Workforce Planning — Super Business Manager

Workforce planning, sometimes referred to as human resource planning, is necessary for entrepreneurs and businesses as it allows to employ the right people who will help the firm to achieve the business aim and business objectives.

What is workforce planning?

Workforce planning is about predicting future labor market needs by analyzing and forecasting the number of workers and the skills of those workers that will be required by the organization.

This management process of anticipating and meeting an organization’s current and future staffing needs requires an understanding of the make-up of the current workforce, an investigation into future service needs and an analysis of the type and size of workforce required.

The term ‘labor force’ or ‘workforce’ can mean one of two things, so it is important to put the term in the correct context.

Nation’s labor force including those who are available for work (the employed, the self-employed and the unemployed).
People employed in a particular organization, i.e. the firm’s workforce.

Why businesses recruit staff?

Overall, human resource planning is concerned with planning all aspects of the organization’s staff requirements.

Businesses need right people in the right place at the right time to function properly. They recruit staff for various reasons, such as:

Growth of business. Expansion of business due to increasing sales of existing products, developing new products or entering new markets.
Replacing leavers. Existing employees leaving the business to work with competitors or other local employers or due to factors such as retirement, sick leave or maternity leave.
Role changes. When business needs employees with new skills or internal promotion.
Business relocation. This may requires local workers or to fulfill vacancies of old workers who do not want to move.

What workforce is required can depend on sales forecasts, future corporate plans or business objectives.

Purpose of workforce planning

The main purpose of planning workforce is to effectively manage and business organization’s workers, so that they help the business gain a competitive advantage. Competitive advantage is an advantage that a firm has over its competitors allowing it to generate greater sales, more profit and retain more customers than its competition.

So, what considerations must a business and managers make when they are recruiting staff? For planning purposes, human resources can be categorized under four broad headings:

Existing staff. Existing staff benefit from performance appraisal as well as opportunities for promotion as well as career development.
Newly appointed staff. Newly appointed staff may require induction and future training as well as a contract setting out terms and conditions.
Departing staff. Departing staff expect appropriate retirement arrangements as well as easily understood grievance procedures.
Potential staff for the future. Potential staff recruitment requires successful recruitment and selection procedures as well as good advertising.

Reasons for having a workforce plan

Human Resource (HR) departments need to work in close harmony with the corporate plan of the business and the objectives this contains in order calculate the future staffing needs of the business.

Workforce planning usually has long-term focus as it is an ongoing process for most businesses, but it can be classified as short-term or long-term:

Short-term workforce planning. It deals with the existing and upcoming human resource demands of an organization, e.g. covering for staff who are on sick leave, go on maternity leave, are about to resign or retire soon, etc.
Long-term workforce planning. It deals with the human resource needs of an organization in the foreseeable future, e.g. recruiting and training employees up to one year before opening a new factory.

Appropriately done workforce planning allows thinking ahead in order to establish the number and skills of the workers required by the business in the future to meet its planned objectives. Failure to do this can lead to too few or too many employees or staff with the wrong skills.

Example 1: When the business plans business growth by developing new products for entering foreign markets, the workforce plan for this situation must be reflected in the business plan. This then becomes part of the firm’s strategy to meet its long-term goals.

Any plans for current and future workforce must be strictly aligned with corporate strategy. Recruitment considerations need to include current labor market (size, skills, demographics), competitors’ actions, costs (recruitment, candidate) as well as labor mobility. They must be company-wide (organizational) with taking integrated approach between different business functions (departmental).

How to achieve appropriate workforce planning?

Forecasting the demand for jobs which means using relative information to predict how many jobs will be needed. Using the current workforce and future demand a business can decide on the number and type of employees that it may plan to recruit.

This is where the business will need to decide on the number and type of employees needed in the future. Specifically, workforce planning can be achieved by looking at:

1. NUMBER OF EMPLOYEES. The number of employees required in the future depends on the following factors:

Historical data and trends. While past data is not indicative of what will actually happen in the future, some information can be used to make predictions such as the change in the size of the workforce over the past few years or the popularity of part-time contracts and flexible working hours.

Forecasted demand for the product(s). Demand forecasts can help to establish workforce planning needs, but are subject to errors caused by things such as seasonal downturns. Factors such as market situation, and external conditions, seasonal factors, competitors’ actions, trends in consumer tastes, etc. can all impact demand for the product.

Income and sales levels. The higher the levels of income and spending in the economy, the more jobs will be created in firms. Additional staffing will need to be considered to allow for increases in demand. For instance, recruiting temporary or part-time staff with flexible hours’ contracts.

Productivity levels. It measures how much can employees produce in a given time period. If productivity, or output per worker, is forecast to increase, then fewer staff will be needed to produce the same level of output. If productivity, or output per worker, is forecast to decrease, then more staff will be needed to produce the same level of output. In addition, conducting work study can help managers to find out how many workers can complete a task.
Objectives of the business. Devising a workforce plan must always consider business objectives. If the business plans to expand in the next couple of years, then staffing numbers will have to rise to accommodate this growth. If the business plans to close some of its shops in the next couple of years, then staffing numbers will have to decline to accommodate this situation.

