1. HRM604: Strategic Human Resource Management
Topic 4: Human Resource Planning – Part 2
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2. Learning Objectives
Explain the relationship between Business strategy and human resource planning
Analyze the significance of HR planning in a changing context
Critically analyses the objectives of HR Planning
Discuss HR demand and supply forecasting techniques
Analyze various strategies followed by organizations for managing human resource surplus and shortage
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3. HRP PROCESS
Once the organization has taken stock of the different types of jobs that need to be performed in an organization to successfully achieve corporate plans, the firm can proceed with the HRP process.
The HRP process involves matching the internal and external supply of people with the organizational demand for human resources over a specified period of time.
Next slide lists the major activities that are part of any HRP process.
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4. HRP PROCESS
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5. HRP PROCESS
The HRP process begins with an understanding of corporate strategy and business plans.
Organizational goals and objectives are translated into HR objectives by determining the job categories and types of people required to be able to accomplish business plans successfully.
Human resource planning involves establishing HR objectives and then assessing the extent to which the current employees of the firm meet these objectives.
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6. HRP PROCESS
If the skills available within the firm do not meet the skills required for achieving organizational goals, the firm develops appropriate action plans (hiring, training, etc.).
The HRP process (see next slide) involves
environmental scanning;
forecasting and analyzing demand for human resources;
forecasting and analyzing supply of human resources; and
developing action plans to match human resource demand and supply.
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7. HRP PROCESS
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8. HRP Process -Environmental Scanning
It is the systematic process of studying and monitoring the external environment of the organization in order to pinpoint opportunities and threats.
It involves a long-range analysis of employment.
The range of external environmental factors that are most frequently monitored as part. of environmental scanning include economic factors, competitive trends, technological changes, socio-cultural changes, politico-legal considerations, labour force composition and supply, and demographic trends.
These external environmental forces influence the availability of the workforce
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9. HRP Process -Environmental Scanning
Environmental scanning is the first stage of the HRP process. Strategic planning of the firm and HRP interact at this stage.
The external environment directly affects the strategic plans as well as the HR strategy of an organization.
The firm must be responsive to its external business environment irrespective of the business and HR strategies it chooses.
For example, a firm faced with an economic downturn may respond by laying off workers. Similarly, when a firm confronts high competition, it may invest in employee training.
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10. HRP Process -Environmental Scanning
Organizations should scan for changes in the external environment to align its business and HR plans with environmental demands.
For example, environmental scanning may suggest that competitive pressures are likely to increase resulting in enhanced productivity requirements.
The HRP objective may be 'to increase employee productivity by 5% in 2 years'.
This will require the firm to determine current employee productivity. Productivity is calculated by dividing the total output of the firm by the total number of employees.
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11. HRP Process -Environmental Scanning
Environmental scanning assumes greater significance when changes are dynamic.
No organization can afford to be caught off guard.
Human resource supply is particularly affected by environmental changes.
Demand is 'the number and characteristics (skills, abilities, pay levels, and experience) of people needed for particular jobs at a given point in time and at a particular place'.
Supply is 'both the number and characteristics of people available for those particular jobs'.
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12. HRP Process -Environmental Scanning
The environmental scanning process attempts to answer two important questions:
(1) which jobs need to be filled (or vacated) during the next 12 months?; and
(2) how and where will we get people to fill (or vacate) these jobs? In other words, forces of demand denote employers looking for people and forces of supply denote people looking for jobs.
In a loose labour market (a market in which supply of labour exceeds demand), employers can employ people for lower wages. In a tight labour market (a market in which demand for labour exceeds supply and firms compete for similarly qualified personnel and offer similar compensation in a particular geographical area), employers can raise compensation.
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13. HRP Process -Environmental Scanning
Environmental scanning provides a better understanding of the context in which HR decisions are or should be made. To be effective, environmental scanning should take place both internally and externally.
Scanning the external environment focuses on issues such as competitors, educational background of workers, regulations, etc.
Scanning the internal environment focuses on issues such as business strategy, technology, culture, etc.
