gaps not only through the traditional means of build-buy-lease, but also achieve higher retention and performance by optimizing its workforce policies around those desired outcomes.

This organization will not only be creating the appropriate plans to address gaps between its forecasted demand and supply, but will be selectively addressing potential retention and performance risks of critical resources and roles, and will manage those risks through individual action planning measures.

There is now an approach for high-performance organizations to develop and sustain high-quality workforce planning programs, and break down the traditional barriers to effective workforce planning. The organization must foster a data-driven planning culture and be willing to value the planning process as much as the actual plan. The managers who participate in this planning process will then be better equipped to make decisions as business results and forecasts change—and more skilled at simulating how changes in business objectives and conditions require different talent sets. The organization must also invest in workforce planning technology that supports predictive supply analytics, bottom-up demand planning, employee- level action-planning, and summarization of gaps.

By taking this approach, a high performance organization will be able to conduct gap analysis on the work unit, business unit, and on the organization as a whole. At the work unit level, managers will be better at planning and responding to changes in the business. Managers will also be able to make data-driven decisions that move gradually from blanket HR policies to targeted HR interventions based on the importance of a role or the performance of the individual. Business units and the total organization will also reap the benefits of the workforce planning pro- gram. Finance and real estate will have the information needed to construct their budgets. Human Resources will be able to make better high-level decisions about recruitment, development, redeployment, and transition pro- grams. And, senior leadership will be able to monitor the people health of the organization and the organizational capacity to meet present and future business objectives.

About the Author

Peter Louch is the founder and CEO of Vemo, a software and services organization that is pioneering the new way to do workforce planning. As founder of Vemo, he works with customer executive teams and ensures that Vemo’s road map for technology and services are geared to provide simple and elegant solutions to the most complex and highest-impact customer problems. Louch also works with select global customers and industry leaders to provide consulting/advisory services and build requirements for complex engagements. Prior to Vemo, he led the Talent value Management practice area of Right Management Consultants and The Empower Group, divisions of Manpower. He has also held successive sales and leadership positions with the Advertising & Communications division of TMP Worldwide. He graduated with high honors from University of California at Berkeley with a degree in astrophysics. He can be reached at peter.louch@vemoworkforce.com .

Copyright 2014 International Association of Human Resource Management. Used with permission.

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Workforce planning

Learn what workforce planning is, its process, and its model. Discover five key steps in workforce planning and what it looks like in practice.

Ivan Andreev

Demand Generation & Capture Strategist, Valamis

January 17, 2022 · updated July 31, 2024

11 minute read

Taking the time to plan and make decisions as part of a broader strategy improves every aspect of your business, including your workforce. Despite the size or type of company, workforce planning is a valuable HR process that ensures you have the staff to execute your business strategy.

Learn what workforce planning is, how it helps with goals and produces positive outcomes, the benefits it can offer, five key steps in workforce planning, and what it looks like in practice.

What is workforce planning?

Primary workforce planning criteria, the goal of workforce planning, how workforce planning affects hr processes, the benefits of workforce planning.

• The five core workforce planning steps

Workforce planning is the process of analyzing existing employees and planning for future staffing requirements through talent gap assessment, developing employee management procedures, and setting recruitment strategies.

With effective workforce planning, your business is always staffed with the necessary talent, knowledge, and experience to produce positive business results.

Workforce planning requires developing an appropriate and cost-effective strategy for retaining, recruiting, and training your workforce while also continually assessing employee performance.

A survey by the American Productivity & Quality Center (APQC) shows 89% of 236 organizations integrated workforce planning into their business operations.

The plan for your workforce, what it will look like moving forward, and how to strategize for specific goals are unique to your business and depend on many factors. Typical components that affect workforce planning include:

• Talent availability
• Business growth
• Age of the existing workforce
• Current knowledge/skill gaps
• And much more

Strategic workforce planning

Strategic workforce planning is a proactive approach to managing staffing needs and aligns HR processes to business-wide goals. It guides future employee plans and decisions, ensuring they adhere to the company’s long-term vision.

Strategic workforce planning tends to take place at the senior leadership level and focuses on big picture goals such as:

• Structural organization
• Employee redeployment
• Succession planning
• Staffing budgets
• Maintaining capacity
• Reducing risk

Operational workforce planning

In contrast to strategic workforce planning, operational workforce planning focuses on the business’s immediate priorities. For example, which staff level can efficiently meet the current deadlines and objectives?

How to conduct a skills gap analysis and what to do next

Start building your foundation for strategic workforce development.

Criteria to consider when planning for your company’s future workforce include:

• Employee numbers : getting the correct workforce size so the business is not overstaffed and inefficient but not too small to hinder growth and fail to match demand.
• Skillset : having the right mix of skills, capabilities, knowledge, and experience to perform effectively and achieve your goals.
• Budget : finding the optimal staffing expenditure to achieve a high return on investment from employees and maximize profits.
• Flexibility : developing your workforce to be agile and adapt quickly when changes in the market occur.

The primary goal of workforce planning is to create a strategy for your staffing needs that ensures you can meet strategic objectives both now and in the future.

To achieve this goal, workforce planning requires an in-depth understanding of your existing workforce, employee skills, experience, load capability, and potential talent gaps.

Through performance tracking and employee assessment, you can take a birds-eye view of your entire workforce and create actionable plans for the future.

Workforce planning allows companies to understand and design their workforce effectively and efficiently with long-term objectives in mind. It prevents problems from developing and allows management to spot issues early, creating plans to remedy them. Examples could include:

• Identifying understaffed departments and potential bottlenecks
• Staffing requirement to scale operations
• Excess employees for redeployment or termination

Recruitment and employee development

Workforce planning provides the game plan for your company’s recruitment and employee development .

With a clear understanding of your existing workforce and your future goals, you can profile the skills, experience, and knowledge required to meet your needs and develop hiring and training processes to match.

Companies are constantly competing for the same high-end talent. With appropriate workforce planning in place, you can better identify future top employees for your business and develop talent acquisition strategies to attract them to your company.

Plus, workforce planning analysis can help companies formulate proper training and employee development to fill talent gaps while also finding individuals capable of excelling with the correct professional development in place.

This leads us to succession planning and ensuring you maintain successful leadership across your company.

By recognizing the leadership positions currently open or soon to be available, companies can begin assessing existing employees for promotion or targeting outside hires with the right mix of skill and experience.

Workforce planning together with succession planning creates a smooth transition for the critical roles in your company so you can provide an uninterrupted, seamless service or product for your customers.

