Chapter 6: HR Planning:

Determining HR Demand

Methods of forecasting:

• 2 methods of forecasting are quantitative and qualitative

• Quantitative methods include ration analyses, trend analysis, regression analysis

• Qualitative methods include envelope/scenario planning, impact analysis, the Delphi technique, and the nominal group technique.

• Organizations must consider demand for personnel not only for the current operational period but also well into the future to ensure that the right numbers of workers with the requisite skills and competencies are ready and available to work when the organization requires them.

Trend/Ratio analysis: objective statistical technique

• Trend analysis is a quantitative approach that attempts to forecast future personnel needs by extrapolating from historical changes in one or more organizational indices. A single index, such as sales, or ratio, such as sales per employees, might be used. However, more complex modelling or multiple predictive techniques, used by professional planners, reply on a combination of several factors

• Ratio analysis involves examining the relationship between an operational index and the demand for labour, relatively straightforward quantitative demand forecasting technique commonly used by many organizations.

Other operational indices are (1) the number of units produced, (2) The number of clients serviced, (3) the production hours.

Some organizations use trend analysis to ascertain demand requirements for (1) direct labour and (2) indirect labour.

Five steps to conducting an effective trend analysis:

1. Select the appropriate business and operational index: HR forecaster must select a readily available business index, such as sales level, that is 1) known to have direct influence on the organizational demand for labour, 2) subjected to future forecasting as a result of the normal business planning process.

2. Track the business index over time: Necessary to go back in time for at least four to five most recent years, but preferably for a decade or more, to record the quantitative or numerical levels of index over time.

3. Track the workplace size over time: Record the historical figures of the total number of employees, or the alternatively, the amount of direct and indirect labour for exactly the same period used for the business index.

4. Calculate the average ratio of the business index to the workforce size: Obtain a ratio by dividing the level of sales and for each year of historical data by the number of employees required to produce that year’s level of sales. Ratio is calculated for each year over the period of analysis so that an average ratio describing the relationship between the two variables over time can be determined.

5. Calculate the forecasted demand for labour: Divide the annual forecast for the business index by the average employee requirement ratio for each future year to arrive at forecasted annual demand for labour.

Although trend/ratio analysis is widespread due to its ease of use, remember that the analysis incorporates only the relationship between a single business variable and demand for labour.

Regression analysis:

• Regression analysis is another Quantative demand forecasting technique

• Regression analysis is a very effective Quantative forecasting technique for short-medium and long-range time horizons and can be easily updated and changed.

• Regression is such a powerful technique for forecasting demand

• Regression analysis presupposes that a linear relationship exists between one or more independent (causal) variables, which are predicted to affect the dependent (target) variables.

• Regression projects into future on the basis of past historical relationship between the independent and dependent variables.

• Linearity refers to the observed relationship between the independent and dependent variables.

• If there are several casual or independent variables, such as the market internet rate, the unemployment rate, the organization’s sale’s level, and so on, then the analysis is referred to as a multivariate regression analysis.

• Simple regression: prediction model based on the impact on HR demand (the dependent variable) of a single causal independent variable.

Simple regression prediction model:

Equation: Y= A=BX

Y= the dependent variable (HR demand, number of personnel required)

A= constant (intercept)

B= the slope of linear relationship between X and Y

X= the independent/causal variable (the level of sales, production of outputs)

Regression models can be extremely valuable tools for the HR planner.

This valuable forecasting technique allows us to plan and execute recruitment, selection, training, and development programs in a planned proactive fashion to make sure the trained marketing staff are on hand exactly when required by the organizations.

QUALITATIVE FORECASTING TECHNIQUES:

• Qualitative process for determining future labour requirements, because it is a detailed process of stating assumptions, considering potential organizational and environmental changes, and deriving a rationale to support the numerical estimates

• First and foremost, the organizations own line managers, who each have detailed knowledge of workload

• The organizations HR and business planning staffs certainly have a critical information to provide wise guidance in forecasting future levels of labour demand

• The HR staff, whether they are HR generalists or a team of HR planning specialist, are able to draw up a detailed set of assumptions with respect to industry, local, and

international labour market trends that affect how the organization organizes and employs its own workforce.

Envelope and scenario planning:

• Envelope/scenario forecasts: based on the premise that because we have no certain knowledge of the future course of events, we could be well served by developing several plausible sets of outcomes. Based on certain assumptions, experts search for causality by linking cause and effect events together.

