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8/9/2019 A Labor Problem
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HUMAN RESOURCEHUMAN RESOURCE
DEMAND FORECASTDEMAND FORECAST
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Employees required for a future planEmployees required for a future planperiod is a function of the estimatedperiod is a function of the estimatedsales revenue (or production estimate)sales revenue (or production estimate)for that period and the productivityfor that period and the productivitygoal.goal.
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Current year Plan Year Estimate Plan Year Estimate
No Change in
Productivity
7% improvement in
Productivity
RevenueRs. 120 million Rs. 150 million Rs. 150 million
Present No. of
Employees
857
Productivity
(Revenue per
employee)
Rs. 1,40,000 Rs. 1,40,000 Rs. 1,49,600
Employees
Required
1071 1001
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. Productivity was determined by dividing. Productivity was determined by dividingRs. 120 million by the current work force,Rs. 120 million by the current work force,i.e. 857 employees, to get a revenue ofi.e. 857 employees, to get a revenue ofRs.1,40,000 per person.Rs.1,40,000 per person.
Year one, only revenue forecast with noYear one, only revenue forecast with nochange in productivity. Therefore, in orderchange in productivity. Therefore, in orderto realize increased revenues, given theto realize increased revenues, given thecurrent productivity levels of employees,,current productivity levels of employees,,the company will have to employ a total ofthe company will have to employ a total of1071 people, i.e. 214 more employees will1071 people, i.e. 214 more employees willhave to be recruitedhave to be recruited
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Forecast 2 calls for increase in revenue andForecast 2 calls for increase in revenue andan increase in productivity (7%). Thisan increase in productivity (7%). This
means employee productivity will be (Rs.means employee productivity will be (Rs.140000x107% = Rs. 1,49,800 per140000x107% = Rs. 1,49,800 peremployee). With improved productivity, no.employee). With improved productivity, no.of employees required will be Rs. 150of employees required will be Rs. 150
million /Rs. 149,800 = 1001. This is 70million /Rs. 149,800 = 1001. This is 70people less than without productivitypeople less than without productivityimprovementsimprovements
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Suppose The average wage bill (paySuppose The average wage bill (payplus benefits) per employee is Rs.plus benefits) per employee is Rs.20000, then the savings generated by20000, then the savings generated byproductivity improvement will come toproductivity improvement will come toRs. 1.4 million (Rs. 20,000 x 70).Rs. 1.4 million (Rs. 20,000 x 70).
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5 Basic Strategies to Improve Productivity
HR Focus
1 Increase output faster than inputs Increase sales or production faster than
adding employees or person-hours
2 Increase output while holding input
stable
Increase sales or production, while
keeping the workforce nos. constant; no
net additions to staff; replace exits
3. Decrease inputs faster than output In a declining situation reduce the work
force faster than the decline inproduction or sales revenues
4. Maintain output with reduced inputs Maintain sales or production with fewer
employees
5. Increase output with reduced inputs Improve sales and production with a
reduced workforce
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Productivity Important for HRM.Productivity Important for HRM.
Productivity goal plays a key role inProductivity goal plays a key role in
determining no. of employees required.determining no. of employees required.
Productivity is directly linked to achievingProductivity is directly linked to achievingorg. goals.org. goals.
Helps focus HR attempts/programsHelps focus HR attempts/programs
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A Labor Problem?!A Labor Problem?!
To be Skilled orTo be Skilled or
Professional??Professional??
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A garment export factory has signed a
multi-year contract with an American
retailer to produce X dresses each day at$10 per dress; this is the factorys only
output. The factory employs workers
who each use a sewing machine. Thecurrent sewing machines can be rented
for $7 per day.
The BackgroundThe Background
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If skilled workers are hired eachcan produce 5 dresses per 8-hour
day.These workers are paid $4 per
hour. If professional workers areused, each of whom is paid $6 per
hour, 7 dresses per day per worker
can be produced.
Which kind of labor should be used?
The ProblemThe Problem
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Skilled Or Professional?!Skilled Or Professional?!
Common SenseCommon Sense Use theUse the
Professional!!Professional!!Right?!Right?!
WRONG?!
Never forget the BOTTOMLINE
PRODUCTIVITY & PROFIT
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WorkerType
Revenueper day
Labourused per
day
LabourCost per
day
Sewingm/c cost
per day
TotalCost per
day
Profit perday
Skilled
Worker
10X X/5 $4per hr
x 8 hrs =$32.00
per day
$7 x X/5 ($32 x
X/5) + ($7x X/5)
$10X -
$6.4X- $1.4X =
$2.20X
Professio
nal
Worker
10X X/7
$6 per hr
x 8 hrs =
$48 per
day
$7x X/7
($48 x
X/7) + (7
x X/7)
$10X -
$6.86X
$X =
$2.14X
The SolutionThe Solution
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SKILLS MATRIX
Current Year Plan Year Forecast
Workforce
Category
Number Percent Expected
Number
Percent
Total Employees 857 100% 1000 100%
General
Managers
8 1% 10 1
Managers/Super
visors
128 15% 150 15%
Engineers/Techn
icians
214 25% 250 25%
Office Personnel 86 10% 100 10%
Production/Mai
ntenance
250 29% 290 29%
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Difficult to forecast. Strategy is to simply use theDifficult to forecast. Strategy is to simply use thesame distribution of skills as existing in currentsame distribution of skills as existing in currentperiod.period.
Some estimate support staff needs as a function ofSome estimate support staff needs as a function ofthe no. of critical skills required. E.g. wherethe no. of critical skills required. E.g. whereengineering talent is critical, the no. of engineersengineering talent is critical, the no. of engineersrequired becomes the determinant of the level ofrequired becomes the determinant of the level ofclerical, accounting and other support personnel.clerical, accounting and other support personnel.
E.g. ratio may be 1 support employee for every 20E.g. ratio may be 1 support employee for every 20engineers.engineers.