Human Resources Demand and Supply Forecasting Techniques
Overview of Human Resources Demand and Supply
Human Resources Demand is defined as the organization's projected requirements for human resources, considering both the current requirements and future needs.
Human Resources Supply refers to the source of workers available to meet the identified demands, encompassing both internal sources (current employees) and external sources (potential hires).
There are two primary perspectives used to analyze demand forecasting: the objective approach and the subjective approach.
It is essential to integrate both the qualitative and quantitative perspectives to ensure the validity and reliability of human resource projections.
A simplistic approach, such as stating "I think we need people in because that is the number of employees we had last year at this time," is insufficient for professional forecasting.
Demand Forecasting Techniques
Index or Trend Analysis:
This is a popular and useful method for developing a demand forecast.
It is specifically applicable when the demand for labor is tied closely to a factor such as production levels.
In industries like manufacturing, complex analysis is used to calculate sales levels.
These sales levels are used to infer the number of products (referred to as "widgets") that must be produced; this is known as the operational index.
The trend analysis then calculates the specific number of employees required to produce that forecasted number of widgets.
Regression Method:
This involves a statistical regression used to understand changes in one variable (the dependent variable) when there is a change in one or more predictor (independent) variables.
This analysis is conducted while holding all other predictor variables fixed.
Change in a variable is represented via total variability or variance.
In this context, the number of human resources needed is always the dependent variable, as it is the value the planner is attempting to predict.
Example: The number of salespeople needed (dependent variable) may depend on the improvement of the economy or the decline of the Canadian dollar relative to the American dollar (independent variables).
Subjective Demand Forecasting Methods
Delphi Technique:
This is a subjective method incorporating the assumptions of experts involved in the forecast.
The HR planner selects a set of appropriate experts in the field who follow a formal process to reach a forecast.
The process ends either after a preset number of iterations of the forecasting question or once expert consensus is achieved.
Mechanism: It is conducted through questionnaires rather than face-to-face meetings.
Benefits:
Reduces issues of dominant personalities controlling the conversation.
Encourages shy individuals to speak up.
Prevents individuals with lower status or authority from being reluctant to share differing opinions.
Allows for experts who are geographically dispersed to participate.
Nominal Group Technique (NGT):
This is a variation of the Delphi technique with one major difference: after preparing initial estimates, experts are brought together in a face-to-face environment.
Experts present their estimates and their accompanying rationale to the group.
A secret vote is then cast to determine the most popular estimate.
Challenges: Problems include the time and cost associated with bringing experts to a single physical location.
The method typically deals with a single issue at a time, though the facilitator can capture spontaneity or address issues discovered during the session.
Supply Forecasting Techniques
Supply forecasting refers to determining the availability of people, both internally and externally, and utilizes six main methods:
Markov Analysis:
Produces a series of matrices detailing movement patterns to and from various jobs within the organization.
A quantitative model requiring the use of transitional probabilities (the likelihood an individual will exhibit a specific movement behavior).
It captures the effects of internal transfers and employment level changes.
Five categories of employee movement:
Remaining in the current job (no movement).
Promotion to a more highly classified job.
Lateral transfer to a job with a similar classification level.
Exit from the job (e.g., termination, layoff, voluntary leaving).
Demotion (noted as being relatively rare).
Transitional probability looks at the likelihood an individual in a specific job will exhibit one of these behaviors, usually looking into the future.
It focuses on overall movement rates between job levels based on historical patterns rather than individual employees.
Constraints: Requires historical patterns; requires a relatively stable environment; sensitive to economic changes. If the environment is unstable, personal observations are needed to explain movements.
Values of the Markov model:
Determines the number of personnel moving annually and over specified time periods between levels.
Identifies the number and location of required external hires.
Maps movement patterns and expected duration in jobs to establish career paths.
Calculates the number and percentage of starters at one level who will reach a target job level by a specified time.
Linear Programming:
A complex mathematical procedure for project analysis in business and engineering.
Determines the optimum supply mix to minimize costs or constraints.
Can program conditions like desired staffing ratios (internal versus external mix).
Allows for "what if" scenarios by changing assumptions.
Requires linear relationships among constituent elements.
Example: Determining the monthly workforce size while minimizing the total cost of hiring, layoff, overtime, and regular time wages.
Skills and Management Inventories:
A Management Inventory is an individualized record for managerial, professional, or technical personnel.
It includes all elements of a Skills Inventory plus specialized details:
History of management/professional jobs held.
Record of management/professional training and completion dates.
Key accountabilities (e.g., budget size controlled, number of subordinates).
Assessment center and appraisal data.
Professional and industry association memberships.
These serve as an internal account of available talent, useful during mergers or downsizing.
Data can be managed via Excel or a Human Resources Management System (HRMS) database.
Succession and Replacement Management
Succession Management: The process of ensuring pools of skilled employees are trained and available to meet strategic objectives. It develops internal people for future business leadership positions.
Replacement Management: The process of finding employees for key managerial positions, acting as the heart of succession planning when taken narrowly.
Effective Talent Pool Management: Concerns building feeder groups throughout the entire leadership pipeline.
Replacement Planning: Narrowly focused on identifying specific backup candidates for senior positions.
Philosophy: Top talent should be managed for the greater good of the entire enterprise.
Movement and Vacancy Models
Movement Analysis:
Analyzes the chain or "ripple effect" that promotions or job losses cause on other personnel.
Identifies the total number of vacant positions and the total personnel movements caused by filling them.
The total number of personnel movements is always the number of vacant positions.
Example: Bumping privileges in unionized environments, where a laid-off senior worker displaces a worker with lower seniority.
Planning time is typically . It accounts for replacements needed due to movements rather than just expansion.
Vacancy Model (Renewal or Sequencing Model):
Analyzes flows by examining inputs and outputs at each hierarchical or compensation level.
Has higher predictive capacity than Markov models over both short and long-term periods.
The timeframe is usually into the future.
It calculates requirements from the top down, beginning at the highest authority level because standard movement is from bottom to top.
It specifies the number of internal and external personnel required at every level and for the organization as a whole.