Average Headcount

This is basic explanation of One Model’s Average Headcount calculation, why it’s important and how it’s used.


One Model’s Average Headcount Calculation Explanation

One Model uses a daily rolling headcount to calculate Average Headcount. 

Table 1 below provides an example of the calculation and what that means for a single month for 2 departments and 6 employees.  Below are high-level explanations by employee of individual calculations:

  • Employee 1 separated on day 13 of a 28 day month, so Employee's 1 headcount is 12/28 or 0.43.

  • Employees 2 and 5 stayed at the company the entire month, so their headcount is 1. They were in different departments.

  • Employee 3 stayed at the company the entire month, but switched departments a few days into the month. Employee 3’s headcount is 1 for the organization overall. If the data is viewed at the department level, it is 0.11 for Department 1 and 0.89 for Department 2. 

  • Employee 4 was hired midway through the month, so Employee 4’s headcount is 16/28 or 0.57.

  • Employee 6 went on medical leave, but returned during the month (odd situation). This employee is not counted in active headcount, but may be counted in inactive headcount. Employee 6’s average active headcount for the month is 3/28 or 0.11.

If you sum, the headcount for all employees, it would be 4.11 for the organization overall.  And split across the two departments, it is 1.54 for Department 1 and 2.57 for Department 2.

Why is this important?

Using a daily rolling average is a much more precise method of calculating Headcount than most organizations traditionally use, unless they are using People Analytics software. Because of the difficulty in calculating average headcount outside of a system, many organizations will pick a specific point in time to calculate headcount (i.e. the end of year or the start of a year). The issue with this calculation is the company may overstate or understate a rate measure by applying this method, causing difficulty in comparison.

Overstating or understating a rate measure is an issue when organizations use different time contexts in the measures. For example Termination Rate, using EOP Headcount as a denominator is mixing a cumulative time measure (Terminations) with a point in time measure (EOP Headcount). Where possible, it’s best to have two measures with similar time contexts, such as Average Headcount in Termination Rate, both Terminations and Average Headcount cover a span of time.

In the example below, you can see that Organization A is a relatively large organization. The Organization’s Average and EOP Headcount Measures for the year are relatively similar (less than 100 employees). The difference in calculation of the Termination Rate measure using either headcount as a denominator is 0.02%. So at the overall level, there are no significant differences if either measure is used.

It’s only when individual departments (or other areas of the organization) are examined that the differences become clear. 

  • Department 1 is a really small department. They have a difference of 1 person between the Average Headcount and the EOP Headcount. The one person was most likely hired near the end of the year. The calculation difference for this area is 25%. Traditionally smaller areas of the company should be examined with caution when using either the Average or EOP Headcount measures as denominators for the Termination Rate measure.

  • Departments 2 and 3 seem have had a huge growth in EOP Headcount by the end of the year. They don’t seem to be small organizations, but perhaps there was an external merger near the end of the year that caused their areas to grow in headcount, or perhaps there was an internal consolidation. No matter, both departments see significant difference when using the Average Headcount as the denominator.  In these situations, if the organization had used EOP Headcount as the denominator they may be understating the Termination Rate for the year. 

  • Department 4 seems to have gone through a divestiture or an internal movement of people. While it’s not as small a Department 1, the actual difference in calculation is actually much more extreme. If the organization uses the EOP Headcount as the denominator, they may be significantly overstating the Termination Rate for this department.

Many organizations do use a form of average headcount in their calculations. Instead of taking the beginning or start of year, they will take the EOP Headcount for each employee for each month and average across the year. It is a better method than a single point and time, but still and where possible especially in technology, use the daily average rolling headcount.

How it’s used?

Average Headcount on it’s own, is not something you’ll see used. It’s traditionally something that most organizations have difficult in explaining to end users. Traditionally it’s used as the denominator in rate measures (i.e. Termination Rate, Promotion Rate, Transfer Rate, Hire Rate) for better comparison purposes.

Table 1

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