5 HR demand forecasting techniques
Organizations today are spending more of their budgets on competitive intelligence to avoid the risk of falling behind competitors. According to a survey by SHRM, 49 percent of HR leaders stated that “competition from other employers” was one of the biggest reasons they struggled to hire the right employees. Human resource needs are key elements in a company’s strategic plan, which ensures that the right people are hired at the right time.
The HR department plays an essential role in supporting organizations by ensuring a solid talent base as well as forming and executing a strategic workforce plan. A major element in strategic workforce planning is forecasting future workforce needs and taking steps to meet them. Many job roles will become obsolete in the future, while others will require upskilling or reskilling to keep up with new technology. Take a look at future requirements here.
Below are some models HR leaders can use to forecast future demands.
The Markov model
The Markov model is a dynamic forecasting model and has become a fundamental quantitative analysis technology in human resource forecasting. Using this model, the HR department creates a list of employees’ skills, education, training, work experience, qualifications, ability levels, etc. They maintain reports in a timely manner and regularly update the status of the workforce to keep a check on the future talent and skill demands. This report allows HR leaders to fully forecast demand probability and the number of possible internal hires and transfers, then forecast the internal supply of human resources available within the organization.
The Markov model is a suitable HR demand forecasting technique in the field of informatics, telecommunications, electrical engineering, economics, and engineering.
Workload analysis
Workload analysis is only suitable where the estimated workload is easily measurable. In this forecasting method, the total estimated production of services/goods for a predetermined period is forecasted. The HR team then estimates the number of employees that will be hired to fulfill the forecasted production capacity based on past data. Thus, demand for human resources is forecasted based on estimated total production and the contribution of each employee in producing each unit.
Leader’s opinion method
Under this technique, leaders assess future workforce needs in different categories in their respective establishments. To forecast future workforce demand by skill category, leaders will need to aggregate all data related to employees, retirement, upskilling or reskilling needs, and so on.
The leader’s opinion method is used for forecasting highly professional skills, succession planning, and making short-term workforce forecasts.
Nominal group technique
The nominal group technique [NGT] is a demand forecasting method utilizing expert assessments.
Using this technique, the HR department identifies employees in key positions and creates an expert panel. They are presented with a set of questions related to HR demands. The solutions and ideas given by this panel are based on the panel members’ background knowledge and personal experience. The ideas received are collected anonymously and the panel votes on each idea, until one is finalized unanimously.
Delphi technique
The Delphi technique is similar to the nominal group technique but differs in one manner. The nominal group technique entails minimal action from experts — only providing the solution. The Delphi technique calls for a facilitator to solicit and collect expert opinions on labor forecasts.
An HR leader provides the expert panel, which comprises internal employees in key positions as well as external experts on the HR demand forecasting with consecutive questionnaires wherein they must define the forecasts they have made and provide supporting rationale.
After collecting the responses to the questionnaire, the facilitator creates a summary of all responses and sends it to the selected panel of experts to review. This is repeated until the experts reach a clear majority decision.
There are many techniques so far developed to forecast the demand for human resources.
6 Techniques for Forecasting of Human Resources are;
Delphi technique
Delphi technique is based on the principle that forecasts [or decisions] from a structured group of individuals are more accurate than those from the unstructured group.
Delphi is a structured approach for reaching a consensus judgment among experts about future developments in any area that might affect a business, for example, a firm’s future demand for labor.
In the Delphi technique, a panel of relevant people is chosen to address an issue. It facilitates group decision-making.
Experts are chosen based on their knowledge of internal factors that might affect a business [e.g., projected retirement], their knowledge of the general business plans of the organization, knowledge of the external factors that might affect demand for the firm’s product and service, and hence its internal demand for labor.
Experts may range from first-line supervisors to top-level managers. Sometimes, outside experts are also used.
The main objective of the Delphi technique is to predict future developments in a given area by integrating the independent opinions of experts.
Face-to-face group discussion among the experts is avoided to eliminate criticism and compromise on good ideas.
To avoid these problems, an intermediary is used. The intermediary’s job is to pool, summarize, and then feedback to the experts on the information generated independently by all the other experts during the first round of forecasting.
The cycle is then repeated so that the experts can revise their forecasts and the reasons behind their revised forecasts.
The following are the key characteristics of the Delphi method: the anonymity of the participants, the structuring of information flow, regular feedback, and the role of the facilitator.
Guidelines to make the Delphi process most useful:
- Give the experts enough information to make an informed judgment.
