Everything you need to know about the process of human resource planning. Human resource planning is a two-phased process by which management can project the future human resource requirements and develop suitable action plans to accommodate the implications of projections.

Thus, human resource planning is the process of developing and determining objectives, policies and programs that will procure develop and utilise human resources so as to achieve the goals of the organisation.

The manager responsible for human resource planning has to be concerned with all the steps at all times.

He may have to revise employment plan and training and development program from time to time depending upon the changes in circumstances such as sudden changes in volume of production, unexpected high rate of labour turnover, obsolescence of existing skills and so on.


Human resource planning is an on-going activity because of the changes and uncertainties in both internal and external environments of the organization.

A brief explanation of the steps in the human resource planning process are as follows:-

1. Situation Analysis or Environmental Scanning 2. Analysis of Skill Inventory 3. Forecasting Demand for Human Resources 4. Analysing Supply of Human Resources 5. Evaluating External and Internal Issues 6. Estimating Manpower Gaps and Action Planning 7. Monitoring and Control.

Process of Human Resource Planning (HRP): 6 Step Process (With Diagram)

Process of Human Resource Planning – 6 Step Process: Situation Analysis, Forecasting Demand, Analyzing Supply, Evaluating External and Internal Issues & a Few Others

Human resource planning is an on-going activity because of the changes and uncertainties in both internal and external environments of the organization.


Human resource planning process consists of six steps:

Step # 1. Situation Analysis or Environmental Scanning:

The role of environmental scanning is to identify future trends (factors) inside and outside the organization; assess the likely impact of those trends on the work, on the workforce, and on the human resource department; and determine the desired impact of those trends considering future initiatives and plans of the organization.

It involves prediction of the future of jobs, positions and job families; prediction of the kind of people needed to do work in the future; and focus on future pressures from outside or inside the organization exerted on the HR department and its activities.

Step # 2. Forecasting Demand for Human Resources:

A key component of human resource planning is forecasting the number and types of people needed to meet the organizational objectives. Demand forecasting is the process of estimating the future quantity and quality of people required. The bases of the forecast are the annual budget and long term corporate plan, translated into activity levels for each function and department.


Demand forecasting depends upon various factors which are both external and internal. The external factors are competition; economic climate; social climate; laws and regulatory bodies; and changes in technology. Internal factors include organizational structure; budget constraints; production levels; new products and services; and employee separations.

Reasons for Manpower Demand Forecast:

The various reasons of manpower demand forecast are as follows:

i. There is long gestation lags in the production of skilled professional people.


ii. The labour market is not perfectly competitive in nature.

iii. Elasticities of substitution among various skills have been zero or near zero. Production of goods and services, therefore, require various categories of skilled manpower in fixed proportion.

Types of Manpower Demand Forecast:

There are basically two ways of classifying manpower demand forecast such as on the bases of time and levels.


i. Time-

a. Short-term forecast

b. Medium-term forecast

c. Long-term forecast


ii. Levels-

a. Micro forecast

b. Macro forecast

Manpower demand forecast can be categorized into three types (short- term demand forecast, medium-term demand forecast, and long-term demand forecast) depending upon the time period of forecast and two types (micro demand forecast and macro demand forecast) depending upon the level of manpower demand forecast.

a. Short-Term Demand Forecast:

i. Short-term forecasts are usually made for a period not exceeding two years.

ii. These are made primarily to facilitate estimation of financial provision for wages/salaries in the programmes/projects initiated or likely to be initiated in the immediate future.

iii. These are also useful in resource allocation among competing programmes to be taken up for implementation in the not too distant future.

iv. Short-term forecasts are useful at the micro-level say, company level.

b. Medium-Term Demand Forecast:

i. The time span of medium-term forecast ranges from two to five years.

ii. These are useful in those offices which are concerned with advising ministers or preparing contingency plans to deal with the changes of economic circumstances or international events.

c. Long-Term Demand Forecast:

i. Forecast for a period of more than five years are considered as long-term forecast.

ii. These are required in educational planning, particularly relating to the highly skilled professional categories of manpower.

iii. Long term forecasts are useful in preparation of corporate plans dealing with productivity changes, technological changes and major organizational developments.

Methods of Micro Demand Forecasting:

Micro manpower demand forecasting is done at the enterprise or the company level. The various methods of micro demand forecasting are categorized into quantitative methods and qualitative methods of demand forecasting.

I. Quantitative Methods of Micro Demand Forecasting:

The different quantitative methods of micro demand forecasting are:

a. Work study method

b. Ratio method

c. Regression analysis

d. Time series analysis

a. Work Study Method:

Work study has a direct relationship with productivity. The ultimate motive of work study is the best utilization of man, machine, material and money to achieve higher productivity. This technique is also known as work load analysis and is suitable where the estimated work load is easily measurable.

It includes estimation of total production and activities in a year in terms of clear units; calculation of man hour required to produce each unit; estimation of productive hours per person; and then calculation of total required number of employees.

b. Ratio Method:

Ratio method is a statistical method of manpower demand forecasting. Ratios are calculated from past data and these ratios are used for the estimation of future human resource requirements.

c. Regression Analysis:

Regression analysis is a more complicated method of estimating HR demand. It allows for adjustment of seasonal fluctuation, long-term trends, and random movement when forecasting. It depends on factors or predictors that determine the demand for employees, such as revenues, degree of automation, and so forth.

Information on these predictors from past years, as well as the number of employees in each of these years is used to produce an equation or formula. The organization can then enter expected figures for the predictors, such as revenues and degree of automation into the formula to obtain an estimated number of employees needed in future years.

Regression analysis is more sophisticated than ratio analysis and leads to more accurate predictions of employee demand. A major weakness of regression analysis is that the factors that are related to workforce size may not be relevant factors in future years.

d. Time Series Analysis:

Employment data over a time period are used under this method as the basis of manpower forecast.

