Chapter 6 The HR Forecasting Process

HR forecasting is the heart of the HR planning process by ascertaining the net requirements for staff by determining the levels of demand for, and supply of human resources now and in the future.

Forecasting Activity Categories:
1. Transaction-based forecasting- focuses on tracking internal change instituted by the organizations managers
2. Event-based forecasting- concern with changes in the external environment
3. Process-based forecasting- not focused on a specific internal organizational event but on the flow or sequencing of several work activities

*All three of these categories are important to have a comprehensive method for ascertaining HR requirements. This is only an approximation which stronly favours quantitative techniques. The most successful HR forecasting processes use both qualitative and quantitative data, as the accuracy has proven to be substantially higher (p. 143-144 Belcourt/McBey)

Benefits of HR Forecasting:
1. Reduces HR costs
2. Increases organizational flexibility
3. Ensures a cloe linkage to the Macro Business Forecasting Process
4. Ensures that organizational requirements take precedence over issues of resource constraint and scarcity

Human Resources Demand - the organization’s projected requirement for human resources
Human Resources Supply - the source of workers to meet demand requirements, obtained either internally (current members of the organization’s workforce) or from external agencies

Key Personnel Analyses Conducted by HR Forecasters
-Specialist/Technical/Professional Personnel - These employees tend to be in high demand due to trade qualifications that are in demand
-Employment Equity-Designated Group Membership - Should be a proportional representation of each grouping
Designated Groups - identifiable groups deemed to need special attention; in the case of Canadian HR, these are people of Aboriginal descent, women, people with disabilities and members of visible minorities
-These groups typically receive the most discrimination within an organization

-Managerial and Executive Personnel Good management and executive are in demand - key leadership skills are essential for success
-Recruits Should internal or external recruits be used?
5 Stages of the Forecasting Process
  1. Identify organizational goals, objectives, and plans
  2. Determine overall demand requirements for personnel
  3. Assess in-house skills and other internal supply characteristics
  4. Determine the net demand requirements that must be met from external, environmental supply sources
  5. Develop HR plans and programs to ensure that the right people are in the right place

Environmental Factors affecting the HR process include:
  • economy
  • labour markets and unions
  • govermental laws and regulations
  • industry and product life cycles
  • technological changes
  • competitor labour usage
  • global market for skilled labour
  • demographic changes

Organizational Factors Affecting HR Forecasting:
  • Corporate mission, strategic goals
  • Operational goals, production budgets
  • HR Policies
  • Organizational structure, restructuring
  • Worker KSA's, competencies, expectations
  • HRMS level of development
  • Organizational culture, climate, job satisfaction, communications
  • Job analysis, workforce coverage, current data

HR Forecasting Time Horizons
Current Forecast: The one being used to meet the immediate operational needs of the organization. (Up to the end of the current operating cycle, or a maximum of one year into the future.)
Short-run Forecast: Extends forward from the current forecast and states the HR requirements for the next one-to-two year period beyond the current operational requirements.
Medium-run Forecast: Typically, one that identifies requirements for two to five years into the future.
Long-run Forecast: Typically extends five or more years ahead of the current operational period. Due to the number of changes that could affect an organization's operations, the long-run forecast is extremely flexible.

The outcome of forecasts derived from these four time horizons leads to predictions and projections.

Prediction: A single numerical estimate of HR requirements associated with a specific time horizon and set of assumptions.

Projection: Several HR estimates based on a variety of assumptions.

Envelope: (Synonymous with Projection) An analogy in which one can easily visualize the corners of an envelope containing the upper and lower limits or "bounds" of the various HR projections extending into the future.

Scenario: A proposed sequence of events with its own set of assumptions and associated program details.

Contingency Plans: Implemented when severe, unanticipated changes to organizational or environmental factors completely negate the usefulness of the existing HR forecasting predictions or projections.

Determining Net HR Requirements
1. Determine HR Demand: Variety of factors are to be considered * each organizational subunit has to submit net personal requirements to forcasting unit, based on future needs for labour required to meet agreed objectives (e.g., market share/production level). HR demand figure must include individuals needed to maintain/replace personnel who reitre/die/fired/terminated/long term care, replacements for those who are promoted/transferred. Subunit demands are then aggregated and used as starting point for HR demand forecasts.
Planned future changes in organizational design or restructuring with flucuated staffing levels must be incorporated into the equation to revise aggregated new departmental demand requirements.
Broken down into the forecasting time horizons and containing (1) the number of employees required by each subunit and by the organization in total (2) the employee skill sets, competencies or specifications required for each of the positions
Conduct a cost estimate (HR Budget) for the net HR demand figure to determine if forecasts are realistic given financial considerations
2. Ascertain HR Supply
- internal supply --> current members of the organizational workforce who can be retained, promoted, transferred, to fill anticipated HR requirements
- external supply --> potential employees who are currently undergoing training, working for competitors, members of unions of professional associations, or are I. A transitional stage between jobs orunemployment

There are several reasons many organizations use external labour to meet their HR demand:

  • when their internal searches and job posting process fails to identify sufficient numbers of high-quality internal candidates
  • internal employees may be comfortable with the status quo, whereas external applicants can introduce the organization to competitive insights and creative operational techniques
  • an internal candidate may be considered more expensive than an external candidate
  • the use of headhunters may enable the organization to lure away from competitive firms proven high performers
  • if organizational objectives require a shift in operating techniques, culture, and past practices, hiring external candidates is often desirable for shaking up the organization

3. Determine Net HR Requirements
- external supply requirements = replacement + change supply components
- change supply = hiring to increase (or decrease) the overall staffing level
- replacement supply= hiring to replace all normal losses
- external supply = current workforce size x (replacement % per year + change % per year)
Example: Current workforce size 1000 workers, an annual historical replacement/loss rate of 11%, and a desired future growth of 7%.
external supply = 1000 (.11 + .07) = 110 + 70 = 180 *110 new hires to replace departing workers and 70 workers are required for new growth.
4. Institute HR Programs: HR Deficit and HR Surplus
- HR deficit --> occurs when demand for HR exceeds the current personnel resources available in the organization's workforce (HR internal supply)
- HR surplus --> occurs when the internal workforce supply exceeds the organization's requirement or demand for personnel

When an HR surplus exists, a number of policy options can be considered, including:
  • Employees might be laid off
  • Employers might terminate employees if certain jobs are deemed redundant
  • Job Sharing: when two or more employees perform the duties of one full-time position, each sharing the work activities on a part-time basis.
  • Secondments or leaves occur when the organization lends some of its excess workforce to community groups or permits those surplus workers to take educational leave or training away from the operational workplace.
  • Attrition is the process of reducing an HR surplus by allowing the size of the workforce to decline naturally due to the normal pattern of losses associated with retirements, deaths, voluntary turnover, and so on.
  • A hiring freeze is a prohibition on all external recruiting activities

When an HR Deficit exists, a number of strategies that can be considered include:
  • Offer existing employees the opportunity to work overtime.
  • The hiring of part-time and full-time employees.
  • The use of temporary employment agencies and contract workers.
  • Transfers and promotions of existing employees into areas of the business that are experiencing a shortage.

Using the HRMS system can be a great tool to forecast and selection of your employee base. On page 146 GIGO is one of the biggest concerns with using the HRMS to its full potential. Usually the start of a project (inputting all the information)
goes very well however the upkeep of the system is where things call fall apart. Having the time to update the system with the changes of the existng employees and a company is doing a large hire can be very difficult. This system can then
be looked at as a pain rather then what it was intended for. Having said that when doing a several hires for different jobs and forecasting how many outside hires will need to be done the system works very well.