HR PLANNING

CRITIQUE PAPER:

A. TOTAL COST OF THE WORKFORCE (TCOW)

Organizations are usually pushed to review their TCOW only when facing crisis or upheavals in

different sector or industry. This is because, in too many organizations, just finding the data can

take several months, and as a result, this kind of overwhelmingly is only considered when it can

no longer be avoided.

The reason the data is so hard to find is because it’s contained in a number of different systems.

In order to gain a true TCOW, organizations need HR data, such as headcount, salary and

benefits, as well as finance data on workforce overheads, and external market information, such

as unemployment data and local market salary data to come up with the real computation of the

TCOW.

TCOW is essential to building an efficient workforce plan and staying competitive. Yet most

organizations are not able to accurately calculate the ongoing cost of an individual employee.

The focus of the higher management should be to manage talent in a sustainable way to avoid

escalating costs and retain best people at the lowest possible cost.

When it comes to forecasting TCOW, the most common approach is for the finance department

to calculate the cost of an individual and aggregate that amount upwards. But for this approach to

work, you need to understand the true cost of a new hire.

Too often companies intentionally and unintentionally add padding to the costs of managerial

and facility expenses as a precautionary measure. But it is not always easy to pinpoint this
financial bloat. Costs may be allocated into different team expenses, and it can be difficult to

determine what’s actually necessary until you find yourself with a surplus of funds at the end of

the financial year, when you really needed resources earlier.

Many large organizations put TCOW in the “too hard” basket. Even knowing what data to

include and where to find it can be a headache. However, you can’t manage what you don’t

measure. That’s why using analytics and reviewing data on an ongoing basis is so important.

Don’t wait until a crisis hits to know your TCOW. Once you have calculated this once, it will be

easier to do again and again. Additionally, you’ll be able to do the kind of agile workforce

planning that will allow your organization to take proactive action ahead of any new businesses

and this is what I’ve learned in class.

The full cost for people who contribute work to the organization, including all of the labor costs

and the workforce overhead costs, and all the costs that roll up into those two categories is more

than just your total compensation figures because it gives you an understanding, to the last cent,

of what changes will mean to the organization. This level of insight is critical to fully

communicate how changes will affect the costs of the business, while driving outcomes which

supports the business success, e.g., retention of critical staff and high performers.

Ultimately, understanding your TCOW on an ongoing basis will enable your organization to

adapt to the real business world and gain a higher level of insight to engage more competitively

in the market.