• Scenarios are created by having brainstorming sessions with line managers and HR managers, who formulate the group’s combined expert view of the work’s force five years or more in the future, and then work back in time to identify key change points

• This flexible demand forecasting process is much more useful for incorporating the effects of uncertainty and change into our strategic HR planning process than is consideration of the single assumption of an HR budget.

• The optimistic and pessimistic scenarios, and their associated staffing tables, constitute the four corners of the envelope from the initial time period to the final time period being forecasted

• The scenario and envelope technique allows us to have ready access to flexible, preplanned demand estimates when circumstances quickly change.

Impact analysis:

• Impact analysis: past trends are analyzed by a panel of experts who them predict the probability of the future events. Past trends are analyzed by a panel of experts who then attempt to identify future demand and study their effects on the extrapolated trend.

• Impact analysis relies on subjective, but expert judgements

Delphi technique:

• Delphi technique: useful qualitative method for deriving detailed assumptions of long-run HR demand.

• This forecasting technique is a carefully designed program of sequential, individual interrogations (usually conducted through questionnaires) interspersed with feedback on the opinions expressed by the other participants in previous rounds.

• Key features is that once a group of experts is selected, the experts do not meet face to face

• The advantage of Delphi technique: avoids many of the problems associated with face to face groups namely because the members are 1) shy, 2) perceived lower status or authority, 3) perceived communication deficiencies, 4) issues of individual dominance and group think.

• Because the Delphi technique does not employ face to face meetings, it can serve as a equalizer and can elicit valid feedback from all expert members

• Disadvantages: because of the series of questionnaires administered to derive a forecast, the time and costs incurred when using the Delphi technique can be higher than those incurred when using alternative forecasting methods. Another deficiency is that since the results cannot be validated statistically, the process is greatly dependent on the individual knowledge and commitment of each of the contributing experts.

6 steps to Delphi technique:

1. Define and refine the issue or question: a project coordinator is assigned, and he or she works with the HR staff to determine the specific personnel category or activity that will be the focus of the Delphi technique. Essential that the group targeted for HR forecasting is well defined so that relevant, focused, and detailed feedback based on a min of assumptions can be derived.

2. Identify the experts, terms and time horizon: the project coordinator, normally in conjunction with the HR staff, identifies and selects a team of individuals deemed to be experts with respect to the specific personnel grouping that requires a forecast. Group of experts will include individuals who are not members of the organization, it is important for both parties to reach agreement on the terms and conditions for participation in the forecasting process, as well as setting the context and explicitly.

3. Orient the experts: the orientation process for experts includes an overview of the demand forecasting decision process (which is very similar to th structural framework in which you are now engaged). The experts are told either that there will be a predetermined number of questionnaire iterations or that the sequence will continue until a majority opinion exists among the experts.

4. Issue the first-round questionnaires: project coordinator sends each expert the questionnaire by courier, fax, mail, or email and includes a time frame for completing and returning it. First round questionnaire focuses on defining both the explicit assumptions made by each of the experts and background rationale supporting his or her particular demand estimates.

5. Issue the first-round questionnaires summary and the second-round of questionnaires: when first round questionnaires are done, coordinator sends a second round of questionnaires to the experts. Aim of the sequent questionnaires is to focus the expert’s initial assumptions and estimates by providing summarized feedback from all members of the group.

6. Continue issuing questionnaires: project coordinator continues to issue questionnaires until either all the predetermined questionnaires stages have been completed and summarized or the group reaches a clear majority decision. The majority of the nth round summary summarizes the experts future demand estimate for the HR category under analysis.

Nominal group technique:

• Nominal group technique (NGT) is also a long-run , qualitative demand forecasting method

• Group meets face to face and interact, but only after individual written, preparatory work has been done and all the demand estimates have been publicly tabled, or written on a flip chart without a discussion

• Each demand estimate is considered to be the property of the entire group and to be impersonal in nature, which minimizes the potential for dominance, personal attacks, and defensive behaviour in support of estimates presented in the group forum.

Seven steps for implementing NGT:

1. Define and refine the issue or question and the relevant time horizon: HR forecasting staff or coordinator is responsible for identifying the specific personnel category or activity that will be the focus for the NGT. More refined the problem definition; the more likely is that its relevant, focused, detailed feedback will be derived with a min of redundant assumptions.