Recording employment levels over a time period, the following five distinct elements can be observed:

a. Trend-Fluctuations in level of employment over a time period.

b. Cyclical Effect-Change in employment in relation to some particular events such as economic liberalization, privatization, and globalization.

c. Seasonality-Seasonal fluctuations occur more than once in a given time period like requirement of more maintenance staff in Odisha State Electricity Board during summer.

d. Step-This is a sudden change in employment level due to economic environment or increased market share.

e. Random Fluctuations- These are fluctuations in employment level which are random in nature i.e. they do not follow any obvious pattern. This problem can be addressed through moving average method.

Methods of Time Series Analysis:

Moving average and exponential smoothing are two important methods of time series analysis.

i. Moving Average Method/Running Average Method:

In this method, average of the combined employment level data for the recent past are taken into consideration for finding out the forecasted employment level for the next period. This technique is useful in short-term fluctuations and highlights longer-term trends or cycles. The accuracy of the result depends upon the careful selection of the length of the time period for computing means.

To smooth out cyclical component, the length of the time period should be multiple of the estimated average length of the cycle. For annual time series, the time period should be of odd number. This method requires maintaining only the N most recent periods of data points. At the end of each period, the oldest period’s data is discarded and the newest period’s data is added to the data base. The average is then divided by N and used as a forecast for the next period.


Let the demand for personnel for a particular project in the operation department of ABC Limited for the last nine months is given in the following Table-3.9.

Example of Moving Average Method:

Requirement of manpower in the month of December by taking a five period moving average is (260+280+270+200+180)/5= 238. Requirement of manpower in the month of January by taking a three period moving average is (260+280+270)/3= 270. To avoid this variation it is better to take longer time period for calculation of moving average. For achieving better results, weights may be assigned for different time period.

ii. Exponential Smoothing:

Exponential smoothing is a technique that can be applied to time series data, either to produce smoothed data for presentation, or to make forecasts. In moving average method, it is required to carry forward a large volume of historical data. The need for such past records can be eliminated by exponential smoothing method.

This method smoothens random errors by giving exponentially decreasing weights to historical data. Such weight factor is indicated by alpha (a). Alpha is a smoothing constant, a non-linear decimal value and lies between 0 and 3.


The forecasted manpower of an organization for the year 2012 was 600, while their actual requirement was 550. The alpha value is given as 0.6 (which the company feels would produce the best results). The manpower requirement for the current period (for the year 2013) can be calculated as 600 + 0.6 (550 – 600) = 570.

Double exponential smoothing can be done to get further cushion in manpower forecasting.

II. Qualitative Methods of Micro Demand Forecasting:

The different qualitative methods of micro demand forecasting are:

i. Managerial judgment method

ii. Delphi technique

iii. Nominal group technique

i. Managerial Judgement Method:

Based on their past experiences managers decide the number of employees required for future operations. Mangers act as experts, look into quantitative data, use their judgments and experience while arriving at appropriate number of employees. This is basically adopted when the organization is small, having insufficient data and uncertain environment.

This can be done through both bottom up forecasting approach and top down forecasting approach.

Bottom up forecasting approach is to seek guidance and opinion from the unit or branch or division to estimate the manpower requirements. The addition of all such estimates prepared at various levels in different divisions or branches give the demand forecast for the whole organization.

In the top down forecasting approach, the top managers of the organization meet to discuss how the organizational objectives; trends; business plans; and the economic, social, political and legal factors would affect the concerned organization. Taking all these aspects into consideration the top managers try to estimate the appropriate number of employees.

The suggested forecasts are circulated downwards for discussions and thereafter reviewed and agreed with departmental managers.

In both the approaches, comments from different levels of the managerial hierarchy often lead to considerable revisions of the original estimates. Departmental managers usually act as per the guidelines set on the basis of broad company assumptions about future activity levels, affecting their departments. Targets are set in case of necessity. Departmental managers take care of these guidelines and prepare their forecasts to a set format.

The two sets of forecasts are then reviewed by a manpower planning committee consisting of the functional heads. This committee reconciles with departmental managers any discrepancies between the two forecasts and submits the final amended forecast to the top management for approval. This is called as the right angle method.

ii. Delphi Technique:

Manpower specialists in organizations have recognized the uniqueness of the future conditions. Hence few systematic procedures for incorporating future uncertain states of nature have been developed, implemented or tested regarding manpower resource decisions. Delphi technique is one of such techniques, which systematically uses expert judgment in generating a manpower forecast.

The Delphi technique, a set of procedures originally developed by The RAND Corporation in the late 1940’s, is designed to obtain the most reliable consensus of opinion of a group of experts. It is based on the assumption that group judgments are more valid than individual judgments.

Experts use a variety of factors to make their judgments, including economical, demographical, technological, legal, and social conditions outside of the organization, as well as production, sales, turnover, experiences, and education levels of the workforce within the organization.

Essentially, the Delphi is a series of intensive interrogations of each individual expert (by a series of questionnaires) concerning some primary question interspersed with controlled feedback. The procedures are designed to avoid direct confrontation of the experts with one another.

Steps in Delphi Method:

Delphi method includes the following steps:

a. Selection of a facilitator and a panel of experts. The experts should be from within and outside of the organization;

b. Circulation of questions in writing by the facilitator to the experts;

c. Writing of observations by the experts;

d. Editing and summarization of observations by the facilitator. The coordinator should not disclose majority opinion in his/her summary. This avoids the negative effects of face-to- face panel discussion;

e. Development of a new set of questionnaire by the facilitator on the basis of the summary;

f. Distribution of new set of questionnaire among the experts;

g. Experts answer the questions and write the observations; and

h. The facilitator repeats the process till he is able to synthesize from the opinion of experts.

