Human resources forecasting involves projecting labour needs and the effects they’ll have on a business. An HR department forecasts both short and long-term staffing needs based on projected sales, office growth, attrition, and other factors that affect a company’s need for labour. In addition to forecasting the number and type of workers, you’ll need, Human Resource planning includes analyzing the various costs and administrative work that go along with adding workers or downsizing.
The basics of human resource forecasting
Just as business plans for financial growth, it’s also important to plan for the growth of a workforce. HR forecasting is the process of predicting demand and supply. This may include the number of employees or types of skills that are needed and available to get the job done. Basic forecasting techniques include:
- Yearly sales or production projections.
- Quantitative assessments, using mathematical calculations, that examine how many employees are needed and when.
- Qualitative assessments, based on judgment, that determine culture fit and skill qualifications or desired personal and professional qualities.
Existing businesses that have been operating for several years can also conduct trend analysis to create a staffing plan for the future. Trend analysis allows business leaders to examine the relationship between past and future staffing needs using an operational index metric. Newer businesses are advised to use ratio analysis to forecast staffing needs. Using this technique, business leaders examine causal factors such as sales volume to predict staffing needs.
Why do you need to do forecasting?
The most successful businesses utilise human resource forecasting to minimize risk. It’s especially important for growth-oriented businesses to “limit exposure to surpluses or shortages in labour.” Entrepreneurs, owners, and business leaders can use strategic human resource forecasting and planning to better understand workforce needs. As you evaluate labour demand during your strategic plan, your workforce may already have skills you can tap into as the business grows or you may find a need to augment or renew technology skills. Your business can meet labour demand from within, or use outside labour supply sources. As you build your HR forecast, it’s important to thoroughly review talent supply and factors impacting the availability of that talent. It’s often more costly to recruit new hires than to upskill or train existing current employees to increase productivity.
Some businesses need or want to invest all of their time and energy in business growth. That’s why many businesses rely on HR services to help forecast labour demand and supply. HR services can create organization and replacement charts that help identify important roles and functional needs across your business. Supply forecasting includes a review of the current labour market and employment law to ensure your business is both competitive and compliant.
Under this method, firstly experienced managers or executives estimate the manpower requirements for their respective departments. This is done on the basis of their knowledge of expected future workload and employee efficiency. At last, the top management then aggregates and approves the departmental estimates. This is a very easy and time-saving method. But it is quite subjective and is, therefore, suitable only for small firms. With the assistance of work-study, Operations and Management, and human resource experts can refine the estimates based on experience. This method helps in judging the informal group norms on Human Resource Forecasting.
This method uses time and motion study to analyse and measure work. Such studies help the managers to decide the standard time for per unit work. The following method shows this method: When it is possible to measure work and set standards, the work-study method is more suitable for repetitive and manual jobs. Job methods should not change frequently.
This method helps to calculate the ratios on the basis of past data. Firstly, it calculates the future ratios on the basis of the time series analysis/extrapolation, after making allowances for the changes in the organization, method, and jobs, if any. Extrapolation is a mathematical extension of past data into the future time period. Moving averages and exponential smoothing can help for projections. The company estimates the demand for human resources on the basis of ratios.
A mathematical model shows the relationship between independent variables and dependent variables. These models express various factors influencing manpower needs in the form of a formula. There are several types of models, e.g., regression, optimization models, probabilistic models, etc. These are complex and suitable only for large organizations. Future demand for human resources depends on several internal and external factors, some of which are given below:
Employment Trends: By comparing and analysing the staff during the past five years, the company can judge its trends in manpower.
Replacement Needs: These depend on firstly retirement, and then on death, resignation, and termination of employees. Its assessment is on the basis of past experience and retirement situation in the future.
Productivity: Improvements in productivity effects manpower need better utilization of existing manpower is one method of securing gains in productivity. Automation and computerisation is another method of productivity improvement. It will affect both the quantity and quality of manpower. Matching of skills with job requirements is the third method. Hence, Job analysis techniques are helpful in such a matching.
Benefits of HR forecasting
You need the proper talent to help your company grow and succeed. HR forecasting enables your company to estimate skill requirements, measure demand, evaluate labor supply, understand workforce needs, and design a strategy to fulfill your goals and growth targets. HR forecasting empowers your company to do more than just balance labor demand and supply. The following are some of the key benefits of human resources forecasting:
Develop effective budgets
By determining your personnel requirements, you may better estimate costs for your company. You may need to hire seasonal labor or raise salary levels to retain top talent to accomplish your business goals. The cost of benefits may also rise. HR forecasting allows you to accurately plan for overall human capital costs by providing insight into anticipated workforce expenses.
Make detailed workforce predictions
HR forecasting empowers you to obtain a deeper understanding of your staff in addition to assisting your company in meeting changing needs for new skills, production, and productivity. HR forecasting and research can assist you anticipate employee attrition due to retirement or market rivalry. It can also assist you in determining how changes in business strategy will affect your workforce, such as the implementation of new employment or manufacturing legislation, or the creation of a new product.
Regularly forecast HR requirements
Because business conditions are continuously changing, so is your personnel. It's critical to examine talent requirements on a regular basis in order to properly meet your HR needs. For instance:
If your company produces a product, labor requirements will fluctuate as sales grow and fall. Seasonal demand for that product, as well as other changes in customer demand, may affect your firm. HR and sales forecasting should collaborate in this situation to detect sales spikes or drops that may impact production and labor requirements. Regularly reviewing these estimates can help your company avoid falling behind on production and order fulfillment, producing too much inventory, or paying an overworked labor.
Wrapping it up...
HR specialists may assist growth-oriented firms with strategic HR planning and forecasting. Fully outsourced HR is designed for emerging businesses that haven't yet established an in-house HR team or prefer to spend their time and resources on their primary company. HR services cover the full employee lifetime and provide services and support. This will enable you to get access to the tools, resources, and manpower you need to perform critical HR tasks like HR forecasts, wage benchmarks, job descriptions, and training programs with a team of HR specialists on your side.
Benjamin Sombi is a Data Scientist, Entrepreneur, & Business Analytics Manager at Industrial Psychology Consultants (Pvt) Ltd a management and human resources consulting firm.
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