The FTE vs. headcount dilemma can get people scratching, well, their heads. But in project management planning, people are your most valuable resource and you should treat them as such.
Sure, you need enough workers to get the job done on schedule, but you also need to stay on budget—without overbooking your team members. When allocating human resources, you have two options: the headcount method or FTE (Full-Time Equivalent) calculation.
So how do you determine whether FTE or headcount is the best fit for your project? Let’s take a look.
What’s the difference between headcount and full-time equivalent (FTE)?
Headcount is a simple calculation of the number of people employed by a company or for a specific project.
FTE (Full-Time Equivalent) is a calculation of your employees’ working hours. Instead of tracking capacity by the number of employees, you’re counting 40 hours worked as a “head.”
Now that we know the difference between headcount and FTE, let’s get into the math part. How do you calculate FTE vs. headcount?
FTE vs. headcount calculation
Let’s say you have 50 full-time employees working 40 hours per week and 12 part-time employees working 20 hours per week.
Those 12 part-timers work the same amount of time as six full-time workers. So your headcount would be 62 (50 + 12), but your FTE would be 56 (50 + 6).
One full-time employee’s FTE is 1.0. Two half-time employees’ FTE is also 1.0.
Now that we’ve got the basics down, let’s move on to the advanced class: FTE to headcount conversion.
FTE to headcount conversion
Wondering how to convert FTE to headcount? Say you’re trying to determine the headcount requirements for a project that you expect to take 1,600 hours. To turn those hours into a full-time employee headcount, you would divide 1,600 by 8 (assuming your employees will be working 8 hours per day).
By dividing those numbers (1,600 / 8 = 200), you now know that you need 200 hours per day. That will help you determine how you want to break up those hours to find the right number of full-time employees to complete the project within a certain timeframe.
For example, you could do one of the following:
- Hire 5 full-time employees to complete the job in 40 days
- 10 full-time employees to complete the job in 20 days
- Or hire full-time employees to complete the job in 10 days
By understanding FTE to headcount conversion, it’ll allow you to allocate the resources you need to ensure project success and keep your clients happy. As we all know (too well), it all comes down to planning.
Headcount vs. FTE: What’s the best resource management model for you?
Now that you’re up to speed on how to calculate FTE and headcount, it’s time to decide which one is right for your business. Let’s talk about headcount vs. FTE, and why you might choose one resource allocation model over the other.
Headcount planning ensures roles are filled
Headcount planning (also called workforce planning) calculates each person in one role, whether they’re full-time or part-time workers. The headcount method helps you ensure you have people in place to execute an overall strategy and project plan. It looks at filling roles in general but doesn’t drill down to aligning people with specific skills to project tasks.
How to do headcount planning
An effective headcount plan helps you ensure you have the resources you need to successfully complete your project. It can also help you avoid scrambling to backfill important positions once your project is underway.
Headcount planning involves four basic steps:
- Define your project goals
- Determine the resources needed to achieve them
- Evaluate your existing workforce and identify gaps
- Create a plan for filling those gaps
With a roadmap in place for the roles you’re hiring for, you’re in a better position to determine associated costs including recruiting, hiring, onboarding, and infrastructure (computers, desks, etc.). This means you can make sure you have enough budget to meet your project’s needs, and not have to worry about budget issues down the line.
Benefits of headcount planning
The headcount method is a straightforward approach that can keep resource planning relatively simple, especially for a smaller project with clearly defined roles.
Headcount is an ideal model for HR-level planning and scaling an organization. It comes with three main benefits:
- It ensures roles are filled and you know you’ll have people in place for each project.
- It eases the burden on your people operations team because they have fewer to fill.
- It predicts your project’s costs accurately when implemented well.
Problems with headcount planning
Headcount planning might not be the right approach for every project as it comes with three obvious limitations.
- The headcount model is rigid and can make it challenging to plan for the ebbs and flows of your project’s needs, especially when you need a lot of different skill sets for varying time frames.
- It doesn’t consider skills which also makes it more likely that high-priority skills aren’t identified early in the staffing process. This can lead to bringing on additional resources, which can negatively impact your budget and create project delays.
- It can create friction between teams as project management and people operations teams may view headcount planning differently. HR tends to focus on headcount as a strategic tool, while process owners are more focused on what’s needed on the ground. This can create internal friction if you don’t pay attention to the different needs of the teams.