Performance management

A significant outcome of workforce planning is managing the performance of your employees to increase productivity and efficiency.

With workforce planning, you can understand and develop strategies that get the most out of your employees to increase output and get a higher return on investment from your staffing expenditure.

1. Preparing for the future

With workforce planning, you have a roadmap for your staffing requirements to prepare for the future.

This could mean increasing the number of employees to match growth forecasts or pivoting to a different business model and finding the staff you need to accomplish this.

2. Discovering workforce gaps

Understanding the gaps of your current workforce informs your future personnel strategy in terms of recruitment, redeployment, and training.

Read: Skills gap and skills gap analysis

3. Effective succession planning

By identifying and developing employees with the potential for future leadership roles, you can effectively plan for staff leaving with minimal disruption.

Succession planning can also have a positive effect on employee engagement:

• 62% of employees would be “significantly more engaged” if they had a succession plan at their company.
• 94% of employers said having succession plans in place positively impacted employee engagement .

Succession planning template

It can help you navigate crises and leadership transitions with ease.

4. Improved retention strategies

Effective workforce planning gives you a clear understanding of employee skills and where they can be the most successful in the business.

So rather than terminating employees, you can retain valuable staff through well-planned redeployment.

5. Flexibility

A clear workforce plan with recruitment and training structures in place can make your business more agile, with the ability to efficiently anticipate and react to change.

You can reduce your overall staffing costs by developing plans to:

• Increase your productivity and workforce ROI
• Retain talent and reduce costs associated with employee turnover
• Develop a flexible workforce that can meet customer demand in different circumstances

Labor costs can account for up 70% of total business costs . Workforce planning allows you to map talent to value and ensure you are getting the best results for the costs .

The 5 core workforce planning steps

Successfully implementing new workforce planning strategies is an extensive procedure. However, businesses can break down workforce planning into five core steps to simplify the process.

1. Deciding strategic direction and goals

Workforce planning is a top-down process requiring clear organizational direction and defined strategic goals to inform and guide future decisions.

• What direction do you see your business going in?
• What are you hoping to achieve through workforce planning?
• What are the primary goals/milestones you are targeting?
• Why does your business need new workforce planning structures?

These are vital questions to ask yourself before analyzing your workforce and implementing new employee management strategies.

It is also important to remember that every process in your business affects another. Therefore, your workforce planning must be an organization-wide endeavor and include effective communication between HR and other departments.

Your new workforce plan must be produced with a collaborative approach that generates a consensus amongst all invested parties. Without organizational buy-in and a rationale for new strategies, you cannot reap the benefits of workforce planning.

Consider this step setting the “soft” workforce planning framework that will define the overall strategy to assess future information rather than the plan’s specific details.

2. Analyze existing workforce

The next step is to properly assess your existing workforce.

Common strategies used in this step include:

• Demand planning – Determining the number of employees needed for each role required to reach your goal. Demand planning requires accurate business forecasts to determine your workforce’s future number, structure, and composition.
• Internal supply – Internal supply planning needs accurate talent evaluations, an understanding of the expected employee turnover rate (retirements, resignations, etc.), and the design of training and professional development programs.
• Gap analysis – Identifying the gaps in your workforce and making plans to close them through recruitment, redeployment, and training.

These strategies help to answer the following questions:

• Do you have the right-sized workforce?
• What skills, knowledge, and experience do your current employees have?
• Do your employees need additional training?
• What new resources can improve workforce performance?
• Is your workforce correctly structured? (This includes organizational design, departments, communication channels, etc.)
• What is your current employee turnover rate?

What you have now is the starting point for future workforce plans. You can begin developing workforce planning strategies when you know what you have (step 2) and where you want to be (step 1).

A common pitfall of workforce planning is ensuring it is based on high-quality information from within the organization and external sources. Workforce planning defined by inaccurate forecasts and undeliverable future goals cannot be successful.

3. Develop your plan

This is where companies must take their overall goal, input the assessment of their existing workforce and produce a concrete plan for the future.

Businesses must plan their workforce to reflect the value and revenue it produces. A simple example of workforce planning in action could be:

A company is manufacturing two models of cars. Model A is the business’ flagship car, selling the most and bringing in the most revenue. However, model B is showing significant growth, and the income from model A is beginning to stagnate.

The car company can produce a simple revenue table based on 2023 figures and 2024’s forecasts.

The revenue per employee for model A is $250,000, and the revenue per employee for model B is $300,000.

Based on growth forecasts, you can estimate that staff working on model B will need to increase by 57 to match increased demand. This process assumes the forecasts are accurate and there are no sudden changes in sales or production. At the same time, model A will likely begin to have a surplus of staff in 2024 and need a reduction of 8 employees.

With workforce planning structures in place, you can develop plans to retrain and redeploy staff from Model A to Model B during 2023. This kind of planning minimizes disruption and reduces employee turnover.

Of course, this is just a plan based on forecasts and does not mean you should immediately move eight employees from model A to model B and hire 49 more. Instead, the business should put redeployment, hiring, and training plans in place to execute when key revenue indicators are met and take a gradual approach that matches the shift in focus of their business.

4. Implement workforce planning

Successfully implementing workforce planning requires:

• HR personnel to clearly understand their new roles and responsibilities.
• Strategies and processes for recording all relevant data and information.
• Effective communication channels between all invested parties to support the plan.
• Defined measurement and evaluation criteria to assess the plan’s success.

While the future HR plans for managing your workforce are specific to your business, they will involve some or all of the following:

• Recruitment
• Redeployment
• Outsourcing
• Deploying new technology

With many new processes to implement, workforce planning does not transform your company overnight. Instead, it is a gradual endeavor that optimizes each procedure for the given circumstances to get your business closer to your long-term goals.

5. Monitor results

It is crucial to remember workforce planning is an iterative process whereby progress is monitored and measured against specific milestones and long-term goals.

Post-implementation, your workforce planning processes may need adjusting due to unexpected factors within your business or to meet new realities of your industry.

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What is workforce planning, and why is it important?

Workforce planning is a strategic alignment of business goals with people strategy. It involves reducing labor costs, responding to changing customer needs, identifying strategies for people development, targeting inefficiencies, improving employee retention, productivity, and work-life balance, and delivering strategic value through talent.

Suzanne, the Evil HR Lady, shares expertise, guidance, and insights based on 10+ years of experience in corporate human resources....

Table of contents:

What is workforce planning?

What is involved in workforce planning, how to create a workforce plan.

