Chapter 5 Forecasting
· 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
Workforce Planning Process
1. Identify the business strategy.
2. Articulate the firm’s talent philosophy and
3. strategic staffing decisions.
4. Conduct a workforce analysis to identify possible
5. labor shortages and surpluses in key roles/
7. Develop and implement action plans. Develop
8. action plans to address any gaps between labor
9. demand and labor supply forecasts.
· The action plans should be consistent with the
· firm’s talent philosophy, and can include
· recruiting, retention, compensation, succession
· management, 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.
10. Monitor, evaluate, and revise the forecasts and
11. action plans. As the environment changes,
12. forecasts and action plans may need to change
13. as well.
· 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
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:
· Interest rate
· Currency exchange
· Industry and economic
Forecasting Labor Demand
· It is a good idea to identify minimal as well as
· optimal staffing levels when analyzing labor
· 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
· Decreasing staffing levels during a restructuring
· Obtaining the new talents needed to create new
· products or provide different services
Staffing Planning for Startups
· 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
· Need consistent historical trends to calculate
· Production to employees
· Revenue per employee
· Managers to employees
· Inventory levels to employees
· Number of customers or customer orders to
· Labor costs to all production costs
· The percent utilization of production capacity to
Forecasting Staffing Needs Based on
· “Establishing a Staffing Plan Using a
· Sales Forecast” (7:40)
· Show graphically how two different variables
· (e.g., revenue and staffing levels) are related.
If an area has a population of 44,000 then 8
ambulance drivers would be predicted to be needed
· Uses past employment patterns to predict future
· 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
· 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.
· 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
· 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.
The Role of Judgment
· Because historical trends and relationships can
· change, it is usually best to supplement the more
· mechanical ratio, scatter plot, and trend
· forecasting methods with managerial judgment.
· The more mechanical methods can be used as a
· starting point and managerial input then used to
· modify the estimates.
Return on Investment Analysis
· Estimate the return on investment from adding a
· new position based on the costs and outcomes
· resulting from that new hire.
· First assign dollar values to the benefits you
· expect from a new hire for the period of time most
· appropriate for the position and your organization.
· How much revenue during the period will be
· directly generated as a result of this position?
· How much money per period will this position
· save your organization in terms of increased
· efficiency, and how much value will it add in
· greater productivity, quality, or customer
· Then compare this amount with the cost of adding
· the new hire.
· Compute the cost of hiring, including
· advertising the position, interviewing,
· screening, travel, relocation, and training
· Add this to the compensation for the new
· position during the time period to get your
· initial investment.
· Compare this amount with the value your
· company will gain to determine the return on the
· investment of adding the new position.
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.
· A firm’s internal labor market consists of the firm’s
· current employees.
Forecasting the Internal
· Estimate the competency levels and number of
· employees likely to be working for the company at
· the end of the forecasting period.
· To forecast internal talent resources for a position,
· subtract anticipated losses from the number of
· employees in the target position at the beginning
· of the forecasting period.
· Losses may be due to promotions, demotions,
· transfers, retirements, resignations, etc. When
· workers are harder to find, more employees
· than usual may leave the organization to pursue
· other opportunities than leave during looser
· labor markets when jobs are less plentiful.
· Anticipated gains from transfers, promotions,
· and demotions are then added to the internal
· labor supply forecast.
· A quantitative technique used to analyze internal
· labor markets and forecast internal labor supply.
· A simple but often effective technique for
· analyzing an organization’s internal labor market,
· which can be useful in answering recruits’
· questions about promotion paths and the
· likelihood of promotions as well as in workforce
· Can also forecast the number of people who
· currently work for the organization likely to still be
· employed in various positions at some point in the
· The analysis is best performed for a limited
· number of jobs at a time to keep it easily
Transition Analysis Process
Using the Transition Probability Matrix
Internal Labor Market
· 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.
Forecasting the External
· Organizations monitor the external labor market
· in two ways.