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14. HRP Process - Forecasting and Analyzing Human Resource Demand
Once an organization has identified the opportunities and threats in its internal and external environments, the next step in the HRP process is to forecast human resource needs in the light of organizational strategies and objectives.
The objective of forecasting is to estimate future human resource requirements for specific periods.
Such forecasts are of two types:
(1) demand for labour internal and external;
and (2) supply of labour-internal and external.
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15. HRP Process - Forecasting and Analyzing Human Resource Demand
Demand forecasting involves predicting the number and types of employees a firm will need in the future.
Understanding how business strategy and needs are likely to affect HR requirement is crucial to forecasting its demand accurately.
Environmental forces such as changes in technology, changes in consumer buying behaviour, the economy (local, national, and global), and government regulations are likely to influence demand for HR-both in terms of numbers and in types of employees required.
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16. HRP Process - Forecasting and Analyzing Human Resource Demand
Human resource demand forecasts may be internal or external.
Internal demand forecasts relate to the HR requirements of the firm for a specific time period-short term, medium term, or long term.
External demand forecasts to relate to the HR requirements of competitors or of those external to the firm.
Both internal and external demand forecasts depend on business plans of the firm and relate HR requirements to some factor related to business such as, projected sales, product volume etc.
Demand forecasting is more of an applied art than a science.
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17. HRP Process - Forecasting and Analyzing Human Resource Demand
Employee demand can be calculated either on an organization-wide basis and/or calculated based on the needs of each individual department of the organization.
A demand forecast that states that 'a firm needs 200 new employees in the next year' may not indicate much, but one that states that 'there is a need for 50 new sales personnel, 50 accountants, and 10 HR personnel', clearly describes the specific skills required.
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18. HRP Process - Forecasting and Analyzing Human Resource Demand
Demand forecasts should take into account new job openings that are likely to occur as well as present openings that are likely to fall vacant due to promotions, transfers, employees resignations, etc.
As people get promoted/transferred, the positions they vacate become available.
The accuracy of forecasts is linked to the stability of a firm's environment.
In a stable environment (when the demand for an organization's product is and steady or when the technology being used does not change over time), employment forecasts can be accurate.
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19. HRP Process - Forecasting and Analyzing Human Resource Demand
When the environment is dynamic, forecasts are not as accurate. However, it is at this time, that forecasts are most valuable (for example, employment projections of firms based on business growth).
There are several sophisticated techniques of forecasting HR demand. Yet, in practice, forecasting tends to be informal, judgmental, and subjective.
There are two categories of HR demand forecasting techniques:
(1) qualitative and
(2) quantitative.
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20. HRP Process - Forecasting and Analyzing Human Resource Demand
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21. HRP Process - Forecasting and Analyzing Human Resource Demand
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22. HRP Process - Forecasting and Analyzing Human Resource Demand
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23. HRP Process - Forecasting and Analyzing Human Resource Demand
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24. HRP Process - Forecasting and Analyzing Human Resource Demand
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25. HRP Process - Forecasting and Analyzing Human Resource Supply
Once HR demand has been forecast, the next logical step is to determine the availability (internal and external supply) of employees.
Internal supply forecasts relate to conditions inside the organization such as the age distribution of workforce, terminations, retirements, etc.
External supply forecasts relate to external labour market conditions and estimates of supply of labour to be available to the firm in the future in different categories.
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26. HRP Process - Forecasting and Analyzing Human Resource Supply
Methods of Forecasting External HR Supply
It is a challenge for HR managers to ensure the availability of skilled talent to fulfill the needs of the firm.
Therefore, it is important for a firm to estimate the external supply of potential employees available to it. Several interrelated factors must be considered in projecting external HR supply.
They are:
government estimates of population available for work;
net migration into and out of the area;
numbers entering the workplace;
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27. HRP Process - Forecasting and Analyzing Human Resource Supply
Methods of Forecasting External HR Supply
They are:
numbers leaving the workplace;
numbers graduating from schools/colleges;
changing workforce composition;
technological shifts;
industrial shifts;
trends in the industry (actions of competing employers);
economic forecasts; and
government regulations and pressures such as job reservations for certain groups.