Workforce planning is the people side of planning, but some businesses skip it, thinking that people will just appear when needed. Workforce planning aligns core business goals with people strategy . It makes no sense to plan on a new product launch next year without thinking about R&D, supply chain, and sales staff.

Workforce planning is the tool you use to ensure that alignment.

The Chartered Institute of Personnel and Development (CIPD) identifies the critical points of workforce planning as follows.

• Reduce labor costs in favor of workforce deployment and flexibility
• Identify and respond to changing customer needs
• Identify relevant strategies for focused people development
• Target inefficiencies
• Improve employee retention
• Improve productivity and quality outputs
• Improve employees’ work-life balance
• Make recommendations to deliver strategic value through talent

This article will break down these points and how they apply to your business.

1. Reduce labor costs in favor of workforce deployment and flexibility

Labor is often the highest cost for businesses outside of manufacturing. Some estimates put labor costs at 60% and even 70% of expenses . With these costs, planning to reduce costs while increasing flexibility is critical to continued success.

This isn’t advocating for low-balling employees or providing rotten benefits for employees. It’s about getting the right people in the correct positions. An engaged, competent, happy employee will cost less than an unhappy, unqualified employee. Remember, turnover is expensive as well .

2. Identify and respond to changing customer needs

The classic case study of a company that didn’t respond to customer needs is Kodak. As the king of film, Kodak had digital technology early but decided to focus on film, thinking digital was a fad. It wasn’t, and the company struggled for survival, dropping from a peak of 145,000 employees to 5,000 as of August 2020 .

Human resources departments need to be a bit of a fortune-teller to accurately predict workforce needs. Because SHRM doesn’t issue crystal balls, HR needs to work closely with each department to help predict needs and create plans for meeting these. Open communication between HR and each department is critical.

3. Identify relevant strategies for focused people development

The very premise of workforce planning is that business changes, and because business changes, people need to change. Figuring out talent gaps and plans to fill those gaps is a core function of workforce planning.

People development needs to happen before the need exists. Remember, you can go out and search for the “unicorn” candidate to fill a need immediately, but it’s often more manageable if you plan and develop an employee to take care of that specialty skill gap – if you do it right . This can mean training classes, graduate programs, or stretch assignments.

4. Target inefficiencies

If you’ve ever heard “we’ve always done it that way” as an explanation, then you know that the business has inefficiencies that can be rooted out. Good HR will ask; “What should we stop doing?” as well as “What should we do?”. You can find inefficiencies in all areas of the business.

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5. Improve employee retention

Turnover is expensive – not only does it take time and money to find, interview, and onboard a new employee, training them can take months. Good HR focuses on retaining employees who have potential. (You shouldn’t retain just to retain – if someone is a toxic employee , giving them more technical skills won’t eliminate their toxicity.) Creating career paths within the company can be an excellent workforce planning tool to aid employee retention .

6. Improve productivity and quality outputs

While managers need to figure out how to improve productivity and quality, HR can provide support. For instance, are there policies and procedures that can increase productivity and quality? What support do employees get for reaching their goals? When HR takes a look at the workforce, they can spot problems that decrease productivity. For instance, an employee who bullies their coworkers can destroy productivity in a department.

HR needs to plan to find, coach, or remove such employees, as well as helping managers find better ways to do things.

7. Improve employees’ work-life balance

Employees are at the center of workforce planning – without employees, all plans are worthless. You can increase your productivity by requiring everyone to work 80-hour weeks, but your turnover will shoot through the roof, and your quality will collapse.

Through making sure that employees have sufficient downtime and are supported at work, your workforce will be a lot more stable.

8. Make recommendations to deliver strategic value through talent

Sometimes managers can undervalue employees – they think if they can get someone cheaper, they should. But, good workforce planning demonstrates that you pay for top skills. While we use the word talent often in HR, you really should think about it in terms of skills. What skills do these employees have that can make a difference in your business?

Remember that treating employees right is a lot easier than trying to squeeze value out of people who are exhausted and burnt out .

This is more than just figuring out who you need to hire. There are many ways to approach this, but here are four critical elements that will make your workforce planning a success.

1. Understand the company’s mission and goals

Workforce planning doesn’t exist in a vacuum – it needs to support the company’s goals. Are you looking to expand across North America? Well, that’s quite different from a company that is content operating out of a single location.

The company’s mission matters as well. What’s the most important thing to the CEO, shareholders, employees, and customers? Make sure you have that answered before you move to step two.

2. Conduct a present gap analysis

This is a systematic method of understanding the gaps in the organization. What is missing? While workforce planning focuses on the people side of the business, keep in mind that a gap analysis looks at all business areas, not just skills and talent .

People aren’t at their best unless they have the equipment, training, and support they need. This is looking at the situation now. Remember all the points above – you need to look for improvement in all these areas.

3. Project for the future

This involves speaking with company leadership and involving every unit in the business. You’re looking for where the growth will be and where the workforce will shrink. You want to determine what skills the company will need in the coming years, not just now.

4. Conduct a future gap analysis

Knowing what you do about the current employment situation and the business’s goals and projected path, put together what the workforce will need and look at your gaps:

• What do you need to reach these goals?
• Do you need more employees?
• What type of training will your current staff need?
• Can you conduct this training in-house, or do you need people to receive formal training or even degrees?
• Do you have a formal employee training and development company policy in place?

Make sure you look at external trends as well. In 2019, no one would have guessed the massive shift toward remote work, but now, you’d be remiss not to consider where the workforce will be in the future. Will employees continue to work remotely or will they expect to? If so, is your company prepared to support people in other states? Or do you want to limit hiring to your local area, regardless of where they work?

Of course, there are many more things that you can do to plan for your workforce’s future, but these will get you a solid foundation. And, one last note: remember to be flexible. Plans change, and your workforce planning documents need to flex as the world changes as well.

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Simple Business Plan Template for Entrepreneurs

Follow This Business Plan Outline to Write Your Own

Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.

Pros and Cons of Using a Business Plan Template

Do i need a simple or detailed business plan, how to use this business plan template, table of contents, section 1: executive summary, section 2: business/industry overview.

• Section 3: Market Analysis and Competition

Section 4: Sales and Marketing Plan

Section 5: ownership and management plan, section 6: operating plan, section 7: financial plan.

• Section 8: Appendices and Exhibits

Ariel Skelley / Getty Images

Think you have a great idea for a business? The best way to find out whether your idea is feasible is to create a business plan .

