7 Process of HRP

Learning Objectives

After completing this session, you will be able to:

  • describe the process of HRP.
  • identify factors affecting HR demand forecasting.

1.1 HR PLANNING FAILURE AND LABOUR IMBALANCES

1.2 THE PROCESS OF HRP

  1. Personnel demand forecast: – This is the very first step in HRP process. Here the HRP department finds out department wise requirements of people for the company. The requirement consists of number of people required as well as qualification they must possess.
  2. Personnel supply forecast: – In this step, HR department finds out how many people are actually available in the departments of the company. The supply involves/includes number of people along with their qualification.
  3. Comparison: – Based on the information collected in the 1st and 2nd step, the HR department makes a comparison and finds out the difference. Two possibilities arise from this comparison
    • No difference: –It is possible that personnel requirement = personnel supplied. In this case there is no difference. Hence no change is required.
    • Yes, there is a difference: –There may be difference between supply and requirement. The difference may be Personnel surplus or Personnel shortage
  1. Personnel surplus: – When the supply of personnel is more than the requirement, we have personnel surplus. We require 100 people, but have 125 people. That is, we have a surplus of 25 people. Since extra employees increase expenditure of company the company must try to remove excess staff by following methods.
    • Layoff
    • Termination
    • VRS/CRS
    • No recruitment
  1. Personnel shortage: – When supply is less than the requirement, we have personnel shortage. We require 100 people; we have only 75 i.e. we are short of 25 people. In such case the HR department can adopt methods like Overtime, Recruitment, Sub-contracting to obtain new employee.

1.3 HR DEMAND FORECASTING

Forecasting human resource demand is the process of estimating the future human resource requirement of right quality and right number. As discussed earlier, potential human resource requirement is to be estimated keeping in view the organisation’s plans over a given period of time. Analysis of employment trends; replacement needs of employees due to death, resignations, retirement termination; productivity of employees; growth and expansion of organisation; absenteeism and labour turnover are the relevant factors for human resourced forecasting. Demand forecasting is affected by a number of external and internal factors. and forecasting about the quality of potential human resource facilitates demand forecasting. So, existing must be thoroughly evaluated taking into consideration the future capabilities of the present employees.

1.3.1 FACTORS AFFECTING HR DEMAND FORECASTING

Human Resource Demand Forecasting depends on several factors, some of which are Employment trends; Replacement needs; Productivity; Absenteeism; and Expansion and growth. There are number of techniques of estimating/forecasting human resources demand:

(a) Managerial Judgement: Managerial judgement technique is very common technique of demand forecasting. This approach is applied by small as well as large scale organisations. This technique involves two types of approaches i.e. ‘bottom-up approach’ and ‘top-down approach’. Under the ‘bottom-up approach’, line mangers send their departmental requirement of human resources to top management. Top management ultimately forecasts the human resource requirement for the overall organisation on the basis of proposals of departmental heads. Under the Top-down approach’, top management forecasts the human resource requirement for the entire organisation and various departments. This information is supplied to various departmental heads for their review and approval. However, a combination of both the approaches i.e. ‘Participative Approach’ should be applied for demand forecasting. Under this approach, top management and departmental heads meet and decide about the future human resource requirement. So, demand of human resources can be forecasted with unanimity under this approach.

(b) Work-Study Technique: This technique is also known as ‘work-load analysis’. This technique is suitable where the estimated work-load is easily measurable. Under this method, estimated total production and activities for a specific future period are predicted. This information is translated into number of man-hours required to produce per units taking into consideration the capability of the workforce. Past-experience of the management can help in translating the work-loads into number of man-hours required. Thus, demand of human resources is forecasted on the basis of estimated total production and contribution of each employee in producing each unit items.

(c) Ratio-Trend Analysis: Demand for manpower/human resources is also estimated on the basis of ratio of production level and number of workers available. This ratio will be used to estimate demand of human resources. The following example will help in clearly understanding this technique.

(d) Econometrics Models: These models are based on mathematical and statistical techniques for estimating future demand. Under these models relationship is established between the dependent variable to be predicted (e.g. manpower/human resources) and the independent variables (e.g., sales, total production, work-load, etc.). Using these models, estimated demand of human resources can be predicted.

(e) Delphi Technique: Delphi technique is also very important technique used for estimating demand of human resources. This technique takes into consideration human resources requirements given by a group of experts i.e. mangers. The human resource experts collect the manpower needs, summarises the various responses and prepare a report. This process is continued until all experts agree on estimated human resources requirement.

