Human Resource Demand Forecasting

  • Post last modified:19 September 2021
  • Reading time:10 mins read

What is Human Resource Demand Forecasting?

Human resource (HR) demand forecasting is the process of estimating the future quantity and quality of people required. The basis of the forecast must be the annual budget and long-term corporate plan, translated into activity levels for each function and department.

The very crucial component of HRP is forecasting the number and type of people needed to meet organisational objectives. There are a variety of organisational factors, including competitive strategy, technology, structure, and productivity can influence the demand for labour.

For example, in the present scenario utilization of advanced technology is generally accompanied by less demand for low-skilled workers and more demand for knowledge workers.


HR Demand Forecasting Factors

Let us consider a few of the main factors, which can help to forecast the demand of human resources in an organisation. These factors can be easily categorised in three different sources which are as follows:

  1. External environmental challenges
  2. Organizational Decisions
  3. Workforce Factors

External environmental challenges

These challenges arise from some sources such as economic developments, political, legal, social and technical changes, and competition.

For example, at the time of liberalization, opening up of the banking sector, capital market reforms, the online trading systems have created a huge demand for finance professionals during 1990-1995 in India. The demand for certain categories of employees and skills is also influenced by changes in political, legal and social structure in an economy from time to time.

Likewise, firms employing the latest technology in construction, power, automobiles, software etc., have greatly enhanced the worth of technicians and engineers during the last couple of years. Technology, however, is a double-edged weapon and hence, its impact on HR plans is difficult to predict and will certainly impact the HRP.

For example, computerization programs in Banks, Railways, Post and Telegraph Departments may reduce demand in one department (bookkeeping, for example) while increasing it in another (such as computer operations) which was a major change.

High technology with all its attendant benefits may compel organisations to go lean and downsize workforce suddenly as per the market. Employment planning and HRP under such situations become complicated.

Forecasting is frequently more an art than a science, providing inexact approximations rather than absolute results and the ever-changing environment in which an organisation operates contributes to this problem.

Organizational Decisions

HRP needs to take into account the rest of the organisation’s strategic plans, sales and production forecasts and new ventures to be more accurate.

For example, estimating changes in product or service demand is a basic forecasting concern, as is anticipating changes in national or regional economics which enable the planning expert to forecast the requisite production schedules and thereby estimate whether any extra workforce is needed in future.

A community hospital can anticipate internal changes in technology, organisation or administration to forecast of staffing needs like Max health care is right now into while setting up operations at Gurgaon near Delhi but then these are workable only if they are within the organisation’s financial resources.

It is the decision of the organisation to incorporate some change as per the situation of the market and furthermore, where plans are changed, the effect of the changes must be estimated. Proposed expansion, contraction or diversification of the organisation’s activities will obviously affect the demand for labour in general or for particular skills. This information may be estimated by market research, competitive analysis, trends in technological advances and so on.

Workforce Factors

Demand is not only influenced by the above factors but by the internal in and outflux of the employees through retirements, terminations, resignations, deaths and leaves of absence, etc.at the same time.

These actions by employees become fairly predictable, once you spend more and more time with the organisation or a certain industry and the above factors will affect how much labour will be required, given the expected productivity or work rate of different types of employees and the expected volume of business activity. One thing to be noted is that productivity will depend on capital expenditure, technology, work organisation, employee motivation and skills, negotiated productivity deals and a number of other factors.

Thus, the cost of existing labor – including overtime, training, benefits and so on, will put a financial constraint on the organization’s manpower levels.


HR Demand Forecasting Techniques

There are two HR demand forecasting techniques:

Forecasting is primarily quantitative in nature when concentrating on human resources needs and, in large organisations, is accomplished by highly-trained specialists.

Quantitative approaches to forecasting can employ sophisticated analytical models, although forecasting may be as informal as having one person who knows the organisation anticipates future HR requirements of the organisation. Organisational demands will ultimately determine which technique is used. Regardless of the method used, however, forecasting should not be neglected, even in relatively small organisations.

Quantitative

This approach to forecasting involves the use of statistical or mathematical techniques; they are the approaches used by theoreticians and professional planners. One basic example is trend analysis, which forecasts employment requirements on the basis of some organisational index and is one of the most commonly used approaches for projecting HR demand.

Following several steps typically does trend analysis:

  1. First, select an appropriate business factor and it should be the best available predictor of human resources needs. Frequently, sales or value added is used as a predictor in trend analysis

  2. Then plot a historical trend of the business factor in relation to number of employees and the ratio of employees to the business factor will provide a labour productivity ratio (for example, sales per employee)

  3. Thirdly, compare the productivity ratio for at least the past five years

  4. Then calculate human resources demand by dividing the business factor by the productivity ratio

  5. To end with, project human resources demand out to the target year

Other than trend analysis, there are more sophisticated statistical planning methods include modelling or multiple predictive techniques. Several mathematical models, with the aid of computers, are also used to forecast HR needs, e.g., optimization models, budget and planning analysis.

