Human Capital Plan: Definition, Importance & Key Components

Every organization relies on its people, so businesses must introduce systems to manage people resources. And with an average cost of $1,400 to onboard a new employee, organizations should view employees as valuable assets, not just resources.

Human capital planning allows businesses to see beyond the current staffing situation, predict future needs, and implement plans to address these. An effective human capital plan will enable organizations to use the workforce to address future business objectives by ensuring the right people are in the right job roles.

In this article, you can learn how to apply the principles of human capital planning to your business or organization.

What is a human capital plan?

A human capital plan is a type of corporate strategy that considers the future people resources required for an organization to meet its business goals.

Human capital planning involves looking beyond the current human capital state of the business, predicting future requirements and making plans to recruit, develop and retain the best talent for these job roles.

Managers must consider the following business processes when creating a human capital plan:

• Hiring new talent

• Onboarding

• Performance management

• Promotions and succession planning

• Ending contracts/offboarding

• Tracking time off (e.g. for sickness absence, vacation leave, parental leave)

• Managing professional development

Why is a human capital plan important?

A human capital plan is essential to all organizations, regardless of size.

An effective human capital plan helps organizations employ, recruit and retain the talent required for business success.

Organizations should create human capital plans in line with the business strategy. Once stakeholders have identified upcoming business objectives, managers can use this information to identify talent skills gaps in the existing workforce.

After identifying skills gaps, managers can create employee profiles for each proposed vacant role.

When future vacancies are identified, managers can create a talent strategy to help them hire the people for the vacant roles.

Hiring is an essential aspect of human capital planning. However, an effective human capital plan covers more than hiring and recruiting. The human capital plan must also address the existing workforce’s training and performance management needs and how they contribute to business success.

Key components of a human capital plan

1. Workforce planning and forecasting

The first step to creating a human capital plan is understanding how people and resources contribute to the business’s overall goals.

Organizations must start workforce planning and forecasting as soon as the business strategy is agreed upon. Effective human capital planning will help to ensure it recruits the best talent for each vacancy and employs sufficient staff to meet business demand.

For example, if the business intends to open a new site location within the next 12 months, it will need to consider what human capital resources will be required to achieve this goal.

It should also review existing talent within the organization and whether the new site location offers current employees career development or promotion opportunities.

2. Talent acquisition and recruitment

Once the human capital requirements of the business have been identified, organizations must make a plan to recruit people for these vacancies.

This includes setting up hiring guidelines that outline the standard operating process for sourcing and recruiting talent. The hiring guidelines should cover the following:

• Reviewing job descriptions for existing roles

• Creating job descriptions for new roles

• Agreeing on salary scales and compensation

• Posting adverts

• Sourcing talent using social media

• Headhunting

• Reviewing applications and resumes

• Interviewing and pre-employment screening assessments

• Background checks

• Checking references

• Making an employment offer

• Onboarding

Organizations must write hiring guidelines in line with all relevant employment legislation.

3. Employee development

The human capital plan must also consider the development of existing employees. After all, the more training and development that is offered, the more valuable an employee becomes to the organization.

The human capital plan must always be linked to training and performance management. The HR department should work closely with managers to identify training needs within the organization.

HR can also support managers in managing employee performance and create customized training programs to tackle any skills gaps.

Organizations can offer employee development opportunities in a variety of ways, including onsite training programs and seminars, reimbursement of tuition fees at the local college or asking employees to attend relevant business events and conferences.

4. Employee engagement and retention

Once an organization has hired the best talent, it will want to find ways to keep them.

Employee engagement is vital to reducing absenteeism and retaining top talent.

Research by Gallup identified that “engaged employees make a point to show up at work and do more work - highly engaged business units realize an 81% difference in absenteeism and a 14% difference in productivity.

As such, the human capital plan must find strategies to ensure people want to continue working for the organization and minimize the risk of them wanting to seek other job opportunities.