A solid, well-researched business plan provides a practical overview of your vision. It can be used to ground your ideas into workable actions and to help pitch your idea to financial institutions or potential investors when looking for funding.

The standard business plan consists of a single document divided into several sections for distinct elements, such as a description of the organization, market research, competitive analysis, sales strategies, capital and labor requirements, and financial data. Your plan may include more or fewer sections to best represent your business.

The template presented here will get you well on your way toward your simple business plan.

Ready-made layouts

Free downloads

Generic, not customized

No financial guidance

Additional skills needed

• Ready-made layouts : Templates offer general guidance about what information is needed and how to organize it, so you’re not stuck looking at a blank page when getting started. Especially detailed templates may offer instructions or helpful text prompts along the way.
• Variations : If you know what type of business plan you need—traditional, lean, industry-specific—chances are you can find a specialized template.
• Free downloads : There are many free business plan templates available online, which can be useful for comparing formats and features, or refining your own.
• Generic, not customized : Templates typically contain just the basics, and there will still be a lot of work involved to tailor the template to your business. For instance, you'll have to reformat, refine copy, and populate tables.
• No financial guidance : You’ll need enough industry knowledge to apply financial models to your specific business, and the math skills to generate formulas and calculate figures.
• Additional skills needed : Some degree of tech savvy is required to integrate charts and graphs, merge data from spreadsheets, and keep it all up-to-date.

A corporate business plan for a large organization can be hundreds of pages long. However, for a small business, it's best to keep the plan short and concise, especially if you're submitting it to bankers or investors . Around 35 to 50 pages should be sufficient, and more allowed for extras, such as photos of products, equipment, logos, or business premises or site plans.  Your audience will likely prefer solid research and analysis over long, wordy descriptions.

An entrepreneur who creates a business plan is nearly twice as likely to secure financing and grow their business compared with those who do not have a plan.

The business plan template below is divided into sections as described in the table of contents. Each section can be copied into a document of your own; you may need to add or delete sections or make adjustments to fit your specific needs.

Once complete, be sure to format it attractively and get it professionally printed and bound. You want your business plan to convey the best possible impression. Make it engaging, something people will to want to pick up and peruse.

Enter your business information, including the legal name and address. If you already have a business logo, you can add it at the top or bottom of the title page.

• Business Plan for "Business Name"
• Business address
• Website URL

If you're addressing it to a company or individual, include:

• Presented to "Name"
• At "Company"
• Executive Summary................................................Page #
• Business/Industry Overview.................................Page #
• Market Analysis and Competition.........................Page #
• Sales and Marketing Plan.......................................Page #
• Ownership and Management Plan.......................Page #
• Operating Plan..........................................................Page #
• Financial Plan............................................................Page #
• Appendices and Exhibits........................................Page #

The  executive summary introduces the plan, but it is written last. It provides a concise and optimistic overview of your business and should capture the reader's attention and create a desire to learn more. The executive summary should be no more than two pages long, with highlights or brief summaries of other sections of the plan.

• Describe your  mission —what is the need for your new business? Sell your vision.
• Introduce your company briefly, sticking to vital details such as size, location, management, and ownership.
• Describe your main product(s) and/or service(s).
• Identify the customer base you plan to target and how your business will serve those customers.
• Summarize the competition and how you will get market share. What is your competitive advantage?
• Outline your financial projections for the first few years of operation.
• State your startup financing requirements.

This section provides an overview of the industry and explains in detail what makes your business stand out.

• Describe the overall nature of the industry, including sales and other statistics. Note trends and demographics, as well as economic, cultural, and governmental influences.
• Explain your business and how it fits into the industry.
• Mention the existing competition, which you'll expand upon in the following section.
• Identify what area(s) of the market you will target and what unique, improved, or lower-cost products and/or services you will offer.

Many business plans cover their products/services in a standalone section to add more detail or emphasize unique aspects.

Section 3: Market Analysis and Competition

This section focuses on the competitive factor of your business and justifies it with financial models and statistics. You need to demonstrate that you have thoroughly analyzed the target market, assessed the competition, and concluded that there is enough demand for your products/services to make your business viable.

• Define the target market(s) for your products/services in your geographic locale.
• Explain the need for your products/services.
• Estimate the overall size of the market and the units of your products/services that the target market might buy. Include forecasts of potential repeat-purchase volume and how the market might be affected by economic or demographic changes.
• Estimate the volume and value of your sales in comparison with any existing competitors. Highlight any key strengths over the competition in easily digestible charts and tables.
• Describe any helpful barriers to entry that may protect your business from competition, such as access to capital, technology, regulations, employee skill sets, or location.  

You may opt to split the target market description and competitive analysis into two separate sections, if either (or both) portray your business especially favorably.

Here's where you dive into profits, giving detailed strategic view of how you intend to entice customers to buy your products and/or services, including advertising or promotion, pricing, sales, distribution, and post-sales support.

Product or Service Offerings

If your products and/or services don't take up a standalone section earlier in the plan, here is where you can answer the question: What is your unique selling proposition? Describe your products and/or services, how they benefit the customer and what sets them apart from competitor offerings.

Pricing Strategy

How will you price your products/services? Pricing must be low enough to attract customers, yet high enough to cover costs and generate a profit. You can base pricing decisions on a number of financial models, such as markup from cost or value to the buyer, or in comparison with similar products and/or services in the marketplace.  

Sales and Distribution

For products, describe how you plan to distribute to the customer. Will you be selling wholesale or retail? What type of packaging will be required? How will products be shipped? If you offer a service, how will it be delivered to the customer? What methods will be used for payment?

Advertising and Promotion

List the various forms of media you will use to get your message to customers (e.g., website, email, social media, or newspapers). Will you use sales promotional methods such as free samples and product demonstrations? What about product launches and trade shows? Don't forget more everyday marketing materials such as business cards, flyers, or brochures. Include an approximate budget.

This section describes the legal structure, ownership, and (if applicable) management and staffing requirements of your business.

• Ownership structure : Describe the legal structure of your company (e.g., corporation, partnership, LLC, or  sole proprietorship ). List ownership percentages, if applicable. If the business is a sole proprietorship, this is the only section required.
• Management team : Describe managers and their roles, key employee positions, and how each will be compensated. Include brief résumés.
• External resources and services : List any external professional resources required, such as accountants, lawyers, or consultants.
• Human resources : List the type and number of employees or contractors you will need, and estimate the salary and benefit costs of each.
• Advisory board : Include an advisory board as a supplemental management resource, if applicable.