The trend analysis relies on a single factor (e.g., sales) to predict employment needs. The more advanced methods combine several factors, such as interest rates, gross national product, disposable income, and sales, to predict employment levels. The costs of developing these forecasting methods used to be quite high; advances in technology and computer software have made rather sophisticated forecasting more affordable to even small businesses.

Qualitative

In contrast to quantitative approaches, qualitative approaches to forecasting are less statistical. It is attempting to reconcile the interests, abilities, and aspirations of individual employees with the current and future staffing needs of an organisation. In both large and small organisations, HR planners may rely on experts. These experts assist in preparing forecasts to anticipate staffing requirements.

For example, In the Expert forecasts method, managers estimate future human resource requirements, their experiences and judgments to good effect. Management forecasts are the opinions of supervisors, department managers, experts, or others knowledgeable about the organisation’s future employment needs.

Delphi technique is another qualitative forecasting method in which it attempts to decrease the subjectivity of forecasts by involving a group of preselected individuals and soliciting and summarizing the judgments. Thus a group decision-making process is invoked which in turn, requires a great deal of process orientation to enhance coordination and cooperation for satisfactory forecasts and this method works best in situations where dynamic technological changes affect staffing levels.

Ideally, HRP should include the use of both quantitative and qualitative approaches as per the requirement. In combination, the two approaches serve to complement each other. Thus, the combination provides a more complete forecast by bringing together the contributions of both theoreticians and practitioners.

Whatever technique the concerned person might utilize, they need to be done systematically. The HR planners many times go further and analyze the demand on the basis of the following:

  • Workforce analysis method is used to determine the rate of influx and outflow of employee. It is through this analysis one can calculate the labour turnover rate, absenteeism rate, etc. Qualitative methods go a long way in analyzing the internal flow created by promotions, transfers etc.

  • Workload analysis is used to calculate the numbers of persons required for various jobs with reference toplanned output and this takes into consideration various factors such as absenteeism, and idle time, etc. Both quantitative and qualitative techniques are utilized for accurate results.

  • Job analysis is helps in finding out the abilities or skills required to do the jobs efficiently i.e. KSA (knowledge, skills and abilities). A detailed study of jobs is usually made to identify the qualifications and experience required for the staffing purpose. Job analysis includes two things: job description and job specification.

    Job description, thus, is a factual statement of the duties and responsibilities of a specific job and it gives an indication of what is to be done, how it is to be done and why it is to be done. Job specification providesinformation on the human attributes in terms of education, skills, aptitudes and experience necessary to perform a job effectively.

Determining Manpower Gaps

In the final stage, the HR planner has to balance out the demand and supply gap. The closer the gap the better it is for the organisation when it actually goes into procuring. Now it will be visible that how we can utilize the data we have collected in the last two stages.

For proper assessment, a comparison chart can be developed to find what is available and to what extent it can fulfill the demand forecast. This exercise helps us have an idea of the quantitative and qualitative gaps in the workforce and accordingly a reconciliation of demand and supply forecasts will give us the number of people to be recruited or made redundant as the case may be. This exercise forms the basis for preparing the manpower plan with accuracy.

In this process an organisation always needs to keep repeating this step as it operate in a dynamic environment. From time to time, changes in product mix, union agreements, and competitive action are some of the important things that need special attention. The human resource requirements thus identified are translated into a concrete manpower plan, backed up by detailed policies, and other human resources instruments and strategies for example, recruitment, selection, training, promotion, retirement, replacement, etc.

Further, the manpower plan is divided into the following resultant operational plans which are as follows:

  • Recruitment plan to identify that how many and what type of people is required and when they are needed; Redeployment planis to figure out the future movement of employees in organisation in terms of training and transfers.

  • Redundancy plan will indicate that in any organisation who is redundant, when and where; the plans for retraining, where this is possible; and plans for golden handshake, retrenchment, lay-off, etc.

  • Training plan is to chart out if training is required and if yes, when and to which level; whether it will be done in-house, done in phases or included as part of a formal induction program. This includes the cost and benefit analysis of all the options available out of HR plans.

  • Productivity plan will indicate reasons for employee productivity or reducing employees’ costs through work simplification studies, mechanization, productivity bargaining, incentives and profit sharing schemes, job redesign, etc.

  • Retention plan will indicate reasons for employee turnover and show strategies to avoid wastage through compensation policies, changes in work requirements and improvement in working conditions in organisations.

  • Check/reviews point’s shows the success of the entire exercise is dependent upon frequent reviews so that none of the factors are left out and changes are constantly taken care of. The important thing is to clearly demarcate point for periodical checks to incorporate deficiencies and periodic updating of manpower inventory based on training and performance reviews, in the light of changing circumstances.

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