HR Mavericks

Eddy’s HR Mavericks Encyclopedia

HR Forecasting

As a business, you need to make future decisions with the information you have. You can’t predict the future, but you want to have a well-thought out plan that helps your business succeed. This article discusses HR forecasting and the role it can play for your business.

What Is HR Forecasting?

According to Indeed, HR forecasting is the process of predicting how a company’s staffing needs change with time so that it can remain prepared to operate successfully. HR forecasting ensures a company will have the right number of employees on staff.

Benefits and Challenges of HR Forecasting

Taking adequate time for HR forecasting can be difficult and challenging, but also well worth it. Like any other business process, HR forecasting comes with both benefits and challenges.

Benefits of HR Forecasting

A thorough and well-thought out HR forecast can be very beneficial. It can ultimately end up saving a company hundreds of thousands of dollars. Here are some of the benefits of HR forecasting.
  • Effective budget. HR forecasting can help you determine what kind of employees you need to hire and determine what you’ll need to pay these employees. Defining these jobs and their responsibilities can help estimate your company’s costs. For example, if you forecast that you will need 20 skilled laborers to work in the warehouse as opposed to a few accountants in the corporate office, you might need to devote more time and resources to safety or training. Your skilled laborers salaries could equal or close to the accountants. In addition, you may need to devote more resources to recruiting, as warehouse laborers tend to be harder positions to fill and have a higher turnover rate. Through HR forecasting, you can have a more effective budget by understanding where your resources need to be used.
  • Workforce predictions. With HR forecasting, you can use the data you have now to help make future decisions. This allows you to understand your workforce and what it might look like a year from now. Changes that might occur a year from now could be employee attrition, retirement or layoffs or any changes in your business strategy. Having all that information will help you make educated guesses on how things will look a year from now, 3 years from now or 5 years from now. Businesses are constantly changing, so flexibility is a must.
  • Align HR with organizational strategy. A frequent complaint about HR from other members of the organization is that it fails to contribute to the bottom line of the organization. In other words, HR doesn’t make the company money. HR forecasting is a great way to show HR’s worth. Through data-based decisions, HR can help an organization save money and invest in parts of the business by managing the supply and demand of the workforce. HR forecasting helps a business properly know its need for employees, find the right employees and hire them at the right time.
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Challenges of HR Forecasting

While HR forecasting can be quite effective in improving workforce planning for a company, it is not without challenges. Here are some of the more common challenges of HR forecasting.
  • Lack of understanding from other departments. This is probably the biggest challenge HR professionals face while forecasting. Without proper buy-in from other departments and managers, you can’t successfully forecast your workforce. For HR forecasting to be successful, you need to be able to gather data, make the right business decisions, and then through the help of other managers and departments, carry it out. If other departments don’t fully understand the need for forecasting, it will be ineffective.
  • Perception of HR. Other employees’ or departments' perception of HR can get in the way of forecasting. Some perceive HR as “paper-pushers,” or there to get employees in trouble. Some have this perception because of a bad experience with HR, or because that’s how they view HR’s purpose. If employees don’t see the value of HR and how it can benefit them, it can be hard for HR to make a real impact on the workforce. That negative perception creates a roadblock which can make it quite challenging to understand the workforce and forecast it properly.
  • Seeing employees as numbers. With HR forecasting, you are dealing with a lot of numbers. Numbers in themselves are not a bad thing. Most business decisions are data-driven because the numbers say the right thing to do. While HR forecasting is no different, this can lead to employees being viewed as simply a number, not an employee. Every employee contributes something to the team that is so much more than a number the employee represents. When HR forecasting, it is important to remember that employees are more than numbers.

Key HR Forecasting Concepts

On the surface, HR forecasting seems like a basic enough idea. You are trying to manage the supply and demand of your workforce by not under or over hiring. You want to be prepared so that you hire enough to keep up with production, but not so many that employees don’t have enough work to do. There are a few concepts to help you manage and understand these numbers. Here are some key concepts of HR forecasting to understand.

Demand Forecasting

This is the process of determining and predicting how many people will be needed, and who these employees will be. This answers questions like what kind of schooling, skills and work experience will be required for each of these jobs. Demand forecasting predicts how many will need to be hired over a certain period of time.

Supply Forecasting

This is the other key of workforce management: determining where your demand will come from. With supply forecasting, you need to determine what your current supply (your current workforce) is and what it consists of. Similar to demand forecasting, determine their schooling, skills and work experience, but you also want to know how large this supply is. Understanding what this supply looks like will help you determine what your demand will be.

Gap Analysis

In general, a gap analysis refers to comparing two different groups. When comparing, you look for discrepancies or gaps. For HR forecasting, a gap analysis is used to compare your current workforce and where you need your workforce to be to reach your business goals. That comparison might show a difference in head count, skills, type of jobs, etc. Finding the discrepancies between the two will help you determine what you need to do to achieve your business goals.
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HR Forecasting Methods

There are various methods you can use when HR forecasting. Many companies use multiple techniques. Here are some of the more common methods used by companies.