Prerequisites of Successful Delphi Method:

a. Experts having requisite knowledge and skill should be chosen;

b. Questions should be relevant to the objective;

c. Criteria for evaluating responses should be consistent, unbiased and befitting with the organizational objectives; and

d. Evaluation of responses should be made by taking the guidelines of experts’ knowledge and skill in the appropriate area and by considering the assessment in terms of feasibility, objectives, time requirement, resource requirement, desirability, and extraneous factors.

One of the criticisms of the Delphi method is that it is subjective in nature. Hence it may be difficult for those who prefer quantitative approaches to qualitative approaches. In this technique the organization wants the experts not to discuss their estimates with others. But very often this can happen when experts have strong working relationships, networking or work in close proximity to others.

iii. Nominal Group Technique:

Nominal Group Technique (NGT) was first developed by Andre Delbecq and Andrew H. Van de Ven as an alternative to simple, individual brainstorming of ideas. NGT involves multiple experts (usually line and department managers) meeting face to face to discuss independently formulated positions of an organizational issue, with the sole objective of securing an accurate assessment of a given situation.

It can be used for HR demand forecasting for an organization or can be used to solve other organizational issues such as taking decisions about launching new products or processes, managing change, establishing sales targets etc. NGT differs from the Delphi technique in that it encourages face-to-face discussion among the members as an important procedure for decision making.

Steps in Nominal Group Technique:

NGT includes the following steps:

In step 1 generally five or six experts are solicited to participate in the NGT. Each expert is asked the same specific question i.e. what are your predictions for future HR demand in this branch/unit/department/organization for the next X number of years?, what are the causes of any expected changes in demand? etc. Each expert writes down their solutions to the questions;

In step 2 experts meet face to face (usually around a table) and are asked to individually present their solutions. These solutions are often recorded on flipcharts or blackboards to allow for comparisons in later steps. During this process, each member is encouraged to freely present their results. Interruption or discussion from other group members regarding the results is discouraged at this point;

In step 3 clarification questions are solicited. A facilitator encourages questions on clarification of information so as to encourage group dialogue and discourage self- protectiveness about estimates;

Step 4 involves each expert is being asked to secretly rank estimates. Voting is anonymous and calculated using equal participation from team members. The facilitator then uses the estimate from step 1 that draws the highest ranking as the estimate used to forecast HR demands.

In a case where there are two or more close high ranking estimates of future HR demand, steps 3 and 4 can be repeated, with only these estimates presented. This procedure allows for further discussion and builds confidence in the results.

Data Base for Micro Demand Forecasting:

For micro demand forecasting a well-defined Manpower Information System (MIS) is needed at the enterprise or company level.

MIS basically has the following modules:

i. Personal Data Module- Identification particulars, educational qualifications, privileges, if any such as military training, handicapped, schedule castes/scheduled tribes, etc.

ii. Recruitment Module- Date of recruitment, grading in aptitude tests, grading in leadership tests, overall grading, job preferences and choices, if any.

iii. Job Experience Module- Placement history, grade promotions, tasks performed grade wise, significant contributions, etc.

iv. Performance Appraisal Module- Performance appraisal at each job held. Job experience is evaluated with the background of job description, communication, rating of interpersonal relationships, rating of behaviour in a group, etc.

v. Training and Development Module- Nature of training received at each level, individual assessment of training need vis-a-vis jobs currently being performed, individual evaluation of effectiveness etc.

vi. Miscellaneous Module- Record of compensation and benefits received, health status, information relating to personal problems which calls for the attention by the authorities, security needs, etc.

MIS is developed on the basis of personnel history records of each individual employee within the enterprise or company and is updated every year.

Methods of Macro Demand Forecasting:

The various methods of macro demand forecasting are:

i. Employer’s opinion method

ii. Normative method

iii. Component method

i. Employer’s Opinion Method:

This method includes the following procedures:

a. Employers are asked to give their assessment of future manpower needs in different categories in their respective establishments and

b. Aggregating data from overall employers and making allowances for death, retirement, migration and occupational mobility, it is then possible to arrive at future manpower demand by skill category.

The method has been used in a number of developed countries like United States, United Kingdom, Canada, Sweden and France. It has been found to be particularly useful in the case of highly skilled professional categories of manpower where the occupation-education correspondence has been very useful in making short-term manpower forecast than medium- term and long-term.

The technique assumes that employers are capable of making forecast which is true in large corporate sector establishments with well-staffed personnel divisions. It is difficult in small organizations. The method implies the manpower demand forecasts made by employers are linked to production levels of their respective establishments.

This is rarely possible. Employers’ expectations of production levels are never realized with same degree of accuracy in an oligopolistic situation, because of stiff competition and market imperfections.

ii. Normative Method:

This method uses norms for employing manpower to produce goods and services. The norms are usually expressed as ratios between manpower employed and the volume (or value) of goods and services produced. The ratios are based on either the existing situation or the desirable situation.

Examples of the ratios are employment-output ratio, employment-fixed capital ratio, employment-value added ratio, medical doctor-population ratio, teacher-student ratio.


Using employment-output norm the steps are:

a. The norm is evolved for a base year;

b. Output projections are obtained for the target year; and

c. The base year employment-output norm is applied to the target year’s estimated output to obtain employment forecasts in the target year.

The method assumes that the norms are stable over a period of time. This can be overcome, if it is possible to predict changes in the norms as between the base year and target year. It uses a uniform norm for all components of a production process or for all regions within country. It can be overcome by using different norms for different components or regions, which is the component method.

iii. Component Method:

In this method requirement of any category of manpower are further sub-divided into various components and then a separate norm appropriate to each component is used in arriving at a forecast of manpower requirements for each component. Forecasts for the entire component are then aggregated to arrive at an estimate of future manpower requirements for the manpower category concerned.