The operating plan outlines the physical requirements of your business, such as office, warehouse, or retail space; equipment; supplies; or labor. This section will vary greatly by industry; a large manufacturer, for instance, should provide full details about supply chain or specialty equipment, while a therapist's office can get by with a much shorter list.

If your business is a small operation (like a one-person, home-based consulting firm), you might choose to eliminate the operating plan section altogether and include the operating essentials in the business overview.

• Development : Explain what you have done to date to identify possible locations, sources of equipment, supply chains, and other relevant relationships. Describe your production workflow.
• Production : For manufacturing, explain how long it takes to produce a unit and when you'll be ready to start production. Include factors that may affect the time frame of production and how you'll deal with potential problems, such as rush orders.
• Facilities : Describe the physical location of the business. Include geographical or building requirements; square footage estimates (with room for expansion if expected); mortgage or leasing costs; and estimates of maintenance, utilities, and related  overhead costs . Include zoning approvals and other permissions that are necessary in order to operate.
• Staffing : Outline expected staffing needs and the main duties of staff members, especially the key employees. Describe how the employees will be sourced and the employment relationship (i.e., contract, full-time, part-time) as well as any training needs and how these will be provided.
• Equipment : Include a list of any specialized equipment needed, along with cost, whether it will be leased or purchased, and sources.
• Supplies : If your business is, for example, manufacturing, retail, or food services, include a description of the materials needed, reliable sources, major suppliers, and how you will manage inventory.

The financial plan is the most important section for lenders or investors. The goal is to demonstrate that your business will grow and be profitable. To do this, you will need to create realistic predictions or forecasts.

To avoid inflated expectations, a prudent financial plan underestimates revenues and overestimates expenses.

• Income statements : The income statement displays projected revenues, expenses, and profit. Do this on a monthly basis for at least the first year for a startup business.
• Cash-flow projections : The cash-flow projection shows your monthly anticipated cash revenues and disbursements for expenses. To be considered a good credit risk, it is important to demonstrate that you can manage your cash flow.
• Balance sheet : The  balance sheet  is a snapshot summary of the assets, liabilities, and equity of your business at a particular point in time. For a startup, this would be on the day the business opens.
• Breakeven analysis : Including a breakeven analysis will demonstrate to lenders or investors what level of sales you need to achieve to make a profit.

Section 8: Appendices and Exhibits

The appendices and exhibits section contains any detailed information needed to support other sections of the plan.  

Possible Appendix or Exhibit items include:

• Credit histories for the business owners
• Detailed market research and analysis of competitors
• Résumés of the owners and key employees
• Diagrams and/or research about your products and/or services
• Site, building, or office plans
• Copies of mortgage documents or equipment leases (or quotes)
• Marketing brochures and other materials
• References from business colleagues
• Links to your business website
• Any other material that may impress potential lenders or investors

SCORE. " Business Plan Template for a Startup Business ." Accessed April 28, 2021.

U.S. Small Business Administration. " Write your business plan ." Accessed April 28, 2021.

U.S. Small Business Administration. " SBA Recommended Business Plans and Length ." Accessed April 28, 2021.

Bplans. " Why Plan Your Business? Look at This Data ." Accessed April 28, 2021.

Marketing MO. " Pricing Strategy ." Accessed April 28, 2021.

Incorporate.com. " Write a Business Plan, a Step-by-Step Guide ." Accessed April 29, 2021.

Startup Nation. " The Five Costs You're Most Likely to Underestimate in Your Business Plan ." Accessed April 28, 2021.

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Writing A Business Plan: Operations And Management

Feb 1, 1997

Generally, there are seven major components that make up a business plan. They are:

1. Executive summary

2. Business description

3. Market strategies

4. Competitive analysis

5. Design and development plans

6. Operations and management plans

7. Financial factors

The operations and management plan is designed to describe just how the business functions on a continuing basis. The operations plan will highlight the logistics of the organization such as the various responsibilities of the management team, the tasks assigned to each division within the company, and capital and expense requirements related to the operations of the business. In fact, within the operations plan you'll develop the next set of financial tables that will supply the foundation for the "Financial Components" section. The financial tables that you'll develop within the operations plan include:

*The operating expense table

*The capital requirements table

*The cost of goods table

There are two areas that need to be accounted for when planning the operations of your company. The first area is the organizational structure of the company, and the second is the expense and capital requirements associated with its operation.

Organizational Structure

The organizational structure of the company is an essential element within a business plan because it provides a basis from which to project operating expenses. This is critical to the formation of financial statements, which are heavily scrutinized by investors; therefore, the organizational structure has to be well-defined and based within a realistic framework given the parameters of the business.

Although every company will differ in its organizational structure, most can be divided into several broad areas that include:

*Marketing and sales (includes customer relations and service)

*Production (including quality assurance)

*Research and development

*Administration

These are very broad classifications and it is important to keep in mind that not every business can be divided in this manner. In fact, every business is different, and each one must be structured according to its own requirements and goals.

Terence P. McGarty in his book, Business Plans That Win Venture Capital , lists four stages for organizing a business:

1. Establish a list of the tasks using the broadest of classifications possible.

2. Organize these tasks into departments that produce an efficient line of communications between staff and management.

3. Determine the type of personnel required to perform each task.

4. Establish the function of each task and how it will relate to the generation of revenue within the company.

Once you have structured your business, however, you need to consider your overall goals and the number of personnel required to reach those goals.

In order to determine the number of employees you'll need to meet the goals you've set for your business, you'll need to apply the following equation to each department listed in your organizational structure:

In this equation, C represents the total number of customers, S represents the total number of customers that can be served by each employee, and P represents the personnel requirements. For instance, if the number of customers for first year sales is projected at 10,110 and one marketing employee is required for every 200 customers, you would need 51 employees within the marketing department.

10,110 ÷ 200 = 51

Once you calculate the number of employees that you'll need for your organization, you'll need to determine the labor expense. The factors that need to be considered when calculating labor expense (LE) are the personnel requirements (P) for each department multiplied by the employee salary level (SL). Therefore, the equation would be:

P × SL = LE

Using the marketing example from above, the labor expense for that department would be:

51 × $40,000 = $2,040,000

Once the organization's operations have been planned, the expenses associated with the operation of the business can be developed. These are usually referred to as overhead expenses. Overhead expenses refer to all non-labor expenses required to operate the business. Expenses can be divided into fixed -- those that must be paid, usually at the same rate, regardless of the volume of business -- and variable (or semivariable) -- those which change according to the amount of business.