- It does not require precision.
- Keep the exercise as simple as possible.
- Be sure that the classification of employees and other definitions are understood in the same way by all experts.
- Enlist top management’s expert’s support of the Delphi process by showing how good forecasts will benefit the organization and affect profitability and workforce productivity.
The Delphi technique produces a few important benefits such as;
- elimination of interpersonal problems among panelists,
- efficient use of experts’ time,
- adequate time for reflection & analysis by respondents,
- diversity & quantity of ideas generated, and
- accuracy of predictions & forecasts made.
The Delphi technique is not without limitations. It must be realized that in an area such as human resource forecasting, the degree of uncertainty is so great that exact and always correct predictions are impossible.
Hence, a high degree of error is to be expected. Another particular weakness of the Delphi method is that future developments are not always predicted correctly by the consensus of the experts.
Another problem is the inability of the experts to make complex forecasts with multiple factors.
Check out the article I wrote on Delphi Technique, it’s definition, history, characteristics and uses of Delphi technique.
Nominal technique
A nominal group exists in name only, with members having minimal interaction before producing a decision.
Participants are asked to write their ideas anonymously. Then the facilitator collects the ideas, and the group votes on each idea. The group should be prepared and encouraged to embrace the process.
Here are the steps that nominal groups often follow:
- Individuals are brought together & presented with a problem.
- They develop solutions independently, often writing them on cards.
- Their ideas are shared with others in a structured format,
- Brief-time is allotted so that questions can be asked – but only for clarification, ask the kinds of questions a unit manager can answer.
- Group members individually designate their preferences for the best alternatives by secret ballot.
- The group “decision” is announced.
Advantages of the nominal technique
- There is an opportunity for equal participation by all members. Participation is broad, not limited to a few powerful members.
- It allows tighter control of time. Thus, it quickens the decision-making process. It is a time-saving process.
- A single member cannot dominate the decision process. There is little chance of group thinking occurring.
- Because of wider participation, members can come up with new ideas.
Disadvantages of nominal technique
- Group members are frustrated by the rigidity of the procedure,
- Gain no feelings of cohesiveness,
- Do not have the opportunity to benefit from the cross-fertilization of ideas.
- The success of the nominal technique depends on each member’s capacity.
Brainstorming
Brainstorming is a popular method for encouraging creative thinking in groups of about five to eight people [Ivanceivich, 1998].
Brainstorming is a group or individual’s creativity technique by which efforts are made to conclude a specific problem by gathering a list of ideas spontaneously contributed by its member[s].
Good ideas may be combined to form a single better idea, as suggested by the slogan “1+1=3”. It is believed to stimulate the building of ideas by the process of association. It is built around four basic guidelines for participants:
- Generate as many ideas as possible.
- Be creative, freewheeling & imaginative.
- Build upon extending or combine earlier ideas,
- Withhold criticism of others’ ideas.
The success of this technique depends on: each member’s capacity, willingness to hear thoughts, use the thoughts as a stimulus, spark new ideas of their own, and feel free to express them.
Advantages of Brainstorming
There are many advantages of brainstorming, such as
- group members are enthusiastic,
- broad level participation,
- group members maintain a strong task orientation,
- new ideas are built upon & extended and
- combined and improved ideas.
Disadvantages of Brainstorming
The major disadvantages of brainstorming are:
- Members typically feel that the final product is a team solution, not an individual,
- Residual fear among some members,
- Creative thoughts are looked down upon,
- Less contribution to group cohesion.
- Only one person can speak at a time,
Trend Analysis
Trend analysis means studying a firm’s past employment needs over the years to predict the future. The purpose is to identify trends that might continue. It provides an initial estimate.
Ratio Analysis
Ratio Analysis is a forecasting technique for determining future staff requirements by using ratios between, for example, sales volume and number of employees needed.
It means making forecasts based on the ratio between any causal factor and the number of employees required. Ratio analysis assumes that productivity remains the same.
Scatter Plot
A scatter plot is a graphical method used to help identify the relationship between two variables. If an HR manager can forecast the level of business activity, he should also estimate personnel requirements.
Managerial judgment will play a big role, whichever forecasting technique HR managers use. Rarely, any historical trend or relationship will continue unchanged into the future.
HR managers have to modify the forecast based on factors- such as projected turnover or a desire to enter new markets. It is sometimes difficult to take a long-term perspective, particularly when market conditions change dramatically.