In the case of law practitioners, the requirements of lawyers are sub-divided into four components:

a. Lawyers required in courts and other legal offices run and maintained by the government. This requires the use of Lawyer-Government legal expenditure norm;

b. Lawyers required in courts and other legal offices run and maintained by the private corporate sectors. For it Lawyer-Private corporate sector legal expenditure norm is used;

c. Lawyers required as teachers in law colleges. This requires the use of Teacher-Student ratio in law colleges; and

d. Lawyers required as private practitioners. For it Lawyer-Legal expenditure (by the general public) norm is used.

A variant of this method is to use different norms for different categories of manpower for producing the same set of goods/services such as engineer-output ratio, scientist-output ratio, manager-output ratio etc. The problem of this method is obtaining reliable norms which are stable over a period of time – still in use.

Data Base for Macro Demand Forecasting:

For macro forecasting it would be ideal to have comparable data on the following items over a period of years in the past-

1. Population Statistics- Data on the population of the country by age, sex, education, economic activity status, migration, marital status, region, and rural-urban distribution are needed.

2. Data on Economic Parameters- Economic parameters on which data are required on time- series basis are inputs, output, capital, investment, wages, productivity, value added and depreciation by industry; consumption, savings and expenditure on health by income strata of population in rural and urban areas of each region.

3. Information on Technologies- Details about existing technologies are needed by industry specifying the implications of each technology for employment generation and investment. Similar information is also needed on emerging technologies by industry.

Step # 3. Analysing Supply of Human Resources:

Manpower supply forecasting is an important component of the human resource planning process as it identifies the future manpower supply in an organization.

Purpose of Identifying Future HR Supply:

i. To determine the number of employees in each job and their knowledge, skills, abilities, and other characteristics (KSAOs);

ii. To determine the characteristics of hiring sources within the predetermined planning horizon in order to establish whether future HR supply is sufficient to match future HR demands;

iii. To assess staff level in different parts of organization;

iv. To prevent shortage of people where they are needed most; and

v. To monitor future conditions with legal requirement for job reservations.

Dimensions of Manpower Supply:

Manpower supply has four dimensions such as Stock and Flow; Quantity and Quality; Occupation and Education; and Micro and Macro.

1. Stock dimension denotes manpower supply at a particular point of time like a target date of an economic plan. Flow dimension refers to manpower supply over a period of time, say over a five year plan period.

2. Quantity dimension of manpower supply indicates the number of persons available with the requisite qualifications/skill both employed as well as unemployed and seeking jobs. Quality dimension of manpower supply refers to characteristics of manpower supply such as specialization level, duration and quality of training, length of job related experience, aptitude and motivation.

3. Occupation is a description of the functions related to be played. Education refers to the required qualification for getting the occupation.

4. Micro level manpower supply comprises external supply caused by recruitment, internal supply resulting from transfer, promotions and redundancies. Macro level manpower supply, at any future date consists of current stock of manpower, addition to current stock from new entrants and subtractions due to death, retirement, migration, mobility and withdrawal from labour force.

Like the demand forecasting the manpower supply can be divided into two levels such as micro level manpower supply forecasting and macro level manpower supply forecasting.

a. Micro Level Manpower Supply Forecasting:

To forecast HR supply at the micro level, an organization needs to evaluate both their external labour force and internal labour force which is dependent on an accurate assessment of the current workforce situation. It is easier to find out internal labour supply than external labour supply.

Forecasting External HR Supply:

External labour supply can be predicted at various levels such as global, national, provincial, regional, and local.

Information that helps in developing an understanding of external HR supply includes:

i. Forecasts of economic growth or decline;

ii. Public policy, government, and legal changes;

iii. Trends in labour force participation (including entry and exit);

iv. Social development patterns;

v. Technological development patterns;

vi. Expected growth levels of industries and occupations;

vii. Educational attainment levels within a region;

viii. Supply and demand of jobs or skills;

ix. Competition for talent;

x. Compensation patterns based on experience, education, or occupation; and

xi. Immigration and emigration patterns within an area.

Methods of Manpower Supply Forecasting (External):

External manpower supply forecasting arises mainly through two sources. The first one is recruitment which is necessarily meant to augment internal supply. The second one is deputation, through which people from one organization go to another organization on contract basis. It is mainly a practice in government organizations.

Forecasting Internal HR Supply:

Internal HR supply forecasting depends upon the available human resource inventory.

It demands categorization of human resource inventory into various groups such as:

1. Age, which includes average age, range of age, minimum and maximum age etc., by job categories, functions, skills, and qualifications etc. It provides useful information about future levels of supplies and their quality.

Age analysis helps in understanding the exact wastage due to normal retirement, learning potential and adaptability of the work group, the rate of growth of employees and comparison of various work groups. It can be done for the whole organization or for each function separately or for various skills depending on the application of the study.

2. Functions, job groups, departments, skills, and location etc. Skill inventory provides information about qualitative aspects of human resources. lt gives an insight into deployment possibilities, promotions, transfers, the gap between future needs and the level of current skills, etc. It has to be superimposed with the data on employee turnover and performance evaluations to get complete understanding of the characteristics of manpower.

3. Gender i.e. male and female, ethnic groups, religion, and language etc.

4. Performance levels i.e. high performer and low performer.

5. Organizational hierarchy, i.e. staff, junior management, middle management, and senior management etc.

6. Salary groups i.e. high paid employees and low paid employees.

Factors Affecting Internal Levels:

The HR Planning manager needs to find out the various factors leading to decrease or increase in the level of human resource inventory in an organization. These are the factors leading to increase in the size of a work group such as- promotion in; redeployment in; external hiring; and mergers and acquisitions.