1.4 HR SUPPLY FORECASTING

Human Resource supply forecasting is the process of estimating availability of human resource followed after demand for testing of human resource. For forecasting supply of human resource, we need to consider internal and external supply. Internal supply of human resource available by way of transfers, promotions, retired employees & recall of laid-off employees, etc. Source of external supply of human resource is availability of labour force in the market and new recruitment.

External supply of human resource depends on some factors like

  1. Supply and demand of jobs.
  2. literacy rate of nation.
  3. rate of population
  4. industry and expected growth rate and levels
  5. technological development.
  6. compensation system based on education, experience, skill and age.

The most important techniques for forecasting of human resource supply are Succession analysis and Markov analysis.

Source: Fundamentals of Business: Canadian Edition by Pamplin College of Business and Virgina Tech Libraries is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License

1.4.1 Succession analysis

Once a company has forecast the demand for labour, it needs an indication of the firm’s labour supply. Determining the internal labour supply calls for a detailed analysis of how many people are currently in various job categories or have specific skills within the organization. The planner then modifies this analysis to reflect changes expected in the near future as a result of retirements, promotions, transfers, voluntary turnover, and terminations.

Demand forecasting helps in determining the number and type of personnel/human resources required in future. The next step in is forecasting supply of human resources. The purpose of supply forecasting is to determine the size and quality of present and potential human resources available from within and outside the organisation to meet the future demand of human resources. Supply forecast is the estimate of the number and kind of potential personnel that could be available to the organisation.

Estimating Internal Labour Supply for a Given Unit

The above figure illustrates that internal supply forecasting can be estimated based on the following:

(a) Current Staffing Level

(b) Projected Outflows This Year

(c) Projected Inflows This Year

1.4.2 MARKOV ANALYSIS

Transition probability matrix is developed to determine the probabilities of job incumbents remaining in their jobs for the forecasting period. The technique is named after Russian mathematician Andrei Andreyevich Markov,

A transition matrix, or Markov matrix, can be used to model the internal flow of human resources. These matrices simply show as probabilities the average rate of historical movement from one job to another. Figure 2-12 presents a very simple transition matrix. For a line worker, for example, there is a 20% probability of being gone in 12 months, a 0% probability of promotion to manager, a 15% probability of promotion to supervisor, and a 65% probability of being a line worker this time next year. Such transition matrices form the bases for computer simulations of the internal flow of people through a large organization over time.

1.5 THE HRP MODEL & RIGHTSIZING

The human resources planning model is a method is used to make sure a business has enough employees and the right employees to carry out the various functions of the business. Done properly, it can help to ensure that a business has the right talent coming through the pipeline to meet the company’s current and future needs.

a) Forecasting Staffing Needs

There are several ways to forecast your business needs in order to predict how many workers you need to run your business and which roles these employees need to fill. Some of the factors to consider include the situation of the economy, both local, regional and national, the internal business finances, the demand for your products or services and the short- and long-term growth expectations for your business.

To forecast staffing needs, take a look at your existing staff and see which current employees are likely to transition into new position within the company. Also consider how many of your employees may leave in search of outside opportunities.

b) Evaluating Supply

Evaluating the supply of employees includes a two-prong process: evaluating internal staff, which will occur as you are forecasting your staffing needs, as well as external staff. Externally, you need to evaluate the demographics of the workforce that is available. This can include factors such as education, mobility, the unemployment rate and state and federal government laws and regulations that can affect your industry, your business, existing and potential employees. Evaluating all of these factors helps you determine if you have access to the number and types of employees you need to fill your staffing forecasts.

If your small business does not have the resources to conduct an external evaluation, contact a local community college, university, workforce development program or economic group. Many of these entities use state or federal dollars to compile statistics on the local workforce in an effort to recruit new businesses and expand local enterprises.

c) Balance Supply and Demand

The final element of the human resources planning model is to determine how you are going to balance the demand you have for employees with the supply of employees available. If you have a shortage of employees, this will determine what type of recruiting efforts your business will participate in to attract the employees it needs to fill needs within the company. It also requires you to balance your full-time and part-time needs.

If you have a surplus of employees, this requires you to consider employee layoffs, retirements and situations where employees may need to be demoted or moved into a lateral position rather than receiving a promotion.

Key Takeaways

  • Human resource planning (HRP) is a strategy used by a company to maintain a steady stream of skilled employees while avoiding employee shortages or surpluses.
  • Having a good HRP strategy in place can mean productivity and profitability for a company.
  • There are four general steps in the HRP process: identifying the current supply of employees, determining the future of the workforce, balancing between labor supply and demand, and developing plans that support the company’s goals.

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Human Resource Management by Icfai Business School is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.

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