2. Select the experts: coordinator or HR forecasting staffs selects the individuals who have expert knowledge of the specific personnel group being analyzed.

3. Issue the HR demand statement to the experts: coordinator sends each of the experts a concise statement of the HR demand he or she is being asked to address.

First step: the issue is normally framed as a question that the experts are being asked to answer, and an accompanying sheet of terms, definition, assumptions may accompany the question or issue statement.

4. Apply expert knowledge, state assumptions, and prepare as estimate: each expert now considers his or her specific knowledge of the particular personnel group that is the subject of the demand estimate. Experts will undoubtedly have personal insights or insider info not available to other members of the group and should explicitly state the various assumptions that arise from this information.

5. Meet face to face: experts meet face to face after preparing their individual assumptions. First will be a presentation of each experts demand estimate with the associated supporting assumption. Individual discussions are strictly forbidden.

6. Discuss the demand estimates and assumptions: after experts did their presentation on demand estimates, process shifts to detailed analyses and group of discussion of the estimates and their assumptions. To minimize individual defensiveness and personal ownership of estimates, group members are asked to focus on ascertaining supportive info for estimate assumptions and to avoid attacks on the soundness of any estimates.

7. Vote secretly to determine the expert demand assessments: secret vote is taken, and the estimate drawing the highest ranking or number of votes from the experts is selected to be the groups HR demand estimates solution to the question posed in the first step.

HR budgets: staffing table:

• HR budgets are quantitative, operational, or short-run, demand estimates that contain the number and types of personnel ( i.e. Personnel classes, such as bank clerks, loan officers and branch managers) required by the organization as a whole and for each subunit, division, or department.

• HR budgets prepared by the HR staff in conjunction with line managers, take into consideration information from historical company staffing trends, competitor staffing practices, industry and professional associations, and statics Canada.

• The HR budget process produces a Staffing table, which contains information related to a specific set of operational assumptions or levels of activity (maintain the current organization structure, increase the sales level by 5 percent)..

• Staffing table presents the total HR demand requirement, as well as the number of personnel required, by level

** HR planners can determine short-run future demand requirements for subunits and the organization as a whole. This allows budgeting processes to incorporate changes in compensation costs linked to the level of future personnel demand.

Chapter 7:

Many organizations give preference to internal supply, because selecting these individuals for training and development, and subsequent promotion, allows the organizations to reinforce employee loyalty and performance.

Other reasons for giving preferential consideration to your own workforce to fill job openings include following:

• Your employees are already socialized in the norms, rules, and procedures of your organizations

• You possess detailed knowledge (as listed KSAs, skill inventories of their performance and KSAs over time (eg.work history and experience)

Skills and management inventories:

• First step in supply analysis is an examination of the number and capabilities of current employees.

• Skill inventories and management inventories contain info on the capabilities of your employees

• A Skills inventories is an individualized personnel record held on each employee except those currently in management or professional positions.

Skills inventories contain info for each individual on the following areas:

1. Personnel information (name, employee number, job classification and compensation band, emergency notification, and telephone number)

2. Education, training, and skills competencies ( certificates, licences, and diplomas or degrees completed, including the area of specialization, dates of attendance, and names of institutions attended)

3. Work history: (date of hire, seniority, current job and supervisors, and previous jobs held in the organization and the dates associated with them).

4. Performance ratings (example: a numerical score of the employees history of performance in jobs in the organizations)

5. Career information (example: future jobs desired by employee and those recommended by supervisors)

6. Hobbies and interests ( including community and volunteer associations), willingness to relocate

Skills inventory record is entered into an organization’s HRM database and can be searched when looking for people with the skills and competencies required by a specific job

Management inventories: can be considered to be enhanced skills inventories, because they contain all the above information:

1. History of management or professional jobs held

2. Record of management or professional training courses and their dates of completion

3. Key accountabilities for current job (organizational resources including the size of the budget controlled, the number of subordinates)

4. Assessment centre and appraisal data

5. Professional and industry association memberships

HR planners can determine the organizations workforce strengths and weaknesses and plan training and development courses accordingly, while noting which job openings must be file external sources because employees lack the skill competencies required

Succession/replacements analysis:

• Succession Planning is a critical to effective organizational functioning.

• With demographic trends predicting even greater shortages in the market supply of skilled labour, organizational succession planning is now assuming much greater importance

• The highly dynamic and changing global business environment is forcing HR managers to expand their succession planning beyond the traditional identifications of a shortlist of replacements of specific jobs.

