Human Resource Forecasting
HR DEMAND FORECAST
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.
In a manufacturing company, the sales budget would be
translated into a production plan giving the number and type of
products to be produced in each period.
Forecasting Techniques
Forecasting techniques vary from simple to sophisticated ones.
Some techniques are:
1. Managerial judgement
2. Ratio-trend analysis
3. Work-study techniques
4. Flow models
Managerial Judgement: This technique is very simple. In this,
managers sit together, discuss and arrive at a figure, which would
1
be the future demand for labour. The technique may involve a
‘bottom-up’ or a ‘top-down’ approach.
Ratio-trend Analysis: This is the quickest forecasting technique.
The technique involves studying past ratios say, between the
number of workers and sales in an organization and forecasting
future ratios, making some allowance for changes in the
organization or its methods. The following table shows how an
analysis of actual and forecast ratios, between the number of
routine proposals to be processed by an insurance company’s
underwriting department and the number of underwriters
employed could be used to forecast future requirement.
Demand forecast –inspectors
Year
No. of employees
Production
Ratio
Inspector Inspector :
Production
Actual
-3
1500
150
1:10
-2
1800
180
1:10
Last year 2000
180
1:11
Next
2200
200+
1:11
2500
210+
1:12
year
Forecast
+2
2
+3
2750
230+
1:12
Word-study techniques: Word-study techniques can be used
when it is possible to supply work measurement to calculate the
length of operations and the amount of labour required. The
starting point in a manufacturing company is the production
budget, prepared in terms of volumes of sellable products for the
company as a using standard hours for direct labour. The
standard hours per unit of output are then multiplied by the
planned volume of units to be produced to give the total number
of planned hours for the period. This is then divided by the
number of actual working hours for an individual operator to
show the number of operators required. Allowance will have to
be made for absenteeism and idle time. Following is a highly
simplified example of this procedure.
1. Planned output for next year
20,000 units
2. Standard hours per unit
5
3. Planned hours for the year
1,00,000
4. Productive hours per man/year
2,000
(allowing normal overtime,
absenteeism and idle time)
5. Number of direct workers required 50
3
(4/5)
Flow models: Flow models are very frequently associated with
forecasting personnel needs. The simplest one is called the
Markov model. In this technique, the forecasters will:
1. Determine the time that should be covered. Shorter lengths of
time are generally more accurate than longer ones. However,
the time horizon depends on the length of the HR plan which,
in turn, is determined by the strategic plan of the organization.
2. Establish categories, also called states, to which employees
can be assigned. These categories must not overlap and must
take into account every possible category to which an
individual can be assigned. The number of states can neither
be too large nor too small.
3. Count annual movements (also called ‘flows’) among states
for several time periods. These states are defined as absorbing
(gains or losses to the company) or non-absorbing (change in
position levels or employment status). Losses include death or
disability, absences, resignations and retirements. Gains
include hiring, rehiring, transfer and movement by position
level.
4. Estimate the probability of transitions from one state to
another based on past trends. Demand is a function of
replacing those who make a transition.
4
SUPPLY OF HUMAN RESOURCES
Once the HR department projects future demand for human
resources, its next major concern is filling projected openings.
There are two sources of supply: internal and external. The
internal supply consists of present of present employees who can
be promoted or transferred, to fill expected openings. The
external supply consists of people such as employees of other
organizations and the unemployed.
Estimates of Internal Supply
Estimates of the internal supply involve more than merely
counting the number of employees. Planners audit the present
work force to learn about the capabilities of workers.
Considering present employees for future job openings is
important if workers are to have lifelong careers with their
employer rather than deadend jobs.
Audit and replacement charts are also important additions to the
HR department’s information base. With greater knowledge of
employees, the department can play recruiting, training and
career planning activities more effectively.
5
1. Human Resource audits: Human resources audits summarize
each employee’s skills and abilities. The audits of nonmanagers
are called skill inventories; the audits of managers are called
management inventories. Inventories of human resources are
often computerized to match talent with openings and are
updated periodically. Computerized records also facilitate
updating, which should be done at least every two years if
employees are encouraged to report major changes to the HR
department when they occur. Failure to update skills inventories
can lead to present employees being overlooked for job openings
within the organization. Management inventories should be
updated periodically since they are also used for key HR
decisions.
2. Replacement charts: Replacement charts are a visual
representation of who will replace whom in the event of a job
opening. The chart, much like an organization chart, depicts the
various jobs in the organization and shows the status of likely
candidates. This is called Succession planning.
Estimates of External Supply
When there are no replacements or when the opening is at the
entrylevel, they is a need for external supply of human
resources.
6
1. External needs: Growth is primarily responsible for the
number of entrylevel job openings, especially is the
company promotes from within to fill job vacancies. The lack
of promotable replacements creates job openings that need to
be filled externally.
2. Labour market analysis: Success in finding new employees
depends on labour market and on the skills of the employment
specialists in the human resources department. For highly
skilled jobs, the relevant market may be in the entire country.
Whether employment rates are high or low, many needed
skills are difficult to find.
3. Community attitudes: They affect the nature of the nature of
the labour market. Antibusiness or nongrowth attitudes
may cause employers to locate else where.
4. Demographics: Demographic trends are another longterm
development that affect the availability of external supply.
Fortunately for planners, these trends are known years in
advance of their impact.
CASE STUDY: LARSEN & TOUBRO
I am familiar with Larsen & Toubro Limited. It is India's largest
engineering and construction conglomerate with additional
interests in IT and electrical business. A strong, customer-
7
focussed approach and the constant quest for top-class quality
have enabled the Company to attain and sustain leadership
position for over six decades.
L&T follows ‘bottom up’ of management judgement and work
study techniques for demand forecasting. Forecasting process in
L&T begins during November of every year. The department
heads prepare their personnel estimates (based on details of
production budget supplied to them) and submit the estimates to
the respective personnel mangers (L&T has 11 plants in our
country). The personnel heads will review the estimates with the
departmental heads and will send final reports to the Mumbai
office where a centralized HR department is located. Estimates
are reviewed by the HR department and final figures are made
known to those personnel managers who initiate steps to hire the
required number of people in the following year. The forecast is
made for a quinquennium, but is broken down to yearly
requirements.
8