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Workforce Planning

Objective: Gain an Understanding of Workforce Planning

The SPHR must lead an organization through the process of determining how many employees the organization needs and the characteristics that those employees should have to facilitate the accomplishment of organizational. Workforce planning is the process of determining how to staff the organization with the right employees at the right time and in the right place. As discussed in Chapter 2, workforce planning is increasingly indistinguishable from organizational strategic planning in those organizations where human capital is the critical factor in organizational success. For the purposes of discussion and explanation in this section, it is assumed that organization has completed its strategic-planning process and determined its strategic goals and objectives.

The purpose of workforce planning then becomes to determine the characteristics needed in the organization’s workforce to facilitate achievement of those objectives. In this scenario, workforce planning is strategic planning at the HR level and involves similar processes, including a SWOT analysis, which occurs at the organizational level. In simplistic terms, the HR function, under the leadership of the SPHR, must determine the numbers and types of employees needed and evaluate the availability of both internal and external individuals having the correct characteristics. Based on these analyses, a determination can be made as to the proper HR programmatic activities required to achieve the correct workforce composition. Workforce planning then involves three stages: forecasting workforce needs, determining internal and external supply of employees, and developing appropriate strategies to achieve forecasted needs in relationship to projected supply. These three processes are discussed in the following sections.

Forecasting Workforce Needs

The organization’s strategic plan and allied business plan provide guidance as to the number and type of employees that the organization needs during the planning period. Expansion, retrenchment, new products or services, introduction of new technology, entrance of new competitors in the market, economic conditions, employee retirements, workforce turnover, and so forth must be considered when forecasting workforce needs. Forecasting is the process of using both historical data and predicted scenarios to determine workforce needs during a stated planning period. Following is a discussion of several forecasting methods that are often used.

Trend Analysis

Trend analysis involves studying historical organizational employment levels to predict future employment levels. For example: If, on average, employment levels in the organization have increase 5% per year, it might be logical to forecast a 5% increase for the next planning period. A more accurate forecast using this method might be to evaluate trends in separate departments or other organizational subentities and then aggregate the increases (or, potentially, decreases) at the organizational level. Doing so provides more specificity as to not only the numbers of employees but also the types of employees needed.

Trend analysis assumes that history will repeat itself. In today’s more volatile times that might not be the case. However, trend analysis provides some data on which a final forecast can be made.

Ratio Analysis

Ratio analysis is a forecasting technique that assumes a set relationship between one variable and another, and that the relationship allows for the prediction of workforce needs. Assuming no increases in productivity, an organization might be able to predict total workforce requirements based on predicted total sales or total productivity. For example: If, historically, it takes five employees for each 100,000 unit of product produced, a projected increase of 1,000,000 units per year will require an additional 50 employees.

Organizations often have standard staffing tables that can be used in ratio analysis. As an example, a restaurant chain would know how many servers, cooks, managers, and so forth are needed to staff a restaurant. Based on a projected expansion in terms of number of restaurants, increase in workforce needs can be forecast.

Turnover

Analysis of historical turnover—in reality a type of trend analysis—provides additional data for forecasts. Average turnover rates provide an indication of the number of new employees required just to maintain current employment levels. Obviously, turnover is affected by many environmental factors, most notably unemployment rates, so other variables must be considered when using these data for forecasting.

Nominal Group Technique

The nominal group technique is a group-forecasting and decision-making method that requires each member of the group to make an independent forecast prior to discussion of any forecasts. Members of the group meet and independently develop a forecast. Each member must present his or her forecast before any of the forecasts are discussed. After all presentations are made and clarifying questions addressed, the group works to come up with a final forecast.

Delphi Technique

The Delphi technique is another group forecasting method in which experts independently develop forecasts that are shared with each other, but in this approach the experts never actually meet. Each of the members refines his or her forecasts until a group consensus is reached.

Managerial Judgment

Managers and executives are asked, based on their experience and knowledge, to develop forecasts. Forecasts, like budgets, can be a top-level overall estimate or a bottom-up aggregation of multiple departmental estimates. Top-level forecasts provide a gross indicator of needed employment levels, but do not indicate where those employees should be allocated in the organization. Bottom-up forecasts, provided by managers in the various departments, provide a better idea of allocation of the workforce and the types of employees that are needed. However, bottom-up forecasts tend to overestimate workforce needs as each manager tries to increase staff size.

Statistical Forecasts

Statistical analysis was discussed in Chapter 2 in the section on research. Various statistical procedures, including regression analyses, can be used to develop forecasts based on scenarios or theorized relationships between variables.

Computer Modeling

Many organizations use sophisticated forecasting software. This permits the organizations to evaluate workforce needs under various scenarios.

Multiple Methods

In the final analysis, no single forecasting method is likely to be accurate every time. Most organizations use multiple methods to develop different forecasts. Ultimately, it is likely to be a top-level manager, using intuition based on accumulated knowledge and years of experience, that makes the final determination of the most likely forecast.