There are two aspects in succession planning : 1) long-term succession (process of providing training and work experience to allow individuals to assume higher-level job appointments in the future. 2) short-term emergency succession (of individuals who have quit , been terminated because of performance problems, have died

Several reasons succession planning is critical for effective HR planning:

1. Succession planning allows an organization to respond and stay on track when unpredictable changes occur. Provides continuity and future direction even in turmoil of change

2. Helps develop people as they prepare for new experiences and jobs to improve their performance in current positions

3. When succession planning takes into account employees performance and promotes them for it

4. Supports new organizational structures and flexibility by providing backups to various positions.

5. Saves time and money by having plans already in place to allow smooth internal employee movement and continuity (hiring external hiring is an exception to the process).

Succession and replacement they are important for matching and individuals qualification to the requirements of a specific job in the organization

*** Key requirement for succession and replacement planning to function effectively is that supervisors, in conjunction with the HR staff, must develop succession/replacement charts and tables for key executives, managerial , professional jobs in the organization.

Personal information used and the sensitive nature of information, succession planning documents are highly confidential.

• The first type of document used in succession planning is referred to a succession/replacement chart (resembles organizational hierarchy and the key jobs with their inherent reporting relationships).

• Succession/ replacement chart provides more detailed information on each job

***Important aspect of succession/replacement chart is succession readiness code: listed next to the names of all employees. This code contains two elements of information essential for succession planning.

1. Employee’s level of performance in the current job ( represented by value between 1-5, 1 being great , 5 not)

2. The employees readiness for movement of promotion ( a= ready now , b= probably ready within one year, c= needs development, D= not suitable for job)

By including the two elements of the succession coding next to the name of each employee on the succession chart, we are able to get an accurate, although admittedly incomplete, picture of the state of succession readiness for each department and for the entire organization

• Key benefits of a succession/replacement chart are that allows us to identify what is known as ripple and chain effects: one promotion in the organization can cause several

movements in the organization as a series of subordinates are promoted to fill the sequential openings.

• The succession/replacement chart, with its graphic illustration of ripple and chain effect allows us to determine HR blockages or problem areas.

The second document produced for succession/replacement planning to referred to as succession/replacement table

Succession/replacement chart: gives us an important yet incomplete pictorial representation of the state of succession readiness throughout a department of entire organization

Succession/ replacement table: provides additional information on each specific job, the incumbent job holder, and all potential internal successors.

Succession/ replacement table is prepared for each key job in the organization.

Succession/replacement chart provides us with the top two or three candidates their succession codes; all it may indicate is that promoting any of these individuals might be problematic for a variety of reasons (eg. Because of their performance or lack of training).

** Succession and replacement tables and charts are very useful tools for HR planners who are analyzing the state of the current workforce.

Markov Models:

Markov models are used for contemporary supply-side HR planning applications.

Markov models also know as probabilistic (using probabilistic of various movement options) or stochastic model which determines the pattern of employee movement throughout an organizations systems of jobs.

Markov model produces a series of matrices that detail the various patterns of movement to and from vide variety of jobs in the organization.

When considering employee movement patterns in organizations, an employee has five possible options:

1. Remaining in current job

2. Promotion to a higher classified job

3. A lateral transfer to a job with a similar classification level

4. Exist from the job (termination,layoff,etc)

5. Demotion (relatively rare)

Markov models examine overall rates of movement between various job levels and this movement between jobs is based on historical movement patterns.

Markov model depends on the stable transition probabilities, so dynamic and unstable environmental scenarios may preclude the effective usage of markov models.

3 steps using Markov model:

1. Collect historical data on mobility rates between jobs in the organization.

2. Develop matrices to forecast future personnel movement between jobs

3. Use the forecasts of the model to analyze our HR policies and programs and instigate the necessary adaptive measures

By using employee movement data, we are able to calculate transitional probabilities.

The sequence of movements between various job states is referred to as markov chains. (Markov chains are derived from the model and can be considered a subset if the model as they refer to the movement of sequences between specified job states, not overall matrices).

Markov model allows us to determine the specific number of replacements or successors required for any job family annually, as well as for specified future planning periods, which can help us to be more proactive in our external recruitment programs.