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28. HRP Process - Forecasting and Analyzing Human Resource Supply
Methods of Forecasting Internal HR Supply
Prediction of a firm's future supply of human resources begins with an estimate of the current HR supply.
The factors that are considered in estimating internal HR supply are:
employee movement within the firm from current jobs into other jobs due to promotions, lateral transfers, etc.;
employee movement out of the firm due to resignations, layoffs, or retirements; and
changes in employee productivity and utilization as a result of training and development.
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29. HRP Process - Forecasting and Analyzing Human Resource Supply
Some of the methods used for forecasting internal HR supply:
Human resource inventory
It obtains and stores information about each employee of the organization in a manner that is easily accessible because it is necessary for HRP.
Employee information stored in the inventory relates to knowledge, skills, abilities, experience, and career aspirations of the present workforce of the firm.
One of the major purposes of maintaining employee inventory is to make informed decisions about staffing and promotions.
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30. HRP Process - Forecasting and Analyzing Human Resource Supply
Human resource inventory
For example, a firm planning to diversify into agribusiness might want to know how many of its employees have the relevant experience. A human resource inventory helps to obtain this knowledge.
With technological advancements, HR inventories have become computerized. A computerized inventory is called a human resource information system (HRIS).
HR requirement forecasts are of no use unless it can be compared to the current and projected future internal supply of human resources.
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31. HRP Process - Forecasting and Analyzing Human Resource Supply
Human resource inventory
Human resource inventories can be used to develop employee replacement charts.
A replacement chart lists current jobholders and identifies possible replacements should there be a vacancy for reasons such as resignations, transfers, promotion, etc.
The replacement charts include the following information on possible replacements.
Current job performance
Potential for promotion
Training experience required by replacement to be ready for the key position
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32. HRP Process - Forecasting and Analyzing Human Resource Supply
Human resource inventory
The chart also details 'when' a replacement is needed for a 'job'. These forecasts are generally short-term in nature.
A replacement chart is an extremely useful tool for succession planning.
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33. HRP Process - Forecasting and Analyzing Human Resource Supply
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34. HRP Process - Forecasting and Analyzing Human Resource Supply
Succession analysis and planning
Is a systematic and deliberate process of identifying, developing, and tracking key individuals within the firm to prepare them for assuming senior and top-level positions in future.
Succession planning is planned promotion for managerial employees.
It serves as an important motivational tool for lower-level managers since it provides them with opportunities for upward movement.
The objective of succession planning is to provide developmental experiences for preparing managers to fill potential vacancies
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35. HRP Process - Forecasting and Analyzing Human Resource Supply
Succession analysis and planning
Succession planning is a major step that brings together development of the present workforce and short-term HR demand forecasts.
It contributes to the development of new managers and, at the same time, facilitates the promotion process.
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36. HRP Process - Forecasting and Analyzing Human Resource Supply
Labour wastage analysis
It is the analysis of labour wastage, or the loss of labour arising out of employee turnover.
Employee turnover is the movement of employees out of an organization.
Future internal HR supply of a firm is influenced by the extent of labour wastage or turnover.
Hence, labour wastage should be analysed in order to determine future labour losses and to identify reasons for employee turnover.
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37. HRP Process - Forecasting and Analyzing Human Resource Supply
Labour wastage analysis
Employees may leave the organization for different reasons, such as retirement, layoffs, death or disability, terminations, promotion within the organization to a different division, or voluntary resignation.
Plans for preventing such losses and for enhancing employee retention can be made once the reasons for turnover are known
which is also called the percentage wastage rate
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38. HRP Process - Forecasting and Analyzing Human Resource Supply
Labour wastage analysis
Thus, if 25 employees leave the organization in a month and the average number of employees at mid-month is 500, the turnover rate is
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39. HRP Process - Forecasting and Analyzing Human Resource Supply
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40. HRP Process - Forecasting and Analyzing Human Resource Supply
Labour wastage analysis
When forecasting internal HR supply, it is important that the firm has a good understanding of employee turnover.
To forecast employment levels, it is not sufficient to forecast HR demand resulting from the creation of new positions.