The reasons for decrease in the size of a workgroup are promotions out; redeployment out; voluntary separations; involuntary separations (lay-off and retrenchment); retirement; and other reasons such as sabbaticals, long illness and death etc.

Manpower flows generated by the above factors are very much inter-related. Forecasting internal supply is, therefore, crucially dependent on analysis of wastage (out movement of employees from the organization) and internal movements.

Characteristics of Manpower Wastage:

i. It is an element of labour turnover;

ii. It is severance from the organization, which includes voluntary retirement, normal retirement, resignations, deaths and dismissals;

iii. It decreases with the increase of length of service, with increased skill exercise, and age;

iv. It varies with the level of employment, working conditions of the organization, size of the organization and seasonal changes.

Travistock Institute of Human Relations, UK has suggested three different phases of leaving patterns of employees such as induction crisis, differential transit and settled connection. Marginal employees leave during induction phase. During differential transit period, an employee learns about the organization and identifies his/her role in it. During the period of settled connection an employee settles down and decides to stay long in the organization.

Various techniques that are being used for the analysis of manpower wastage at the enterprise level are labour turnover index, stability index, modified stability index, cohort analysis and census method.

i. Labour Turnover Index:

Turnover, or employee withdrawal behaviour, has become a serious personnel problem. Turnover is the termination of an employee’s service from an organization. Total turnover is the total number of employees leaving an organization divided by the total number of employees in the organization.

Turnover creates considerable costs for the organization, decreases productivity, disrupts worker relationships, and can increase waste and accidents. There are two types of turnover such as voluntary turnover and involuntary turnover. Voluntary turnover is employee initiated, in which the employee leaves the organization without any force or pressure from the management.

It is influenced by factors such as individual circumstances, conditions within the organization, industry trends and general economic climate.

Voluntary turnover is again of two types i.e. wanted turnover and unwanted turnover. Wanted turnover covers those employees whom the organization let go happily, even if it means incurring replacement costs. Unwanted turnover refers to loss of those employees, whom the organization would like to keep.

Unwanted turnover is categorized into two types such as turnover of a newcomer and turnover of a senior and valued employee. In the first case turnover occurs within first year of employment. The organization incurs replacement costs, induction costs and training costs. In case of turnover of a senior and valued employee, organization incurs more costs.

The costs of losing a senior, good performer and valued employee are much higher than the costs of losing an average performer. The costs involved are investment in the employee’s development, the loss of knowledge and experience gained, and loss of productivity. Involuntary turnover is the employer initiated turnover which is mainly in the form of death, permanent disability, dismissals, lay off and resignation in anticipation of dismissal.

Labour turnover index indicates the number of employees leaving the organization as percentage to average number of employees. The following Table-3.13 exhibits the voluntary turn over index of X organization during a month by taking information from the company’s HR files. The company has 500 employees at the beginning of the month.

The following Table-3.14 exhibits the involuntary turn over index of Y organization during a month by taking information from the company’s HR files. The average number of employees in the organization during the period is 300.

ii. Stability Index:

This index indicates the stable work force percentage for a given period. It is calculated as –

Stability index measures only the percentage of manpower those who stay within the organization for one year. This method does not directly measure the extent of wastage. It gives equal weightage to persons who left the organization with less than one year of service and with more than one year of service. Hence this method is not so useful for manpower supply forecasting.

iii. Modified Stability Index:

Modified stability index is also known as Bowey’s stability index. It includes everyone employed in the organization and gives due weightage to varying lengths of service.

Bowey’s stability index is expressed as:

This method is useful in analyzing the extent of wastage in terms of length of service. However, as in the case of stability index it is not very helpful in manpower supply forecasting, because it is difficult to predict the total length of service for the manpower.

iv. Cohort Analysis:

Manpower cohort in an organization is a group of staff, who are more or less homogeneous and who joined the organization at the same time. It takes into account the length of service and is accurate for small homogeneous group.

In each cohort the peak of leaving occurs shortly after joining. This happens due to lack of proper realistic job preview. Either the manpower leaving realize that the job is not suitable to them or the employers find out that the leavers are not suitable to the organization.

The peak is, however, determined by the nature of job, work environment and career prospects within the organization. The objective of manpower planning is to see that the peak of leavers does not arise early in the life of a cohort.

Cohort analysis is thus very useful in analyzing and forecasting wastage of specific groups of manpower who have similar characteristics and also joined at a particular time of the year such as management trainees, trainee escorts and computer professionals, etc. There are, however, some drawbacks.

First, forecasting exercise requires information on year-wise wastage from a cohort. If there are many cohorts it may not be a very easy task.

Second, for a meaningful analysis of wastage each leaver must be related to the concerned cohort and the cohort size must be known. In the absence of computerized personnel information system, this may not be all that easy.

Third, if the manpower is relatively stable as is the case in government jobs or public sector organizations which assure job security – the length of time over which a cohort must be followed can be too un-wieldy to go for any reliable forecasts.

v. Census Method:

One of the major deficiencies of cohort analysis is that it holds good for a small homogeneous group. Under the census method a snapshot of the total situation is taken at a particular point of time or over a short period of time and data on leavers with completed length of service is obtained.

Based on such data, it is possible to estimate – with the help of standard statistical techniques – the proportion of manpower joining at a given point of time that will survive to a specified length of service. Census analysis takes into account a cross-section of the organization, i.e., all the age specific wastage rates at a given time and apply smoothing algorithm to the resulting data to identify a general pattern.

This requires three sets of data such as:

i. The number of employees at the beginning of the census;

ii. The number of employees at the end of the census; and

iii. The number of leavers during the census period

Internal Movements:

Internal movements are basically of two types horizontal and vertical. Horizontal movements are between locations and divisions within the same category or level of manpower which are caused by transfer. Vertical movements are caused by either promotion or demotion.