Markov model has a great value for determining:

1. Number of personnel who move annually between various job levels

2. Number of external hires that are required by organization

3. Movement patterns and expected duration in specified jobs associated with patterns of career progression for employees in the organization (career paths)

4. Number and percentage of all starters at a particular job level who will successfully attain a future target

All these above help us calculating the most appropriate balance between training and promoting internal employees.

Linear Programming:

• Linear programming: mathematical procedure commonly used for project analysis in engineering and business applications. Has utility for HR planner’s cause it allows us to

determine the future supply of personnel based on achieving the best staffing outcome while taking into account certain constraints such as labour costs.

• By giving the level of personnel supply that is best with respect to explicitly defined constraints or criteria, linear programming allows us to calculate “what if” scenarios by changing or relaxing various model assumptions in order to determine the impact these changes will have on final numerical requirements for supply, both external and internal

• Linear programming is a relatively complex mathematical procedure normally performed on a computer, a detailed presentation on this technique is beyond the scope of this book.

Movement analysis:

• Movement analysis: technique used to analyze personnel supply, specifically the chain or ripple effect that promotions or job losses have on the movements of other personnel in an organization

• Able to identify the total number of vacant or open positions in the organization or department , as well as the total number of personnel movements that are caused by replacing and filling these vacant positions

• Movement analysis allows the HR planner to select the desired mix or percentage of internal and external supply for those positions requiring replacements, ranging from a promote-from within policy to other extreme of replacing losses entirely through hiring personnel from outside the organization

• Movement analysis can be performed for the organization as a whole, although analysts find it more useful to conduct separate analyses for each department, division, or functional area.

Movement analysis exercise:

Determine:

• 1) the total number of positions requiring replacements over the next one-year period and equally important

2) The impact these openings will have on the current employee’s movements throughout the department.

If we were able to balance external and internal supply, the only adjustment would be that fewer individuals would be promoted from within the organization.

Using movement analysis, not only can an organization estimate the number of internal promotions and external hires, but it can also use the information for planning purposes and ensure it is able to devote enough resources in the training and development of its current employees

Vacancy model:

• Vacancy model sometimes referred to as renewal, sequencing model, analyzes flows of personnel throughout the organization by examining inputs and outputs at each hierarchical or compensation level.

• Vacancy model have been found to have more predictive capacity than Markov over short- and term periods.

Important to calculate personnel requirements one level at a time in a “top down” fashion, beginning at the highest relevant authority level, because the normal direction of personnel movement in an organization is from the bottom to the top.

The rationale behind the vacancy model is simple: the supply needs of each salary level are determined by staffing changes- the number of personnel promoted away from the level and any personnel losses.

Personnel losses are normally based on historical trends with respect to the percentage of personnel at each level who normally exists from that annually, while growth estimates are based on the normal business forecasting process.

Vacancy model identifies the specific number of external and internal personnel required at each level and for this organization as a whole.

HR SUPPLY ISNT JUST A MATTER OF FINDING NEW WORKERS, AS HR PLANNING POINT OUTS THAT RETENTION PLANNING IS A VITAL COMPONENT OF EFFECTIVE HR SUPPLY.

LABOUR SHORTAGES FLEXIBLE HR PROCESSES.

HR supply and retention programs:

• Presentation on HR supply would be incomplete without a discussion of the need for organizations to monitor and control levels of absenteeism and employee turnover

• Organizationally, even if we are highly successful in recruiting a large number of high-quality applicants

• If we are unable to retain experienced, high-performing employees, we face dire consequences, not only in short run in failing to achieve desired organizational goals but also, perhaps even more critically, in an adequate HR supply and lost opportunities for future succession.

With labour shortages projected for the next decade, retention programs are no longer an option for North American companies, they are fast turning into a key requirements for organizational survival.

Retention can be greatly facilitated by offering effective communication programs, maintaining an enjoyable and collegial work atmosphere, designing meaningful jobs, formulating and administering performance and compensation systems that identify and differentially reward better performers – based on clearly communicate criteria – and offering more flexible and attractive work arrangements.

Our employees – or “human capital” are our key competitive advantage, self-renewing resources that clearly make the difference between organizational success or failure

Until they take action to become “preferred employers” to their employees, by working hard to rebuild trust and mutual commitment, organizations will continue to have HR supply and retention problems, which will prove increasingly costly given looming demographic shortages in the labour force.

*** KEY NOTE: HR managers should deliver and employers should build trust with their employees.