Here is an overview of strategies for employee retention, which can be incorporated into the overall human capital plan:

Prioritizing a positive work-life balance

Organizations should avoid a workforce culture that encourages or rewards employees for being constantly available.

Achieving a healthy work-life balance is vital to job satisfaction. Managers may offer flexible working arrangements to assist with this. Organizations can also consider offering discounts on gym memberships, well-being programs or stress management workshops.

Perks and compensation

The labor market is competitive, so organizations need to offer attractive compensation and rewards packages.

As well as the salary package, organizations should review the paid time off policy, parental leave allowance, health benefits and pension arrangements.

Managers should also consider offering everyday perks such as free drinks and snacks in the workplace, away days or discounts on significant purchases.

Reward and recognition

Feeling appreciated is crucial to the employee/manager relationship, so as part of the human capital plan, organizations must take steps to incentivize, recognize and thank employees for their contribution to business success. This can be achieved in various ways, from emails from the chief operating officer to gift cards and bonuses.

5. Performance measurement

Measuring performance is linked to checking the contribution of human capital to the organization’s strategy. It involves using key performance indicators (KPIs) and HR metrics to identify how employee contributions bring value to the business.

During performance measurement, HR managers and the senior management team consider an employee’s overall job performance, highlight their strengths and weaknesses, provide feedback and agree on future objectives.

The performance measurement process must always be linked to company objectives and goals.

Employee performance can be tracked and measured in several ways, including collating 360-degree feedback, checking performance output, and monitoring the completion of training.

Performance can be tracked and measured in several ways. It should always be linked to the overall company objectives and goals.

Benefits of a Human Capital Plan

Writing a human capital plan offers the following benefits:

• Optimizes the hiring process. From advertising to onboarding, an effective human capital plan can help organizations attract, recruit and retain the best candidates. It also allows HR and PR teams to promote the organization as an attractive workplace.

• Reduces hiring costs. Sourcing, recruiting and retaining the best talent can be expensive. Organizations can streamline the hiring process and lower overall costs with an effective human capital plan.

• Allows the organization to maximize the value of its people resources through training and development and succession planning.

• It makes it easier to manage everyday HR tasks, such as identifying skills gaps and setting up training programs.

An effective human capital plan allows organizations to predict turnover and future staffing needs per the overall business strategy.

For example, if an organization plans to expand operations in the next two years, human capital planning will help ensure the right staff are hired in time to cope with the additional demand.

What to consider when implementing a human capital plan

1. Carry out a skills analysis

Checking existing employees’ skills, performance, and output is the first step to effective human capital planning. It allows you to explore what skills and experience exist within the workforce and how they can be utilized to achieve company goals. Aptitude and psychometric tests can be used to assess cognitive and reasoning abilities.

2. Assess soft skills

Checking an employee’s qualifications and experience is essential, but establishing their soft skills is helpful in checking suitability for a job role. Personality tests can be used to assess problem-solving, empathy, emotional intelligence and teamwork skills.

3. Set a training budget

After identifying any skills gaps, plan to address them through training programs and other development initiatives. Offering training and development opportunities play an important role in employee motivation, but it also helps to boost their overall value to the business.

4. Use technology to track and manage talent

Tracking talent is an integral part of the hiring process. With the Neuroworx Applicant Tracking System, you can manage applicants, move candidates through the hiring process and make hiring decisions at the click of a button. It also offers a data-based approach to recruiting, allowing you to find the best talent.

5. Offer a positive employee experience

Showing employees and prospective recruits the possibilities available is another excellent way to boost engagement. You can discuss career paths and training opportunities throughout the hiring process.

Once an employee is hired, this conversation should form part of the performance management cycle, which you can manage seamlessly using the Neuroworx Performance Management tool.

Ready to implement a human capital plan in your organization? Whatever the size of your business, Neuroworx offers a suite of useful solutions to help you get started.

From sourcing applicants and managing performance to boosting employee satisfaction and well-being, get in touch today to learn more about our support and services.