1. Markov Chain Model:

Markov Chain Model named after Andrey Markov deals with the estimation of transition probabilities relevant to each vertical and horizontal movement. Markov analysis extends beyond a simple exit and retention understanding to provide valuable information on employee movement within the firm, clearly identifying projected labour supply for the following year.

This represents both a stock approach (quantities in a point of time) and a flow approach (comparing quantities that change over a period of time).

2. Trend Analysis:

It is one of the simplest methods of forecasting future HR supply. The analysis is based upon the assumption that past trends and ratios in employment movement are stable and indicative of future trend and ratios in employment movement. The information collected in HR audit is used to identify labour patterns such as hiring patterns, retirement patterns, and productivity patterns and turn over patterns.

By examining the trends of the past, the HR department can predict the effects of the same activity on the future organization. For example, an organization reviewing historical data may realize that every year, approximately three percent of their staff retires, five percent resign, and one percent is dismissed.

Using a simple trend analysis, future HR supply forecasts can be established by assuming an average reduction in internal HR supply of nine percent per year.

3. Skills/Competency Model:

It depends upon the skill inventory of the organization. The focus is on matching the right skills or competencies needed for each job with the skills and competencies available in the organization. This gives clear picture about the requirement and availability of various skills and competencies in the organization.

A competency is a set of behaviour that includes skills, knowledge, abilities and personal attributes that taken together, are critical to effective performance in the organization. Employees and their managers together identify the most important competencies to work on in order to improve the employee’s effectiveness.

Competency model helps in reviewing the competencies that are aligned with an organization’s mission, vision and strategy and then help to identify an efficient and ideal workforce in terms of those competencies.

4. Replacement Chart:

Replacement chart is a human resource forecasting technique that describes a firm’s organization structure in terms of individuals who occupy various managerial and professional positions. It is used to estimate vacancies in higher level jobs and identify how potential HR supply can fill these vacancies via internal movements from lower levels jobs.

For each position the incumbent and potential replacements are identified along with information such as potential for advancement, experience or skills needed to qualify for next position, gender (for aid in diversity planning), and age (only for retirement planning).

Generally, a replacement chart includes information about employee’s performance, readiness to fill the position, education, skill, experience, age, tenure, gender, and minority status etc.

Some Criteria for Good Replacement Chart:

i. Replacement charts should be computerized;

ii. It should provide a description of how vacancies can be filled by a firm’s internal labour markets;

iii. The chart should be updated annually or when changes in strategic directions occur. Updates should be guided by ongoing assessments of potential replacements – matching their current knowledge, skills, abilities, and other characteristics against not only present position requirements but also those needed to meet anticipated future needs of the position. Assessments should include KSAOs needed for horizontal as well as vertical moves.

The former require more broad-based experience and responsibilities, often of a cross-functional nature, to meet the needs of today’s flatter structures. Before the number of qualified replacements for a current or future position can be determined, a method of comparing potential replacement candidates with the position’s requirements is needed; and

iv. It should be free from potential illegal discrimination.

5. Succession Planning:

While replacement charts provide identification of potential replacements for vacancies within an organization, succession planning focuses on identifying, developing, and tracking future leaders for executive positions or positions that are critical to the success of the organization.

Succession planning is a long-term process of grooming a successor (selected from a pool of candidates on the basis of perceived competency) for management or critical positions. An organization can use the skills inventory, HR audit, or a succession summary to help identify potential successors and skill gaps that can be addressed through succession planning.

Modules for Micro Level Supply Forecasting:

1. Personal data module- Details of identification, educational particulars, and different privileges such as, handicapped, SC/ST

2. Recruitment module- Date of recruitment, grading in tests like aptitude and leadership, overall grading and job preference etc

3. Job experience module- History of employment, grade promotions, task performed, and significant contributions etc

4. Performance appraisal module- Performance appraisal of each job held, job experience evaluated with job description, rating of behaviour in a group, and commitment to corporate goals etc.

5. Training and development module- Includes types of need assessment of training, training received at each level, and evaluation of training received.

6. Miscellaneous module- Records of compensation and benefit received, health status, information relating to any personal problem that calls for the attention of authorities and security needs etc.

b. Macro Level Manpower Supply Forecasting:

There are basically two methods for estimating manpower supply at the macro level such as direct method and indirect method.

1. Direct Method relies on a census count of persons belonging to the category of manpower for which supply is being estimated. Census count can be usually obtained from the population census. The primary limitation of the direct method is that the census counts are infrequent.

Hence census counts cannot be used in any meaningful trend forecasting exercise. Censuses are also subject to enumeration biases, such as- under count, misreporting and classification biases. To avoid these limitations researchers in the field of manpower have been resorting to indirect method.

2. In case of Indirect Method institutional estimation of manpower involves various steps such as- estimating active life span, determining base period, forecasting annual institutional out-turn, obtaining cumulated out-turn adjusted for attrition, and estimating manpower supply.

i. Estimating Active Life Span:

Active life span is defined as the span of life over which an individual is active in any given profession or occupation. Two parameters are used for estimating average active life span of any occupation namely- average age at entry into the occupation and average age at retirement from the occupation. The first determinant depends upon the time taken by an average individual to complete the relevant education programme/skill training.

For example, let somebody completes the higher secondary education at 17 years, then the graduation at 21 years, management course at 23 years and joins as management trainee in ABC Corporation. Assuming the retirement age to be 60 years, the active life span of the person is from 23 years to 60 years.

ii. Determining Base Period:

Manpower stock on a target date comprises of manpower of all vintages starting from persons who have just entered, to those who are on the verge of retirement. Hence, base period can be determined by subtracting the number of years in the active life span from the target year.

iii. Forecasting Annual Institutional Out-Turn:

To start with, past trends in enrolments are extra-ported to cover the target date, using suitable trend forecasting methods. The forecasts of enrolments thus obtained are then converted into forecasts of out-turn, with the help of observed trends in annual rates of completion of the educational level concerned.