Determining Internal and External Supply of Employees

Not only must the demand for employees be determined, but workforce planning must include an analysis of the potential supply. Forecasts must be made of the supply of candidates for jobs within the organization and the supply external to the organization in the relevant labor market. Methods of forecasting supply, internally and externally, are discussed in the following section.

Internal Supply

The internal supply of candidates can be determined using a number of methods, such as replacement charts, succession plans, human resource management information systems, and departmental estimates. A brief discussion of each of these methods follows.

Replacement Charts

Replacement charts are manual or automated records indicating which employees are currently ready for promotion to a specific position. If needs are forecasted for a particular job, replacement charts provide data with which to determine the supply of internal candidates to fill the openings.

Succession Planning

The concept of succession planning is similar to replacement charting except the time perspective is different. Succession planning is the process of identifying candidates for future openings. It is a longer-term plan for developing candidates to fill positions. Traditionally, succession planning has been reserved for only high-level positions. However, because of the increased importance of human capital in many organizations, succession plans are being developed for the orderly replacement of lower-level employees.

Human Resource Management Information Systems

Many human resource management information systems frequently contain data on qualifications or skills of current employees. After workforce demand is forecast, the database can be queried regarding the supply of potential internal candidates that possess the necessary qualifications or skills.

Departmental Estimates

Organizations are not static. Most organizations and their component departments experience constant flows of employees both in and out. Analysis of this movement provides valuable information to forecast internal supply. Table 3.4 provides the formula used to forecast internal supply within a particular department in the organization and common sources of employee movement in and out.

Table 3.4 Estimated Internal Labor Supply for a Department

Current Staffing Level – Outflows + Inflows = Internal Supply

Inflows

Outflows

Transfers from other departments

Retirements

Hires from the external labor market

Resignations

Recalls from layoffs

Death

Returns from leaves of absence and sabbaticals

Promotions to other departments

 

Transfers to other departments

 

Terminations

External Supply

There is a huge amount of information available to assist in the forecasting external supplies of labor. State and local economic and workforce development agencies typically can provide data on the labor supply availability. The United States Department of Labor (http://www.dol.gov/) has data available for virtually any location and publishes annual forecasts of labor supply by occupation, and the Bureau of Labor Statistics (http://www.bls.gov/) provides a wide variety of labor force information that is available online. In addition, various professional organizations regularly analyze labor availability within their respective professions. The availability of external candidates is affected by

  • Economic conditions
  • Unemployment rates
  • College and high school graduation rates in the relevant labor market
  • Net migration in or out of the area
  • Relative skill levels of potential candidates in the labor market
  • Competition for labor in the labor market
  • Changes in the skill requirements of the organization’s potential job openings

You should be familiar with the various methods of forecasting both demand for and supply of employees and candidates.

Determination of Strategies

The analysis of demand and supply for labor leads the SPHR to develop appropriate strategies to achieve the planned level of employment. The result of the analysis can result in one of three conditions:

  • Equality In which case the strategy becomes one of retaining current employees
  • Insufficient number of employees In which case the strategy becomes recruitment
  • Too many employees In which case the strategy becomes decruitment

Retention of employees involves strategies designed to maintain or improve job satisfaction and organizational commitment. They are discussed throughout this entire book as they apply to a particular program area. For example, retention strategies involve creating pay equity and providing desired benefits when compensation and benefits strategies are being developed. Both recruitment and decruitment (organizational exit) are discussed later in this chapter.

It would be very similar if the analysis reveals that only one of the conditions from the preceding list exists. However, that is not often the case and the SPHR frequently finds that some departments are currently staffed appropriately for future needs during the planning period, whereas some departments have too many employees and others too few. Thus, strategies of recruitment, decruitment, and retention must be developed simultaneously and interdependently because the recruitment objectives of one department can often serve to fulfill the decruitment objectives of another.

The diagram in Figure 3.1 is often referred to as a yield funnel. It provides a basis for understanding two major programmatic activities that are discussed later in this chapter: recruitment and selection. Assuming that an expansion of the workforce is required, strategy determination is affected by the forecasts of yield rates and the timeframes required for each step in the recruitment and selection process. Yield rates are a comparison of the number of applicants or potential applicants at one stage in the recruitment/selection process with the number of applicants that remain available at the next stage. To determine programmatic activities and action plans, the SPHR must work backward from the total number and types of employees that will be needed, including dates on which they will be needed. Based on experience, moderated by any projected changes in timeframes or yield rates, the planning process must incorporate an evaluation of the scope and timing of activities to produce the desired results. In the case of the example in Figure 3.1, the SPHR must lead the organization in a determination as to the timing of recruitment efforts and the number of actual contacts that must be made to produce the 10 new employees at the appropriate time. The various stages of this process are discussed in subsequent sections of this chapter.

Figure 3.1 A yield funnel.

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