Ultimately, headcount is more challenging for project planning. Why? Because having a person in a role doesn’t guarantee they’re the right person for the role as they might not have the right experience or the right skillset.
Now that we have a better understanding of headcount planning, let’s take a closer look at FTE.
FTE planning helps allocate resources more effectively
The FTE method enables you to diversify your resource allocation based on project needs. So rather than focusing on filling roles, you’re looking at the skills needed to deliver a project.
As opposed to headcount planning, FTE planning takes the scope of the overall project and breaks it down to the tasks involved, how many hours it will take to get the job done, and the skills needed—not the individuals.
Looking at all milestones, tasks, and deliverables for the entire project, you may determine that 300 total hours of effort are needed to complete every job. You can then break the functions down to the hours that you want to allocate for each.
Et voilà! Now you know exactly which person (with which skill set) is needed for your project.
Now, let’s talk math again.
How to use FTE for resource management
FTE calculation is a matter of simple division based on your company’s structure: weekly hours worked divided by hours worked to be considered full-time. If a 40-hour workweek is full-time at your organization, you divide the number of hours a part-time employee works per week by 40 to find their full-time equivalent.
So if your project needs a technical writer for 20 hours per week and full-time is 40 hours per week, you divide 20 by 40, which equals 0.5 FTE. If 35 hours per week is considered full-time at your organization, you would divide 20 by 35, which equals 0.57 FTE. To simplify, you would round that up to 0.6.
Because you only need that technical writer for 20 hours, you have another 15-20 hours available for another role on the project. If you were using headcount planning, you might pull a full-time technical writer from another project and ultimately underutilize them. Instead, knowing you only need them for 20 hours gives you the option and flexibility to bring in a freelancer.
Benefits of using the FTE model
The FTE model gives you more flexibility and precision in resource management than a simple headcount. It comes with three main benefits:
- FTE allows you to adjust resources as needed when priorities shift without pulling a full-time person away from larger commitments. And FTE provides visibility into the consequences of responding to those shifting priorities. For example, you may need to hire someone new because the number of FTEs doesn’t match the number of hours of work needed each week.
- FTE lets you engage resources with expertise in specific areas, like in the tech writer example above. Instead of assigning a full-time employee who may or may not specialize in technical writing, you can hire a technical writing expert to work those 20 hours each week on a short-term basis.
- The FTE model enables you to make the best use of your budget by allocating resources for the tasks they’re needed for, and only for as long as it takes to get the job done.
Problems with using FTE planning
FTE planning comes with two main constraints, both of them affecting one of the biggest project stakeholders: the budget.
- It makes it more challenging to identify costs which can make it challenging to stay aligned with other departments. Sure, you can make the best use of your budget, but you might not always be able to plan for the costs involved such as recruiting, onboarding, and infrastructure.
- FTE planning can result in increased costs as you could end up hiring 4 people for 10 hours a week. This immediately quadruples the costs of bringing those resources on board and puts a strain on people ops for recruiting and onboarding more staff. With the headcount method, you hire one person for a full-time role.
Headcount vs. FTE: A real-world example
Let’s say you’re planning for the training stage of a project. Training often consists of writing user manuals, creating modules, and scheduling employees so they can balance their workloads.
How would you allocate those resources using FTE vs. headcount?
Using headcount for resource allocation
With the headcount model, you might assign one training coordinator to handle the whole piece. They could work in a full-time role managing all the moving parts of the training.
Why this works: With just one person in charge of training, they could be responsible for breaking their work into successive tasks. Then you’d get all your training updates from a single source, and be able to resolve issues between individuals rather than by committee.
Using FTE for resource allocation
The FTE model would enable you to divide and conquer the various tasks associated with training. You might hire a part-time instructional designer and engage a separate resource for communication and coordination of the training schedule.
Why this works: Two or more resources working simultaneously can get more done faster than one person managing every aspect of training. But you need to allocate those resources in a way that allows you to manage dependencies and avoid overlapping tasks and wasting time.
FTE and headcount: When to use each approach
In summary, the headcount and FTE models both have their merits, but only you can decide which method of resource allocation works best for your team.
FTE is great for planning large-scale and long-term projects because it’ll help you calculate demand. The downside is that you might end up with friction between teams. On the flip side, headcount focuses on maintaining a healthy organizational structure, but you might not be able to find the right people with the right skills for your projects.
Ultimately, it comes down to choosing the model that best fits the project type.