Estimating Attrition Rate:

Attrition in the manpower supply, relevant to any category of education, may be caused by factors like death, retirement, migration and occupational mobility. The combined effect of these four factors is termed as the attrition rate.

iv. Obtaining Cumulated Out-Turn Adjusted for Attrition:

This is calculated as per the following formula:

v. Estimating Manpower Supply:

Manpower supply is the labour-force components of the cumulated and adjusted out-turn. Hence further, adjustments to cumulated and adjusted out-turn is warranted to account for withdrawals from the labour force in respect of persons with the requisite educational training. This can be calculated by multiplying cumulated out-turn adjusted for attrition with labour force participation rate.

Database for Manpower Supply Forecasting at the Macro Level:

i. Age at entry and exit

ii. Annual enrolment and turnover

iii. Attrition rate

iv. Retirement age

v. Migration

vi. Mortality

vii. Labour force participation rates

Step # 4. Evaluating External and Internal Issues:

There are numerous external and internal issues that drive human resource planning by affecting human resource outcomes. It is very essential for organizations to monitor both the internal and external environment to anticipate and understand the issues that may affect human resources in the future.

External issues are events or trends outside of the organization, such as labour force demographics, technology and globalization.

Labour force demographics refer to the composition of the national workforce, which is changing continuously throughout the world, with respect to their social, gender and age factors. A study indicates Asians will comprise vast percentage of work force in the future. Gender wise the labour force has already been changed as more women are joining the working class.

The number of married women who are employed has doubled since 1970.This has forced the organizations to provide facilities such as flex time, job sharing, telecommuting and child care facilities etc. to maintain work life balance. Now there is increased representation of minorities in the organizations, which has also forced them to ensure and maintain harmonious relations between workers from different race and ethnic groups.

Technological changes have affected the human resource requirements in organizations by reducing the number. There are many organizations who have prepared plans to reduce its workforce around fifty per cent employees as a result of technological changes.

Globalization has played an important role in the generation of employment in all over the world. This has enabled the creation of a new generation, which is technologically savvy, well informed, and connected. This generation can be renamed as ‘T’ generation (Internet generation)

Internal issues are events or trends within the organization, such as organizational structure and business strategy.

Organizational structure refers to the complexity (horizontal differentiation, vertical differentiation and spatial differentiation), formalization, centralization, hierarchy levels, how work tasks are assigned, the reporting pattern, the communication and the decision pattern, the leadership and team work etc. All these factors affect the human resource requirements.

Business strategy is the determination of basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals (In 1962 by business historian Alfred D. Chandler). It describes how the resources and capabilities of a business relate to its markets-the better the match, the better the firm’s performance.

It provides a framework for integrating the firm’s activities, such as marketing and operations, so that they reinforce each other to produce stronger outcomes. Knowledge of business strategy disciplines decision making by focusing attention on more valuable investments and reducing the number of missteps.

Step # 5. Estimating Manpower Gaps and Action Planning:

Gap analysis is the process of comparing the workforce supply projections to the workforce demand forecast. It results in either a shortage (projected supply is less than forecasted demand) or a surplus (projected supply is greater than forecasted demand).

After conducting the gap analysis, the organization needs to establish course of action to bridge the gap.

The action plan depends upon the following situations:

i. Demand Equals Supply:

Small firms operating in a relatively stable environment usually face this situation. In this situation, the organization should continue with what it is doing. There is no need for recruitment or lay­off or retrenchment or early retirement at least in the short run. This situation is not valid for large organization.

ii. Demand is Less Than Supply:

In this situation the organization should focus on maintaining sufficient people in the organization to produce its goods and services, while simultaneously reducing the total number of employees.

The various strategies the organization should undertake are- restricted hiring, reduced working hours, job sharing, early retirement, and lay off. The organization should take up these strategies very carefully to minimize the potential impact of unsought consequences.

iii. Demand is Greater Than Supply:

The organization facing shortage of personnel should intensify its efforts to obtain the necessary supply of manpower to meet the demand.

The organizations should undertake various strategies like- new recruitment, increased working hours, compensation incentives (both financial and non-financial like flexible timing, telecommuting, part-time employment, and child care centers within the organizational premise or close to the organization), remedial educational training, skill training, and lowering selection standard.

Step # 6. Monitoring and Control:

Ongoing evaluations and adjustments are important in manpower planning forgetting effective result. If an organization does not regularly review its manpower planning efforts, it may fail to identify and respond to unanticipated changes. Hence it is required that organizations should establish a process that allows for a regular review of their workforce planning efforts for some reasons.

Reasons for Regular Review of Workforce Planning Effort:

i. To reveal deficiencies in manpower planning process;

ii. To make necessary modifications in manpower plans with respect to changing environment and needs of the organization;

iii. To determine the extent to which human resource objectives have been met;

iv. To determine whether long-run planning objectives will be met; and

v. To address new workforce and organizational issues that can occur.

Process of Human Resource Planning – Brief Explanation of the Steps: Analysis of Skill Inventory, Demand Forecasting, Supply Forecasting, Gap Analysis and a Few More

Human resource planning is a continuous process. The manager responsible for human resource planning has to be concerned with all the steps at all times. He may have to revise employment plan and training and development program from time to time depending upon the changes in circumstances such as sudden changes in volume of production, unexpected high rate of labour turnover, obsolescence of existing skills and so on.

The ultimate purpose of human resource planning is to relate future human resources to future enterprise need so as to maximise the future return on investment in human resources. Human resource planning must be integrated with the overall corporate plans. Human resource planning should be done carefully as it has got long-term repercussions.

