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Forecasting can be a nightmare

 As I attempt to finalize the new year budget, I recall the number of scenarios which can make the task daunting. 

Working in the Social Services field of the not-for-profit sector, over 70% our costs are salaries and benefits, and ensuring these are well forecasted is critical otherwise affecting decision making therefore representing a significant risk to the financial health of the organization.


You would think working in a unionized environment where salaries and benefits are clearly defined would make the task of forecasting and managing salaries fairly straightforward; however, a number of factors complicate this. First, not all benefits are available to all employees, or available right away; for example, the Health and Dental portion have a three month wait period, where the pension match wait period can be as much as six months. Each of these two packages cost over 9% of eligible salaries for the employer portion. The variance of forecasting full offering versus an estimate of slippage for turnover, can be significant in some cases. A further complication is knowing the demographics of your staff as benefit rates can vary significantly for single, versus married, versus family. If you think this may not be significant, our current spreadsheet articulates a 33% benefit rate where the actual due to turnover is 27.75%. On $5M in salaries this creates a difference of $275,000 on forecasting thus operational planning.


You would also think knowing Collective Agreement salary rates would be beneficial; but what about when your agreement expired over one year ago? Not only do you need to estimate back pay depending on the Accounting rules in your jurisdiction, but you also need to consider the estimated future cost once you compound the rate of year 1 retroactive with year 2 estimates. Then add the benefits onto the retroactive and estimated increases, some of which will not be affected as they are fixed or you have already achieved the ceiling, where others such as Workers Compensation premiums are directly related as tied to salaries.


An important consideration in all of this is your systems, processes, and ability to capture, analyze, and use data. When I worked for organization with over 2,500 employees, I utilized a customized package which integrated Human Resources, Payroll, and Accounting. The system forecasted based on the information in the salary module including actual employees plus planned staffing; it knew the step rate and tenure of current employees including the date they would achieve the next pay increment, it overrode forecasts each month with actuals as they occurred, and it took gaps and planned staffing into consideration.


Compare this to an organization using off-the-shelf programs which are not integrated; now you are building spreadsheets and hoping your information input and formulas are solid, otherwise you have erroneous output. Then consider while this may be feasible for an organization with 100 employees, this is not manageable when you have 2,500. Given the cost of experts in this field, ask yourself the question: can I afford to not have a fully integrated comprehensive system?

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