Overhead expenses usually include the following:

*Maintenance and repair

*Equipment leases

*Advertising & promotion

*Packaging & shipping

*Payroll taxes and benefits

*Uncollectible receivables

*Professional services

*Loan payments

*Depreciation

In order to develop the overhead expenses for the expense table used in this portion of the business plan, you need to multiply the number of employees by the expenses associated with each employee. Therefore, if NE represents the number of employees and EE is the expense per employee, the following equation can be used to calculate the sum of each overhead (OH) expense:

OH = NE × EE

In addition to the expense table, you'll also need to develop a capital requirements table that depicts the amount of money necessary to purchase equipment you will use to establish and continue operations. It also illustrates the amount of depreciation your company will incur based on all equipment elements purchased with a lifetime of more than one year.

In order to generate the capital requirements table, you first have to establish the various elements within the business that will require capital investment. For service businesses, capital is usually tied to the various pieces of equipment used to service customers.

Capital for manufacturing companies, on the other hand, is based on the equipment required in order to produce the product. Manufacturing equipment usually falls into three categories: testing equipment, assembly equipment, and packaging equipment.

With these capital elements in mind, you need to determine the number of units or customers, in terms of sales, that each equipment item can adequately handle. This is important because capital requirements are a product of income, which is produced through unit sales. In order to meet sales projections, a business usually has to invest money to increase production or supply better service. In the business plan, capital requirements are tied to projected sales as illustrated in the revenue model shown earlier in this chapter.

For instance, if the capital equipment required is capable of handling the needs of 10,000 customers at an average sale of $10 each, that would be $100,000 in sales, at which point additional capital will be required in order to purchase more equipment should the company grow beyond this point. This leads us to another factor within the capital requirements equation, and that is equipment cost. If you multiply the cost of equipment by the number of customers it can support in terms of sales, it would result in the capital requirements for that particular equipment element. Therefore, you can use an equation in which capital requirements (CR) equals sales (S) divided by number of customers (NC) supported by each equipment element, multiplied by the average sale (AS), which is then multiplied by the capital cost (CC) of the equipment element. Given these parameters, your equation would look like the following:

CR = [(S &3247; NC) × AS] × CC

The capital requirements table is formed by adding all your equipment elements to generate the total new capital for that year. During the first year, total new capital is also the total capital required. For each successive year thereafter, total capital (TC) required is the sum of total new capital (NC) plus total capital (PC) from the previous year, less depreciation (D), once again, from the previous year. Therefore, your equation to arrive at total capital for each year portrayed in the capital requirements model would be:

TC = NC + PC - D

Keep in mind that depreciation is an expense that shows the decrease in value of the equipment throughout its effective lifetime. For many businesses, depreciation is based upon schedules that are tied to the lifetime of the equipment. Be careful when choosing the schedule that best fits your business. Depreciation is also the basis for a tax deduction as well as the flow of money for new capital. You may need to seek consultation from an expert in this area.

The last table that needs to be generated in the operations and management section of your business plan is the cost of goods table. This table is used only for businesses where the product is placed into inventory. For a retail or wholesale business, cost of goods sold , or cost of sales , refers to the purchase of products for resale -- the inventory. The products that are sold are logged into cost of goods as an expense of the sale, while those that aren't sold remain in inventory.

For a manufacturing firm, cost of goods is the cost incurred by the company to manufacture its product. This usually consists of three elements:

1. Material

3. Overhead

As in retail, the merchandise that is sold is expensed as a cost of goods, while merchandise that isn't sold is placed in inventory. Cost of goods has to be accounted for in the operations of a business. It is an important yardstick for measuring the firm's profitability for the cash-flow statement and income statement.

In the income statement, the last stage of the manufacturing process is the item expensed as cost of goods, but it is important to document the inventory still in various stages of the manufacturing process because it represents assets to the company. This is important to determining cash flow and to generating the balance sheet.

That is what the cost of goods table does. It is one of the most complicated tables you'll have to develop for your business plan, but it is an integral part of portraying the flow of inventory through your operations, the placement of assets within the company, and the rate at which your inventory turns.

In order to generate the cost of goods table, you need a little more information in addition to what your labor and material cost is per unit. You also need to know the total number of units sold for the year, the percentage of units which will be fully assembled, the percentage which will be partially assembled, and the percentage which will be in unassembled inventory. Much of these figures will depend on the capacity of your equipment as well as on the inventory control system you develop. Along with these factors, you also need to know at what stage the majority of labor is performed.

Part six of seven. Tomorrow, we'll cover the financial factors that go into your plan. Tips are updated daily at 8:30am PST or 11:30 EDT.

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How to Estimate the Labor Required to Build a Product

Within the labor category, there is direct labor and indirect labor. Direct labor goes directly into the product, while indirect labor contributes to the company's overall labor requirement. Estimating the direct labor to build a product requires the small-business owner to break down the labor categories into two major components: Engineering and manufacturing. Engineering laborers are the people who design and test, and manufacturing laborers are the people who build the product. Correctly identifying labor cost components boosts the small-business owner's bottom line by making project estimates more accurate, enabling better planning and accounting.

• Analyze the product or project to determine the labor percentage of engineering versus production required. For example, ABC Company is getting ready to roll out a new solar panel. The small business owner determines that engineering labor will be 10 percent and production labor 90 percent. Engineering lasts for only a short period in comparison with the ongoing labor requirements to continually produce the solar panel.
• Break down the engineering labor requirement into smaller categories. Continuing the example, solar panel engineering labor will consist of research, design and developing the manufacturing methods associated with the solar panel.
• Assign an hourly estimate to each small component of the engineering labor. This is the key to estimation, breaking down the task into comprehensible terms. In the example, research will take 800 man-hours, design, 200 man hours, and manufacturing development, 150 hours.
• Break down production labor into smaller categories. Producing a solar panel requires fabrication, assembly and quality control.
• Assign an hourly amount to each subcategory in production labor. For each solar panel fabrication, there is four hours of fabrication, two hours of assembly and one hour of quality control.
• Determine the length of the production run. ABC Company intends to produce 30,000 solar panels for the upcoming year.
• Add up the hours in each engineering subcategory to get an estimate for labor. For the production side, add the total number production hours and multiply the amount by the number of products expected. Engineering the solar panel requires 1,150 man-hours. Producing each solar panel requires seven hours; multiply that by 30,000 to get 210,000 man-hours for the year.
• Add the total number of man hours for engineering and production to get a final estimate on the labor required to build a product. Engineering hours of 1,150 plus production hours of 210,000 equals 211,150 total man-hours estimated for this product.