Once the wrong forecast of future requirement of human resources and the wrong analysis of the available human resource inventory are made, it may not be possible to rectify the errors in the short-run. Therefore, human resource planning should be more concerned with filling future vacancies with right type of people rather than with matching existing personnel with existing jobs.

A brief explanation of the steps in the human resource planning process is given below:

1. Analysis of Skill Inventory:

Analysis of current skill inventory may be undertaken by department, function, or occupation. Appropriate adjustments in these would need to be made in the light of any foreseeable changes in weekly hours of work, holidays, leave entitlements, etc. Assessment of demand for the operative personnel presents less problems of uncertainty and human resource supply can be adjusted accordingly.

But projection of skill requirements for supervisory and managerial levels presents a complex problem. The required talents are not available at a short notice. This explains the need to ascertain the present human resource inventory in the enterprise. This will also help in drawing employment and training plans to meet the needs of certain skills in the future.

2. Demand Forecasting:

The major determinants of future human resource demand are:

(a) Employment trends;

(b) Replacement needs;

(c) Productivity changes;

(d) Absenteeism and

(e) Growth and expansion.

(a) Employment Trends:

The human resource planners should make an examination of number of employees on the payroll during the past five years to know the trend within each employees group. With the help of this, it would be possible to determine whether a particular group has been stable or unstable and whether it has been expanding or contracting.

(b) Replacement Needs:

The need for replacement arises from death, retirement, resignation and termination of employees. The examination of replacement needs may relate to specific human resource groups; supervisory, skilled, clerical, unskilled, etc.

(c) Improvement in Productivity:

Another important area to which the human resource planning is related is the improvements in productivity. Gains in productivity add to the growth potential of the organisation and can make possible healthy wage increase. Gains in productivity will decrease the requirements of human resource.

(d) Rate of Absenteeism:

While estimating demand for human resource, the prevailing rate of absenteeism in the company should be considered.

The rate of absenteeism can be calculated as follows:

In case the rate of absenteeism is considered unduly high, steps should be taken to reduce it.

(e) Growth and Expansion:

Growth and expansion plans of various plants and divisions should be carefully reviewed to assess their probable effects on the number of employees required by each group. The accuracy with which such human resource requirements can be forecast will depend, among other things, on the degree of accuracy which can be achieved in relation to the expansion program.

Where the expansion program is less specific and the time perspective larger, the uncertainties will be greater.

3. Supply Forecasting:

Along with demand forecasting, it is equally important to forecast the supply of different types of personnel with the organisation at the cut of date of human resource planning. There are two sources of supply of human resource-internal and external. But internal supply is more important for human resource planning.

It comprises of the employees working in the organisation who can be prompted or transferred to fill up various jobs as and when they fall vacant. This would require evaluation of the present personnel abilities, their strengths and weaknesses, so as to gauge their suitability for different jobs. In order to estimate internal supply of personnel, it is necessary to conduct human resource audit and prepare replacement charts in advance.

(i) Human Resource Audit:

Systematic HR audit would lead to preparation of skill inventories. It would give a thorough idea of capabilities and potential of persons working in the organisation. It would also point out the types of skills that need to be acquired or developed for future.

(ii) Replacement Charts:

Replacement charts are meant for listing each key position and indicating time when it is likely to be vacated. They also list the most likely candidates working in the organisation suitable to fill vacancies and also the time when they would be ready for promotion. In short, a replacement chart presents clearly who will replace whom in case of vacancy.

Often, large enterprises use computers to record job analysis information and human resources audits and replacement summaries.

4. Gap Analysis:

Human resource planners can identify human resource gaps by comparing demand forecasts with supply forecasts. Such comparison will reveal either deficit or surplus of human resources in future. Deficits suggest the number of persons to be recruited from outside whereas surplus implies redundant to be redeployed or offered voluntary retirement package.

Similarly, gaps may occur in terms of knowledge, skills and aptitudes. Employees found to be deficient can be trained whereas employees with higher skills may be given more enriched jobs.

Once the human resource gaps are identified, plans are prepared to bridge these gaps. Plans to meet the surplus human resource may be redeployment in other departments/units and retrenchment in consultation with the trade unions.

People may be persuaded to quit voluntarily through golden handshake under the Voluntary Retirement Scheme (VRS). Deficit can be met through procurement, transfer, promotion and training of employees.

5. Redeployment and Redundancy Program:

If it is estimated that there would be surplus personnel of certain categories, a plan has to be made for redeployment of such personnel or for retrenchment if surplus personnel cannot be adjusted.

Redeployment may include the following measures:

(a) Transfer of personnel from the departments with surplus workforce to those having shortage of workforce.

(b) Employment in sister concerns.

(c) Launching of ad hoc projects to accommodate surplus staff, and

(d) Provide training to surplus personnel and offer them out-placement services.

6. Chalking out Employment Plan:

The next phase of human resource planning is to determine how the organisation can obtain the required number and types of personnel to meet the needs of the business during the forthcoming year. Long-term employment program must be chalked out to meet the forecast deficits of human resource in the coming years.

It will include steps like recruitment, selection, placement, transfer and promotion. It may be noted all these steps are time-consuming. Therefore, the human resource planner must have a long-term perspective in view while designing the employment plan.

7. Designing Training Program:

Another purpose of assessing the human resource inventory and demand forecasting is to find out the training and development needs in the organisation. The operative employees must be given appropriate training so that they may learn the required skills. Appropriate development programs should also be designed for the present and the would be executives so that the required talents could be developed.

After the employment and training programs have been implemented, an appraisal must be made of the effectiveness of human resource planning. Deficiencies in the program should be pointed out and the catalogue of human resource inventory should be updated periodically.

Corrective actions should also be taken wherever it is feasible and necessary to remove the deficiencies in human, resource planning. An appraisal of the existing human resource plans will also serve as a guide in the future human resource planning.