Is Headcount or FTE Ideal for Resource Allocation?

management

Making resource management decisions can be tough, especially when you’re juggling a multitude of complex projects and a large workforce. It’s even tougher when you have to decide between two competing resource allocation models that both have their own merits. 

In this vein, most project managers are, at some point, required to choose between headcount and full-time equivalent (FTE). But what’s the real difference between these models and which one is better for your project? 

The Importance of Choosing Between Headcount and FTE

Why does this make a difference? According to ResourceGuru, your choice between headcount and FTE can impact your company’s overall cost-efficiency, project efficiency and timeliness, as well as your project planning transparency. The right choice can help your business simplify the process, save time and/or money, and improve your long-term project planning prospects. 

What Is Headcount? 

With headcount, you’ll be basing your calculations around individual workers on your team putting in full-time hours – for most businesses, that’s 40 hours a week. Oftentimes, headcount is employed by businesses looking to grow or scale; they want to fill roles without having to micromanage assigning people with niche skills to specific project tasks. 

There are several advantages to this approach, including: 

  • High-level HR value. When it comes to high-level organizational planning and goal alignment, headcount makes things easy. You can compartmentalize your workforce and make assignments that are easy to comprehend and manage. 
  • Long-term planning and forecasting. In many cases, this is the better approach when it comes to long-term planning and forecasting. You can figure out exactly how many people you need and when you need them. 
  • Easy identification of gaps and needs. With this high-level approach, you can easily see when there are workforce shortages – and work with recruiting to fill those gaps. 

That said, there are some potential drawbacks, including: 

  • Skill negligence. Allocating full-time workers in big chunks is convenient and time-efficient, but it doesn’t allow you to take advantage of the individual skillsets that your workers offer. This is especially problematic if you have specialist responsibilities that need to be addressed. 
  • Limited flexibility. Few businesses enjoy the benefits of purely static workforce needs. Instead, they deal with shrinking and expanding demand – and changes to their core needs. Headcount makes it tough to deal with these changes flexibly. 
  • Conflicts of interest. Headcount can also create a rift between different departments; what works well from a high-level strategic standpoint with HR isn’t necessarily what works well on a ground level with your project managers. 

What Is FTE? 

So how is full-time equivalent (FTE) different? Instead of allocating individual workers as chunks in the system, you’ll be focusing on the number of hours that need to be worked. You’ll break down a project to its constituent tasks, figure out how many hours those tasks will take (and the skills those tasks will require), and assign workers accordingly. This model incorporates the understanding that different employees have different skillsets, and a single employee may not have all the skills necessary to complete a given task or project. 

There are a few important advantages to understand: 

  • Specific allocation. You’ll get specific, skilled specialists for the tasks that require them. You can rest assured that tasks are getting completed by the people most competent for the job. 
  • Flexibility. FTE makes it much easier to remain adaptable. If your business goes through seasonal changes or if you’re forced to rearrange your resource allocation frequently, FTE is a friendlier model. 
  • Minimal overlap. Since you’ll be fitting individuals to the project based on hours and skills, you’ll deal with less overlap. 

Again, however, there are some drawbacks: 

  • Estimation issues. FTE can make it harder to accurately estimate project hours. 
  • Difficulty aligning with high-level goals. FTE makes it harder to remain in alignment with your organization’s high-level goals and planning. 
  • Time and effort. In some ways, the FTE model is more time- and effort-intensive, since you’ll be dealing with more variables and fine-tuning your approach. 

Making the Choice

So how are you supposed to choose between these two competing models? 

Consider: 

  • Your organizational goals. What is your business trying to accomplish? What are your most important objectives? For example, is it better to allow for flexible allocation or would you rather keep things as simple as possible? 
  • Your plan to scale. Is your business about to go through a period of growth? Are you going to expand your workforce? 
  • Business and project variance. Do your business and project needs change on a frequent basis? Do you need to remain adaptable?  

There isn’t a single “right” model that can perfectly address all your concerns and help you meet every goal. However, once you review your current organizational needs, you should be able to figure out the most appropriate model for you.