Ratio-Trend Analysis

This is the simplest way to do HR forecasting. This method typically relies on past ratios and uses that data to make future predictions. Some of those ratios can be the number of workers in an organization and how each department compares. Depending on business goals, a business might choose to keep this ratio or make a bigger ratio for departments that want to expand. The most common ratio used is the relationship between sales volume and workforce size.

Regression Analysis

This method has aspects of the ratio-trend analysis as it is based on the ratio between sales volume and workforce size, but is more statistical. A company would draw a diagram showing the relationship between sales and the workforce, then determine a regression line that cuts through the center points on the diagram. With this regression line, a company can see how many employees are needed for each volume of sales.

Work-Study Techniques

This technique is used to determine the correlation between the length of operations and the amount of labor needed to complete them. This could be used with a production budget at a manufacturing company. It is a little complicated to calculate, but it starts with how many saleable products or inventory the company has as a whole. This can be broken down by each department. You’ll then compare that with the budgets for productive hours. That is calculated by taking the standard hours per unit of output and multiplying that by the planned volume of units to be produced, giving you the total number of planned labor hours needed for that period. This number is then divided by the number of actual working hours for each individual employee to show the number of employees required.

Delphi Technique

This is a technique used to estimate personnel needs. It relies more on managers and requires more collaboration than other methods. Whoever is in charge of the forecasting reaches out to each manager to determine their hiring needs currently as well as in the future. All of these responses are gathered, summarized and provided to the managers so they are aware of what other departments are reporting for hiring needs. This method is continued until the managers begin to agree. Once agreement is made, this is the workforce forecast.
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How to Implement HR Forecasting

HR forecasting takes a lot of planning each step of the way. You want to make sure you are thorough in your process so that by the time you finish, you have an effective forecast of your workforce. Here are the steps to take when HR forecasting.

Step 1: Assess Current Workforce

The first step is to assess and take a look at your current workforce. Go as in depth as possible to determine each department’s head count, and each employee’s skills, responsibilities and job titles. Much of this information can be found through your HRIS (Human Resource Information System) database, but things such as employee skills and responsibilities will need to be obtained from the employees. You can survey the employees or their managers. This step is mainly focused on gathering as much information as you can on your current workforce.

Step 2: Forecast Staffing Needs

The next step is to determine what your staffing needs will be moving forward. Do you need to increase your staff? Do you have enough staff but need to increase productivity from your workforce, whether by working more efficiently or through training? Do you need different employee skills from what you currently have? In this step, set company goals on where you want to be as a business. In addition, this step is when supply and demand forecasting will take place to determine what you have and what you will need in number of employees.

Step 3: Develop and Add Talent

After you identify gaps and determine where you want to go as a company, the next step is to plan how you will achieve those goals. Here you come up with strategies to develop the talent you have to become more productive and efficient, as well as add talent. This is the step where HR plays the biggest role, as they can help with the recruiting, training, performance management and retaining talent.

Step 4: Review and Evaluate

The last step takes place after a set amount of time (3 months, 6 months, 1 year, etc). After the forecasting is made and strategies are in place to achieve business goals, new processes and strategies should be reviewed. Things such as production, profit and employee retention should all be looked at to see if these new processes and strategies have been successful. This is a great opportunity to learn and see what is going well and what needs to be changed.

Tips for Effective HR Forecasting

There are many ways for HR forecasting to be effective, and this will vary for each company. Here are some tips to consider to make your HR forecasting more effective.

Tip 1: Gather Employee Feedback

One of the more forgotten elements of forecasting is getting feedback from the workforce. The forecast will affect them the most and they are often more aware of what is going on inside the business than the decision-makers. Seeking their feedback can help you understand their roles, determine if they are feeling overwhelmed or stressed with the current workload, and understand their career goals and how they fit within the organization. This is the best way to get a pulse of the workforce.

Tip 2: Review an Organizational Chart

Prior to making any drastic changes to the workforce, it is important to understand how things are currently structured. Reviewing an organizational chart can give you a clear idea of current processes and reporting relationships. It can help you decide if more employees need to be hired or if a reorganization of duties is the answer.

Tip 3: Review Organizational Processes

As you start HR forecasting, you have an opportunity to review your current workforce and processes. You can see where certain gaps need to be filled, and how you can improve your hiring practices to hire the talent you need to obtain your business goals.
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Tanner Pierce, PHR

Tanner Pierce, PHR

Tanner has over 4 years of HR professional experience in various fields of HR. He has experience in hiring, recruiting, employment law, unemployment, onboarding, outboarding, and training to name a few. Most of his experience comes from working in the Professional Employer and Staffing Industries. He has a passion for putting people in the best position to succeed and really tries to understand the different backgrounds people come from.
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