Demand Forecasting Techniques Used in Human Resource Planning

demand forecasting techniques used in human resource planning

Human Resource Planning and Demand Forecasting Techniques

Human capital is the most valuable asset a company possesses. Human resource planning is a process used to predict future human resource requirements. Human resource forecasting, also known as HR forecasting, generally utilizes past sales data in order to more accurately estimate future staffing needs.

HR forecasting begins with performing comprehensive job analyses and estimating employee output levels. Factoring in the labor market and labor supply helps with both human resource planning and resource management optimization.

There are both quantitative and qualitative approaches for forecasting human resource demands. While quantitative methods are heavily reliant on mathematical and statistical analysis, qualitative forecasts generally depend more on managerial judgement techniques.

Both internal and external factors must be considered during the HR forecasting process. An example of an internal factor is the release of a new product and an example of an external factor is a technological advancement.

While some businesses may choose a single demand forecasting technique, other businesses may utilize multiple forecasting techniques collaboratively. Regardless of which forecasting processes are used, it is crucial for human resource management professionals to also consider their own expertise and intuition.

There are a wide variety of demand forecasting techniques used for human resource planning. Common forecasting techniques used to estimate human resource demand include-

1. Managerial Judgement

The managerial judgement technique includes the bottom up approach and top down approach. In the bottom up approach, line managers communicate human resource requirements to top management.

Applying the information received directly from their line managers, top management forecasts human resource requirements. The end result of the bottom up approach is a demand forecasting process that incorporates input from various departments.

In the top down approach of the managerial judgement technique, top management begins the demand forecasting process. After their human resource forecasting is completed, top management sends the forecast to departments for them to analyze and accept.

A combination of the top down and bottom up approach is referred to as the participative approach. The participative approach allows department heads and top management professionals to forecast human resource requirements collectively.

The participative approach is a human resource planning forecasting technique that encourages collaboration while decreasing communication gaps. For this reason, the participative approach is generally preferable to the top down and bottom up approach.

2. Work Study Technique

Commonly referred to as workload analysis, the work study technique predicts comprehensive activities and production for a specified future time period. The end result of the work study technique is an estimation of the work hours required per unit produced.

When estimating future work hours needed, human resource management professionals must take into consideration-

  • Resignations
  • Dismissals
  • Strikes
  • Technical difficulties
  • Absenteeism
  • Turnover rate
The more experienced the human resource management professionals performing the work study technique are, the more accurate their estimate for resources required is likely to be.

3. Econometrics Models

The econometrics model analyzes the relationship of an dependent variable with an independent variable. An example of an dependent variable are human resources and an example of an independent variable are sales.

Statistical and mathematical techniques used throughout the econometrics model allows human resource management professionals to estimate future demand with significant accuracy.

4. Delphi Technique

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The Delphi technique utilizes expert feedback in order to predict the human resources requirements that are necessary in the future. Human resource management professionals gather responses and develop reports that comprehensively summarize expert opinions.

The process of collecting feeback and creating reports is continued until a unified consensus is reached between the experts. For this reason, the Delphi technique can be a long term process if experts do not agree.

5. Regression Analysis

Regression analysis is a statistical method used to identify trends contained within data. Identifying trends helps business professionals to better understand their human resource requirements and optimize labor supply already available.

Regression analysis investigates the relationship between a predictor and a target, also known as independent and dependent variables. The dependent variable includes factors that businesses are trying to predict or gain additional insight about.

The independent variable includes factors that may or may not influence the dependent variable. Keep in mind that independent variables never predict dependent variables with complete accuracy.

Key Takeaways

Human capital is a business's most valuable asset. Human resource planning aims to predict future human resource requirements. HR forecasting uses historical data in order to more accurately estimate the human resource requirements that will be needed in future.

There are many HR forecasting techniques available including the Delphi method and managerial judgmenent technique.

Regardless of which forecasting process is used, human resource professionals should always consider their own intuition and experience.