Forecasting Employment Needs

Forecasting Employment Needs

Forecasting Employment Needs

Forecasting Employment Needs

Forecasting Employment Needs. After an organization's present workforce has been analyzed, the next step in developing a human resource planning system is to forecast future employment needs. This requires an analysis of the demand for labor that answers these three questions: (1) What employees will be needed in the future? (2) What kinds of skills and talents will the employees need? and (3) when will the new employees be needed?

Forecasting employment needs is more of an applied art than a science. Even though many sophisticated forecasting techniques have been developed, in practice forecasting is usually Informal, highly judgmental, and subjective. The accuracy of employment forecasts is related to the length of time they cover, with short-term forecasts tending to be much more precise and accurate than long-term forecasts.

In developing an employment forecast, the forecaster is required to make various assumptions about economic conditions and the future of the organization. While it might be safe to assume that economic conditions a year from now will be much the same as the present, the assumption of "no change" is not a very sound assumption for long-term planning. Over a long period of time, economic conditions and organizational strategic objectives tend to change dramatically.

Forecasting is more accurate in organizations that have stable environments. If the demand for an organization's products is quite steady and if the production technology does not change much over time, the employment forecasts can be quite accurate.

However, employment forecasts are usually more valuable for organizations in volatile environments,
even if they are not as accurate. In organizations where new technologies or operating processes are frequently introduced, some form of forecasting and planning is essential.

Plans for adequate staffing are particularly crucial in an organization that has a rapidly expanding technology, an unstable environment that needs to be anticipated, or a heavy reliance upon managerial, professional, and technical talent.

Employment forecasts need not produce exact estimates of future employment needs to be useful. The forecasting process itself, apart from the numbers that result, facilitates the planning process. Requiring managers to think about the future and to anticipate the kinds of events that might occur is a useful process even though the events that do occur may be quite different than those anticipated.

Having a forecast that is wrong is usually better than having no forecast at all, since an incorrect forecast can be modified as conditions change and new assumptions become necessary. The value of a forecast should be judged not so much by how close it was to the actual needs, but by the degree to which it caused managers to think about and anticipate future situations.

Forecasting employment needs involves two quite different time periods: long-term forecasting and short-term forecasting. These two periods differ in terms of the methods used for forecasting, their impact on an organization, and the people responsible for the forecasts.

Long-Term Forecasting

Long-term forecasts typically cover a time frame of two to ten years and are typically adjusted each year on a rolling basis. For example, the four-year forecast becomes the three year forecast and a new four-year forecast is developed.

The sophistication of long-range forecasting varies greatly from company to company. Some organizations attempt to identify how many employees in each job category will be needed to satisfy their strategic business plans for the next several years.

Other organizations only try to forecast the total number of people in the major divisions. Still other organizations are content to identify some of the major social changes that may occur and try to maintain an awareness of the environmental and technological changes that could influence their future human resource needs.

All long-term forecasts should be based on strategic business plans. Until someone has identified what an organization expects to be doing and the level of its business activity, forecasting how many employees will be needed is a futile exercise. However, once the projected level of business activity has been identified, several methods of forecasting long term employment demands can be used, such as unit demand, expert opinion, trend
projections, probabilistic models, and Markov analysis.

Unit Demand:

The unit demand method of long-term forecasting is an extension of the short term forecasting method. This method requires managers to know what business activity will be performed by their units in future years and how many people will be needed year by year to achieve their business objectives. After this information has been obtained from each unit manager, it is aggregated to form an overall forecast for the organization.

Using unit demand forecasting, Japan's major air carriers forecasted a serious pilot shortage during the 1990s. For example, Japan Airlines found that 60 captains would retire annually in the latter half of the 1990s and radical traffic expansions would exacerbate the shortage.

By anticipating the problem, however, the airline had an opportunity to recruit and train an adequate number of replacements? One of the advantages of unit demand forecasting is that unit managers typically have very
accurate information regarding how many people are required for different production levels. For example, doubling the production of a department does not necessarily mean that twice as many employees will be needed.

The unit manager is in the best position to know how many new positions will be needed to achieve the additional level of output. One of the major disadvantages of unit-demand forecasting is that collecting the necessary
data requires the cooperation of a large number of people, and some people simply do not cooperate.

Furthermore, the information sometimes cannot be aggregated meaningfully since each unit manager may have used slightly different assumptions.

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