Wednesday, February 17, 2010


The information gathered from external environmental scanning and assessment of internal strengths and weaknesses is used to predict or forecast HR supply and demand in light of organizational objectives and strategies. Forecasting uses information from the past and present to identify expected future conditions. Projections for the future are, of course, subject to error. Changes in the conditions on which the projections are based might even completely invalidate them, which is the chance forecasters take. Usually, though, experienced people are able to forecast with enough accuracy to benefit organizational long-range planning.
Approaches to forecasting human resources range from a manager’s best guess to a rigorous and complex computer simulation. Simple assumptions may be sufficient in certain instances, but complex models may be necessary for others.
It is beyond the scope of this text to discuss in detail the numerous methods of forecasting available, but a few of the more prominent ones will be highlighted.
Despite the availability of sophisticated mathematical models and techniques, forecasting is still a combination of quantitative method and subjective judg- ment. The facts must be evaluated and weighed by knowledgeable individuals, such as managers and HR experts, who use the mathematical models as a tool rather than relying on them blindly.
Forecasting Periods HR forecasting should be done over three planning periods: short range, intermediate, and long range. The most commonly used planning period is short range, usually a period of six months to one year. This level of planning is routine in many organizations because very few assumptions about the future are necessary for such short-range plans. These short-range forecasts offer the best estimates of the immediate HR needs of an organization. Intermediate and long-range forecasting are much more difficult processes. Intermediate plans usually project one to five years into the future, and long-range plans extend beyond five years.
Forecasting the Need for Human Resources (Demand)
The main emphasis in HR forecasting to date has been on forecasting organizational need for human resources, or HR demand. Forecasts of demand may be either judgmental or mathematical . Even when mathematical methods are used, human judgments are also needed to confirm the conclusion of the mathematical models.
The demand for employees can be calculated on an organization-wide basis and/or calculated based on the needs of individual units in the organization. For example, to forecast that the firm needs 125 new employees next year might mean less than to forecast that it needs 25 new people in sales and customer service, 45 in production, 20 in accounting, 5 in HR, and 30 in the warehouse. This unit breakdown obviously allows for more consideration of the specific skills needed than the aggregate method does.
Forecasting human resources can be done using two frameworks. One approach considers specific openings that are likely to occur and uses that as the basis
for planning. The openings (or demands) are created when employees leave a
position because of promotions, transfers, and terminations. The analysis always begins with the top positions in the organization, because from those there can be no promotions to a higher level.
Based on this analysis, decision rules (or “fill rates”) are developed for each job or level. For example, a decision rule for a financial institution might state that 50% of branch supervisor openings will be filled through promotions from customer service tellers, 25% through promotions from personal bankers, and 25% from new hires. But forecasters must be aware of chain effects throughout the organization, because as people are promoted, their previous positions become available. Continuing our example, forecasts for the need for customer service tellers and personal bankers would also have to be developed. The overall purpose of this analysis is to develop a forecast of the needs for human resources by number and type for the forecasted period.
Forecasting Availability of Human Resources (Supply)
Once the need for human resources has been forecasted, then their availability must be identified. Forecasting the availability of human resources considers both external and internal supplies. Although the internal supply may be easier to calculate, it is important to calculate the external supply as accurately as possible.
EXTERNAL SUPPLY The external supply of potential employees available to the
organization needs to be estimated. Extensive use of government labor force population estimates, trends in the industry, and many more complex and interrelated factors must be considered. Here are some of the factors that may be considered:
-Net migration into and out of the area
-Individuals entering and leaving the workforce
-Individuals graduating from schools and colleges
-Changing workforce composition and patterns
-Economic forecasts for the next few years
-Technological developments and shifts
-Actions of competing employers
-Government regulations and pressures
-Factors affecting persons entering and leaving the workforce
Estimating internal supply considers that employees move from their current jobs into others through promotions, lateral moves, and terminations. Also, it considers that the internal supply is influenced by training and development programs, transfer and promotion policies, and retirement policies, among other factors. Internally, succession analysis is one method used to forecast the supply of people for certain positions. It relies on replacement charts,which are succession plans developed to identify potential personnel changes, select backup candidates, promote individuals, and keep track of attribution (resignations, retirements) for each department in an organization.
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.
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.
COMPILING THE HR PLAN With all the data collected and forecasts done, an organization has the information it needs to develop an HR plan. Such a plan can be extremely sophisticated or rather rudimentary. Regardless of its degree of complexity, the ultimate purpose of the plan is to enable managers in the organization to match the available supply of labor with the forecasted demands in light of the strategies of the firm. If the necessary skill level does not exist in the present workforce, employees may need to be trained in the new skill, or outside recruiting may need to be undertaken. Likewise, if the plan reveals that the firm employs too many people for its needs, a human resource surplus exists.


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