More For You

How to calculate the direct labor used, how to determine total overhead costs based on direct labor hours, how to calculate variable contribution margin, production planning management, why do companies have predetermined overhead rates.

• Office of the Under Secretary of Defense for Acquisition, Technology and Logistics: Chapter 7; Analyzing Direct Labor Costs

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• Use the final estimation to see how accurate the initial determination was in engineering versus production. If the initial determination was way off, use the final estimate as a guide for future initial determinations.

Eric Johnston has been a professional business/finance writer since 2000. He began his career by assisting new business start-ups in writing business plans. Johnston is currently pursuing a master's degree in economics from Arizona State University.

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Employment Laws: Overview and Resources for Employers

There are many federal, state and local laws that affect the American workplace, and it is important for employers to know where to go for help in understanding their responsibilities under these laws.

The U.S. Department of Labor (DOL) administers and enforces most federal employment laws, including those covering wages and hours of work, safety and health standards, employee health and retirement benefits, and federal contracts. Several other federal agencies also administer laws affecting employment issues. For example, the U.S. Equal Employment Opportunity Commission (EEOC) enforces many of the laws ensuring nondiscrimination in the workplace, and the National Labor Relations Board (NLRB) administers the primary law governing relations between unions and employers.

Most workplace laws apply the same way to all employees, whether or not they have disabilities. However, some laws apply specifically to employees with disabilities, such as the Americans with Disabilities Act (ADA) and the Rehabilitation Act. Some laws, such as the Family and Medical Leave Act (FMLA) and state Workers' Compensation laws, apply to all employees but have disability-related implications when employees are injured or become disabled on the job.

Employment laws can be complex, and understanding and implementing them can seem very challenging , especially for small businesses. DOL and other federal agencies have numerous resources and materials that can help.

Department of Labor — DOL is committed to providing America's employers, workers, job seekers and retirees with clear and easy-to-access information on how to be in compliance with federal employment laws. This information, often referred to as "compliance assistance," is delivered through a variety of tools and resources:

• The elaws Advisors are interactive online tools designed to help employers and employees understand their rights and responsibilities under federal employment laws. Particularly useful to employers is the FirstStep Employment Law Advisor , which helps businesses and organizations decide which DOL workplace laws apply to them. FirstStep asks a series of questions and, based on the responses, generates a customized list of laws that are likely to apply and links to relevant compliance assistance resources.
• The Job Accommodation Network (JAN) is a free service sponsored by DOL's Office of Disability Employment Policy that provides information on the employment provisions of the ADA and other disability-related laws, and on specific job accommodations for people with disabilities. JAN can be contacted by calling 1- 800-526-7234 or 1-800-ADA-WORK (1-800-232-9675) (voice/TTY).
• DOL's National Call Center provides nationwide toll-free assistance to workers and employers on a full range of employment and workplace issues at 1-866-ODEP-DOL (1-866-633-7365) (1-866-633-7365) (voice) or TTY .

Equal Employment Opportunity Commission (EEOC) — The EEOC's website offers a wide range of materials for employers on preventing and addressing employment discrimination. In addition, print versions of publications can be ordered online or by calling 1-800-669-3362 (voice) or 1-800-800-3302 (TTY). EEOC resources are available in multiple languages and alternate formats.

U.S. Department of Justice (DOJ) — DOJ's Americans with Disabilities Act (ADA) Home page provides extensive ADA information and resources, including publications for businesses and links to the various agencies responsible for enforcing its different provisions.

State Resources — When researching federal employment laws, it is important to remember that many states also have their own state-specific employment laws. When state laws differ from federal laws, employees may be entitled to the greater benefit or more generous rights provided under the different parts of each law. More information is available from state labor and employment agencies .

• Start a Company > Business Plan > Business Plan Financials

Forecasting Revenues, Costs and Labor Requirements

Business Planning Advice

Written by Andrew Goldman for Gaebler Ventures

The creation of a long-term plan and strategy is not enough to adequately prepare the small business for the ups and downs in their markets. By outlining different forecast scenarios, the small business can be better prepared for any volatility in their market.

Before entering any battle, generals make sure that their military strategy has been defined and that detailed planning has been completed.

Before any big sporting event, coaches and managers prepare their strategies and plans in order to achieve victory.

You can pick the metaphor, but when there's victory, success or championships on the line, you can be certain thorough planning and due diligence was part of the formula.

If you want your small business to succeed, make sure proper planning is a part of your business formula.

Planning for Small Business Success

Planning encompasses both long-term and short-term horizons. While most small businesses are required to produce some form of long-term plan, less focus and attention is placed on detailed and thorough short-term planning.

In order to acquire loans or outside capital, the small business developer is typically responsible for producing data and long-term planning to support outside investment. This process gives both the investor and the small business owner a detailed map of where and how the company is going to reach sustainable profitability. Once the loan has been approved however, the small business owner often puts detailed planning on the backburner and does not use the same thoroughness in creating appropriate short-term business plans.

Short-term planning should deal with managing demand over weekly, monthly and quarterly periods.

The short-term plans should outline expected demand based on relevant information, expected purchases, expected labor and all relevant costs associated with delivering the final product or service. Your short-term plans should not be based solely on expected sales, you should outline several scenarios including best-case, worst-case and most likely.

By analyzing different scenarios on paper, the small business can get a better sense of where problem areas might arise and where costs appear to be ballooning.

Forecasting Demand

A solid short-term plan will start with the forecast of demand. How consistent your demand is and how much historical data your company has will greatly determine the accuracy of your forecast. If your demand is seasonal or fluctuates, extra careful attention needs to be paid towards your forecasting techniques. There is plenty of literature on the topic of forecasting, but the key element is making sure that your forecasting numbers are being created with the most up-to-date information possible. Check your forecast numbers versus the actual numbers constantly and outline different forecast scenarios (best-case versus worst-case) to help cover your bases.

Cost Projections

After your different forecasted demand scenarios are put on paper, you want to analyze and plan for what your expected costs will be for the various levels of demand. Leave no stone unturned when you undergo this process, it is far better to anticipate what your costs will be rather than get blindsided when cash is thin and margins are tight. By analyzing and planning for costs ahead of time, you can get a much better sense for which projects are worth selling and which ones may not be so appealing. If there are to be periods of cash flow constraints, you'll want to know when and why. Detailed short-term planning can address these problems, which are not as easily identified with long-term planning.

