Budgeting
Opex and headcount planning
Budget staff costs from a hiring plan: heads, salaries, on-costs and start dates, and the run-rate they leave behind.
Learning objectives
- Classify operating costs as fixed, variable or step costs and budget each on its driver
- Calculate the in-year cost of new hires from start dates and on-costs
- Distinguish a hire's in-year cost from its full-year run-rate
For most companies people are the largest controllable cost, and the headcount plan is where budgets most often go wrong. A hire approved in the budget costs far more than the salary, starts partway through the year, and keeps costing money every year after. Rawdah Home Retail Co. plans to open three stores in FY2026, each needing a manager and a sales team. Rawdah Home Retail Co. is a fictional retailer; all figures are illustrative.
Budget each cost on its driver.
- Variable costs move with activity: card fees and delivery costs as a % of sales, packaging per order.
- Fixed costs don't move with activity within the year: rent, insurance, head-office salaries.
- Step costs are fixed within a range and jump when capacity is added: a new store brings a whole team and a lease.
Headcount is budgeted line by line from a hiring plan: role, number of heads, salary, the month each person starts, and on-costs: employer social insurance, allowances, medical cover and other benefits, usually budgeted as a percentage of salary.
Included with a Formula Quest membership
The rest of this lesson is for members. Members get the full lesson, including its 3 graded exercises, and every other Finance Quest lesson.