It is also important to know and estimate the number of employees who may leave the firm during the forecasting period.
The accuracy with which a firm forecasts employee turnover determines the accuracy of employment forecasts.
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41. HRP Process - Forecasting and Analyzing Human Resource Supply
Labour wastage analysis
For example, if a firm forecasts creation of five new positions by the end of two months, knows two employees will retire, and expects two employees to resign, its net HR demand will be = 9.
Turnover may be classified into two types:
(1) avoidable separations (resignations and dismissals) and
(2) unavoidable separations (retirement, death, and marriage).
The firm cannot do anything about unavoidable separations. However, it can manage separations that are avoidable.
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42. HRP Process - Forecasting and Analyzing Human Resource Supply
Labour wastage analysis
Employee turnover rate may be calculated to reflect only the avoidable separations. The formula for this is:
where S = avoidable separations; US = unavoidable separations; and M = total number of employees at mid-month.
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43. HRP Process - Forecasting and Analyzing Human Resource Supply
Labour wastage analysis
Estimation of turnover levels should consider historical information and economic trends.
Historical information, or the turnover rates of previous years in the various job and skill categories, is used to forecast future turnover.
Firms should concomitantly analyze the effects of internal and external economic conditions on employee turnover.
For example, when the external labour market is characterized by a high level of unemployment, an organization's turnover rates typically go down.
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44. HRP Process - Matching Demand and Supply Forecasting
Once an organization has forecast HR demand as well as HR supply, the next step is to compare the two.
Comparison of HR demand forecast with HR supply forecast helps a firm determine the action plans that should be taken to balance demand-supply considerations.
Activities such as recruitment, selection, performance appraisal, training, career development, layoffs, etc. all comprise action plans.
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45. HRP Process - Matching Demand and Supply Forecasting
When current HR demand is compared with current supply of human resources, one of the following conditions may result:
HR supply = HR demand
HR supply < HR demand (deficit/shortage)
HR supply > HR demand (surplus)
A discrepancy between demand and supply requires that action plans should be developed to eliminate it ( see Next Slide)
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46. HRP Process - Matching Demand and Supply Forecasting Demand-Supply Comparison and Action Plans
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47. HRP Process - Matching Demand and Supply Forecasting
There may be situations when demand for as well as supply of workforce may be low.
Under such conditions, the best course of action for the firm will be to focus on training of employees since demand for these skills may increase in future.
Similarly, when both demand as well as supply is high, a firm can go in for recruitment and promotions.
A firm can also forecast its future employment needs by comparing future HR demand and supply forecasts.
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48. HRP Process - Matching Demand and Supply Forecasting
HR demand is based on the business and growth plans of the firm as well as future trends in business activity. Growth forecasts determine the number of new positions likely to be created.
Supply forecasts determine the expected employee turnover rate in the future.
The forecasted employment needs of the firm is calculated by adding the number of new positions created and the employee turnover.
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49. HRP Process - Matching Demand and Supply Forecasting
Total replacements required can be calculated by the following formula:
Action plans need to be developed to meet the HRP objective.
They involve developing and implementing programmes such as staffing, appraising, compensating, and training to ensure that people are available with the appropriate characteristics and skills when and where the organization needs them.
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50. HRP Process - Matching Demand and Supply Forecasting
They may also involve developing and implementing programmes to improve employee performance or to increase employee satisfaction and involvement in order to boost organizational productivity, quality, or innovation.
Finally, HRP includes gathering data that can be used to evaluate the effectiveness of ongoing programmes and inform planners when revisions in their forecasts and programmes are needed.
A comparison of HR demand forecasts and HR supply forecasts may suggest that the firm has a surplus or shortage of employees.
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51. Summary All firms exist to achieve certain goals and objectives.
Human resources are the primary vehicle for achieving organizational goals.
Therefore, it is important that firms translate all strategic business plans into human resource plans.
Significant changes in the business, economic, and social environments have led to an integration of business planning with HRP and to a long-term, proactive perspective of HRP.
Two perspectives of HRP (macro and micro) and their objectives were outlined.
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