Staffing Plans

While planning your costs and demand, you can properly allocate your expected labor. This is crucial, especially if you're anticipating hiring or releasing any employees.

Knowing what your expected workload is and the subsequent labor staffing plan is a key element of successful small businesses.

During periods of low demand and high demand, proper staffing may very well be the difference between profitability and losing money. By anticipating demand and balancing your labor force ahead of time, you avoid many problems that are difficult to manage when they spring up without notice. Letting an employee know that there will be less work in 4 weeks is much better than having an employee show up for work only to find out there's nothing to do.

On the flipside, if it looks like demand is ramping up and your short-term plan indicates a need for an additional employee, you'll be in better shape that being seriously understaffed.

Plan to Succeed

Short-term planning and the analysis of demand, forecasting, costs and labor is a crucial element for any small business looking to succeed. The creation of a long-term plan and strategy is not enough to adequately prepare the small business for the ups and downs in their markets. By outlining different forecast scenarios, the small business can be better prepared for any volatility in their market.

Andrew Goldman is an Isenberg School of Management MBA student at the University of Massachusetts Amherst. He has extensive experience working with small businesses on a consulting basis.

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What Is Working Capital?

Business type, operating cycle, management goals.

• Working Capital FAQs

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How Much Working Capital Does a Small Business Need?

It depends on business type, operating cycle, and management goals

Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest.

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The amount of working capital a small business needs to run smoothly depends on three different factors: type of business, operating cycle , and the business owners’ goals for future growth. Large businesses can get by with negative working capital (because of their ability to raise funds quickly), but small businesses should maintain positive working capital figures.

Key Takeaways

• Working capital is the cash on hand used to keep a business operational, less liabilities and obligations.
• Depending on the line of business, working capital needs may be significant in order to procure raw materials and labor.
• Service businesses, on the other hand, rely far less on working capital and can operate with less overhead.
• Businesses looking to grow and expand will require larger levels of working capital than businesses looking to maintain their current size.
• A business's operation cycle will also impact working capital needs; businesses with a shorter time frame from production to revenue generation require less working capital.

Working capital refers to the difference between a company’s current assets and current liabilities . Current assets are the items a business owns that can be turned into cash within the next 12 months, while current liabilities are the costs and expenses the business incurs within the same period.

Common current assets include checking and savings accounts, marketable securities (such as stocks and bonds), inventory, and accounts receivable. Current liabilities include the cost of materials and supplies (that need to be purchased to produce goods for sale), payments on short-term debt, rent, utilities, interest, and tax payments.

Seasonal businesses require different amounts of working capital at different times of the year.

A company’s working capital is a reflection of its operational efficiency and budget management. If a business has more current liabilities than assets, its working capital is negative , meaning it may have difficulty meeting its financial obligations.

A company with a very high working capital figure , conversely, is easily able to pay all its expenses with ample funding left over. Whether a given business requires high working capital is determined by three key factors: business type, operating cycle, and management goals.

Certain types of businesses require higher working capital than others. Businesses that have physical inventory—such as retailers, wholesale businesses, and manufacturers—often need considerable amounts of working capital to run smoothly.

Manufacturers must continuously purchase raw materials to produce inventory in-house, while retailers and wholesalers must purchase pre-made inventory to sell to distributors or consumers.

In addition, many businesses are seasonal , meaning they require extremely high working capital during certain parts of the year. Leading up to the winter holidays, for example, retail businesses— such as department stores and grocery stores—must increase inventory and staffing to accommodate the expected influx of customers.

Businesses that provide intangible products or services, such as consultants or online software providers, generally require much lower working capital. Businesses that have matured and are no longer looking to grow rapidly also have a reduced need for working capital.

Ideally, a business can pay its short-term debts with revenue from sales; however, the length of a company’s operating cycle can make this impossible. Companies that take a long time to create and sell a product need more working capital to ensure that financial obligations incurred in the interim can be met.

Similarly, companies that bill customers for goods or services already rendered, rather than requiring payment upfront, need higher working capital if collection on accounts receivable cannot be made promptly .

The specific goals of the business owners are another important factor that determines the amount of working capital required by a small business. If the small business is relatively new (and looking to expand), a higher level of working capital is needed compared to the working capital needed by a small business intending to keep its operations small.

This is particularly true for businesses planning to expand product lines to venture into new markets because the costs of research and developmen t, design, and market research can be considerable.

How Do You Calculate Working Capital?

Working capital is calculated by subtracting current liabilities from current assets. Both current assets and current liabilities can be found on a company's balance sheet as line items. Current assets include cash, marketable securities, accounts receivable, and other liquid assets. Current liabilities are financial obligations due within one year, such as short-term debt, accounts payable, and income taxes.

What Is Working Capital Used for?

Working capital demonstrates a business's ability to fund its operations and pay its short-term expenses. When a business has enough liquidity to pay its short-term debt, accounts payable, and any other costs due within one year, it is functioning well and generating enough liquidity from its business operations to cover its costs. This is a sign of the company's financial health.

How Can I Improve Working Capital?

Working capital can be improved by increasing assets and decreasing liabilities. Reducing your company's reliance on debt, negotiating better terms with suppliers on accounts payable, managing expenses more efficiently, and cutting extraneous costs can all improve current liabilities. Collecting receivables faster, increasing the value of marketable securities, and improving inventory efficiency can all help improve your current assets.

Working capital demonstrates how efficiently a business is operating. Having a positive working capital (i.e. current assets exceed current liabilities) is important for a small business because small businesses don't have many other options to fall back on if its assets don't cover its expenses.

The amount of available working capital differs greatly depending on the type of company. Companies with a high inventory of physical goods require more working capital than ones with a low inventory. Similarly, businesses looking to grow will need more working capital than those looking to maintain their size.

Lastly, a business's operating cycle determines the level of working capital it needs: Businesses that can produce and sell goods quickly need less working capital than those with a longer duration between production and revenue generation.

Bank of America. " Working Capital: What Is It and Why Is It Important? "

Allianz Trade US. " How to Assess Your Working Capital Requirement (WCR) ."

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Labor Requirements

Subsection of:  Creating an Effective Business Plan

Adapted from content excerpted from the  American Express® OPEN Small Business Network

Your management team is outlined in the management section. This section provides details of other labor you will need to start up and run your business. Address how many people you require and what skills they need to possess. Be sure to cover the following issues:

• Is there sufficient local labor? If not, how will you recruit.
• Is labor trained? If not, how will you train them.
• Cost of labor, current and future.
• Plans for ongoing training.

See sample  labor description .

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