· The first is through their own observations and
· experiences. For example, are the quality and
· quantity of applicants responding to job
· announcements improving or getting worse?
· The second way is by monitoring labor market
· statistics generated by others.
· U.S. Bureau of Labor Statistics (BLS) and
· Action plans proactively address an anticipated
· surplus or shortage of employees.
· Understanding 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 important because different staffing strategies
· are appropriate for each.
Temporary Talent Shortage
· Because higher salaries cost the organization
· more money throughout the new hire’s tenure
· with the company, hiring inducements that last
· only as long as the talent shortage does are often
· Companies often turn to more expensive
· recruiting methods such as search firms, or lower
· their hiring standards so that more recruits are
· considered qualified.
· Neither of these strategies is guaranteed to work
· More expensive recruiting methods may quickly
· drain a recruiting budget without resulting in an
· acceptable hire
· Lowering hiring standards decreases the quality
· of the company’s workforce, which may not be
· Options include offering hiring incentives such as
· sign-on bonuses and retention bonuses such as
· stock options or cash to be paid after the
· employee has successfully worked with the
· company for a certain period of time.
Persistent Talent Shortage
· If it is likely that a worker shortage will last a
· number of years, an organization must:
· 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
· And/or increase the supply of the qualifications
· it needs
· This is not a fast or practical solution for most
Temporary Employee Surplus
· If slowdowns are cyclical or happen frequently,
· using temporary or contingent workers who are
· the first to be let go when business slows can help
· to provide a buffer around key permanent
· Temporary layoffs may need to last more than six
· months to be cost-effective due to severance
· costs, greater unemployment insurance
· premiums, temporary productivity declines, and
· the rehiring and retraining process.
· Losing the investments the organization has
· already made in hiring and training the laid off
· workers can also be costly.
· Alternatives to layoffs include across-the-board
· salary cuts or a reduction in work hours, or
· reallocating workers to expanding areas of the
Permanent Employee Surplus
· Early retirement incentives, layoffs, and not filling
· vacated positions can all reduce an employer’s
· headcount, but with a cost.
· Early retirement programs can result in the
· most skilled and productive employees leaving
· the organization.
· Layoffs can damage workforce morale and hurt
· the firm’s reputation as an employer.
· Not filling open positions can leave key
· positions in the organization vacant or
· Action plans to address a persistent employee
· surplus may also involve reassignments, hiring
· freezes, and steering employees away from
· careers in that position to reduce the need for
· future layoffs.
· Retraining employees to fill other jobs in the firm
· can help bring labor supply and demand into
· 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
· Batch recruiting: recruiting a new applicant
· pool each time
External Cost Per Hire
· External cost per hire:
1. Agency or search firm fees
2. Employee referral bonuses
3. Company recruiter costs
4. Candidate travel costs
5. Relocation costs
6. Job advertising expenses.
7. Internal recruiter costs
8. The cost of any assessments
Internal Cost Per Hire
· Because an internal hire already works for the
· employer, many of the hiring costs are reduced.
· Some of the primary costs of an internal hire are:
1. Candidate travel costs
2. Relocation costs
3. Internal recruiter costs
4. The cost of any assessments used to evaluate
5. the candidates
Leading Indicators of Ethical Issues
· Conflicting goals
· Rewarding results rather than decisions
· No code of ethics
· No ethics reporting system or means of
· anonymously reporting ethical concerns
· No ethics training
· Ethics not considered in hiring, promotions,
· performance reviews, or compensation
· Unethical behavior going unpunished
· Analytics are a core element of staffing
· forecasting and planning
· Evaluate present talent situation
· Understand trends
· Forecast the future
· Technology has improved the staffing forecasting
· and planning process
· It is now faster
· It is more accurate
Demand forecasting predicts how busy an
organization will be at any future moment and how
many employees it will need to manage the
Spreadsheets and cloud applications facilitate
complex demand forecasts and scheduling for
employers of all sizes
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