Workforce Planning and Forecasting

Pragya Gupta
Associate Professor
 Workforce Planning

The availability of the talent needed to execute a desired business

strategy will influence whether that strategy is ultimately
successful.

Workforce planning: the process of predicting an organization’s

future employment needs and the availability of current employees
and external hires to meet those employment needs and execute
the organization’s business strategy.

Workforce planning is the foundation of strategic staffing because

it identifies and addresses future challenges to a firm’s ability to get
the right talent in place at the right time to execute its business
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strategy.
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 Workforce Planning Process
1. Identify the business strategy.
2. Articulate the firm’s talent philosophy and strategic staffing
decisions.
3. Conduct a workforce analysis.
4. Develop and implement action plans. Develop action plans to
address any gaps between labor demand and labor supply forecasts.
• The action plans should be consistent with the firm’s talent philosophy, and
can include recruiting, retention, compensation, succession planning, and
training and development.
• Action plans can be short-term or long-term, depending on the firm’s needs
and the predictability of the environment.

5. Monitor, evaluate, and revise the forecasts and action plans. As the
environment changes, forecasts and action plans may need to
change as well. 5-3

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Workforce Planning Process

Figure 5-1

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Forecasting

• Given the uncertainty of forecasts, construct estimates as a range,

providing low, probable, and high estimates.

• Recalculate estimates as changes happen in the organization’s

internal and external environments and as the firm’s assumptions

and expectations change.

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Forecasting Business Activity

An organization’s product demand directly affects its need for labor

Locate reliable, high-quality information sources within and outside

of the organization to forecast business activity

Types of business activity forecasts:

• Seasonal

• Interest rate

• Currency exchange

• Competitors

• Industry and economic

• Others Pragya 6
 Forecasting Labor Demand

• It is a good idea to identify minimal as well as optimal staffing levels

when analyzing labor demand.

• An organization’s demand for labor depends on its forecasted business

activity and its business needs, which depend on its business strategy.

• Business needs can include things like:

• Achieving the staffing levels necessary for generating a given amount of
revenue within a particular period of time (e.g., salesperson staffing levels
necessary to generate $5 million of revenue within 6 months)

• Increasing staffing levels to execute a growth strategy

• Decreasing staffing levels during a restructuring

• Obtaining the new talents needed to create new products or provide

different services
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Ratio Analysis

Assumes that there is a relatively fixed ratio between the

number of employees needed and certain business metrics.
• Using historical patterns within the firm helps to establish a reasonable range
for these ratios.
• This process can be used for either justifying new positions or demonstrating
the need for layoffs.

Some possible ratios:

• Production to employees
• Revenue per employee
• Managers to employees
• Inventory levels to employees
• Number of customers or customer orders to employees
• Labor costs to all production costs
• The percent utilization of production capacity to employees

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Scatter Plots

If an area has a
population of
44,000 then 8
ambulance drivers
would be
predicted to be
needed

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Trend Analysis

Uses past employment patterns to predict future needs.

For example, if a company has been growing five percent annually for
the last eight years, it might assume that it will experience the same
five percent annual growth for the next few years.
Any employment trends that are likely to continue can be useful in
forecasting labor demand.
Because so many factors can also affect staffing needs, including
competition, the economic environment, and changes in how the
company gets its work done (e.g., automation might improve
productivity), trend analysis is rarely used by itself in making labor
demand forecasts.

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Judgmental Forecasting

Relies on the experience and insights of people in the organization to

predict future needs.
Top-down: organizational leaders rely on their experience and knowledge
of their industry and company to make predictions about what future
staffing levels will need to be. Top managers’ estimates then become
staffing goals for the lower levels in the organization.

In some cases, particularly when companies are facing financial difficulties
or restructuring, budgets may determine these headcount numbers.

Bottom-up: uses the input of lower-level managers in estimating staffing

requirements. Based on supervisors’ understanding of the business
strategy, each level provides an estimate of their staffing needs to execute
the strategy. The estimates are consolidated and modified as they move up
the organization’s hierarchy until top management formalizes the
company’s estimate of its future staffing needs into staffing goals.
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Forecasting Labor Supply

Combining current staffing levels with anticipated staffing

gains and losses results in an estimate of the supply of labor for
the target position at a certain point in the future.
Anticipated gains and losses can be based on historical data
combined with managerial estimates of future changes.
The external labor market consists of people who do not
currently work for a firm.
Afirm’s internal labor market consists of the firm’s current
employees.

COST of HIRING ?

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Internal Labor Market Forecasting Methods
Judgment

Talent inventories: summarize each employee’s skills, competencies, and

qualifications

Replacement charts: visually shows each of the possible successors for a job
and summarizes their present performance, promotion readiness, and
development needs

Employee surveys to identify the potential for increased turnover in the future

Labor supply chain management: The basic foundation of any supply chain
model is to have the right product, in the right volume, in the right place, at the
right time, with the right quality
Businesses use multiple suppliers so that they can quickly change and scale to
meet changing business needs.
Supply chain management principles of inventory management, planning, and
optimization can be easily applied to people.
Software and services allow companies to match employees' expertise and
knowledge to business needs and deploy the right people just as assets would
be deployed in a supply chain.

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Replacement Chart

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Resolving Labor Supply/Demand Gaps
Action plans proactively address an anticipated surplus or shortage of
employees.
Whether a shortage or surplus of applicants is the result of temporary
factors or whether it reflects a trend that is likely to continue, is an
important factor to understand, because different staffing strategies are
appropriate for each.

Temporary Talent Shortage

Persistent Talent Shortage

Reduce its demand for the talents that will be in short supply
 By increasing their use of automation and technology, and by redesigning jobs
so that fewer people with the desired talent are needed.
And/or increase the supply of the qualifications it needs

Temporary Employee Surplus

Permanent Employee Surplus

Early retirement incentives, layoffs, and not filling vacated positions,

reassignments, retraining, hiring freeze Pragya 15
Staffing Planning

In addition to WF Planning, planning the staffing process is important

The three questions that need to be answered are:
1. How many people should we recruit?
Staffing yields: the proportion of applicants moving from one stage of
the hiring process to the next
Hiring yields: the percent of applicants ultimately hired (also called
selection ratios)
2. What resources do we need?
Workload-driven forecasting: based on historical data on the average
number of hires typically made per recruiter
Staffing efficiency driven forecasting: the total cost associated with
the compensation of the newly hired employee
3. How much time will it take to hire?
Continuous recruiting can shorten the hiring timeline
Batch recruiting: recruiting a new applicant pool each time
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Staffing Yields

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Hiring Timeline

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More questions?…

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