Changes in the employment laws. The government of a country may decide to pass laws that impact the workforce plan such as the length of working week or a minimum wage level. A shorter working week might lead to a greater demand for staff to ensure that all the available work is completed on time. A longer working week might lead to a lesser demand for staff to as there will be more time available to completed work. Also, a higher minimum wage might encourage firms to employ fewer workers while a lower minimum wage might encourage firms to employ more workers.

Labor turnover. It measures the number of employees who leave a firm as a percentage of its workforce per year. The higher the level of staff turnover rate, the more workers a firm will need to recruit to replace the leaving staff.

Absenteeism rate. It measures the number of employees who were absent from work as a percentage of its workforce, per year. The higher the level of staff absenteeism, the greater the need for workers to ensure adequate number is available at any one time.

2. SKILLS OF EMPLOYEES. The skills of employees required in the future depends on the following factors:

Pace of technological change in the industry. Modern production methods and the complexity of the machinery used means that highly-skilled workers who can operate these technologically advanced devices are in greater demand than ever. Low-skilled traditional jobs such as office clerks are rarely required because the access and universal application of IT in offices is widespread.

Need for multi-skilled staff to avoid excessive specialization. In order to gain more adaptability to fast-changing market conditions, businesses need to recruit staff and train them with more than one skill that can be applied in a variety of different ways. It is because there is the danger that when producing many items of a specialized product, inventory might build up dramatically if demand patterns for that particular product change.

Flexibility and workload of staff. Businesses that have a highly flexible and skilled workforce may be able to cope better when there is a sudden shortage of staff. On another hand, businesses where workforce is over-specialized may need to employ more staff to cope with labor demands. Attitudes and motivation of staff matter as well.

The number of employees and their skills are two main factors that are the starting point of any workforce audit – checking on the skills and qualifications of all existing workers and managers to assess how many additional employees and skills might be needed.

Stages of workforce planning

Human resource planning is the term used to describe a planned approach to each of the following decisions and activities:

Analyzing current employment trends within the context of organizational needs.
Assessment of current workforce.
Forecasting potential labor turnover which is the rate at which staff will leave the organization).
Forecasting potential future staffing requirements for all departments within the organization considering short-term and long-term, alignment with corporate strategy as well as external factors.
Gap analysis.
Forecasting potential future supply of workers with the appropriate skills. Government data regarding changes in the demographics of the workforce, such as the changes in the number of female workers in the economy or the number of graduates, can help managers to forecast their human resource needs. Demography is the statistical study of the size, growth, age and geographical distribution of human populations.
Recruitment planning.
Planning processes to release surplus staff as necessary. Downsizing considerations including redundancies (Voluntary and Involuntary), restructuring, job share, part-time employment, contractors, etc.
Planning how to develop a particular organizational culture so that the organization can utilize its workforce to best effect. Planning how best to support staff training and development. Planning how best to satisfy and motivate employees.
Achieving workforce targets through recruitment, training, appraisal, dismissal and redundancies.

Once a decision has been made on the number of employees needed and what skills they should have, HR can plan how this will be achieved by finding out the skills of all the present employees, counting out anyone who will be leaving soon, consulting existing staff about who could retrain and repairing a recruitment plan.

Internal and external factors that influence workforce planning

Internal and external factors both influence human resource planning; therefore businesses need to consider how these factors affect supply of labor. Supply of labor is the number of workers willing and able to work in a given occupation or industry for a given wage.

1. Demographic changes (population trends). The supply of human resources is heavily affected by demographic changes in the country. Demography is the statistical study of population characteristics and trends. Businesses need to respond appropriately, by knowing various factors causing them such as:

Net birth rate. This is the difference between the number of births and deaths in a country per period of time. Natural population growth happens when birth rate exceeds death rate. Countries with a high net birth rate will have a larger supply of human resources. It may be easier to recruit staff as the working population increases, however increased birth rates may take years before they impact on the working population. On another hand, natural population decline happens when death rate exceeds birth rate. Countries with a low net birth rate will have a limited supply of human resources. It may be more difficult to recruit staff as the working population decreases.

Net migration rate. This is the difference between the number of people entering a country (immigrants) and the number of people leaving (emigrants) a country, or immigration compared with emigration. With positive net migration rate (immigrants > emigrants), there is an increase in supply of human resources. It may be easier to recruit good workers at lower rates of pay. Additionally, higher qualified staff might be recruited from other countries which will increase competitiveness. However, with negative net migration rate (immigrants < emigrants), there is a decrease in supply of human resources. It may be harder to recruit good workers at lower rates of pay. Additionally, higher qualified staff might leave to other countries which will decrease competitiveness, so called ‘brain drain’ of qualified and experienced staff.

Women at work. In modern societies, there has been an increase in the number of women working. When more women enter or return to the workforce, it boosts the supply of human resources. When fewer women enter or return to the workforce, it limits the supply of human resources. Additionally, an increase of women working part-time has given businesses greater flexibility in determining working hours.

Aging population. This means that the average age of the population increases as a result of rising life expectancy in a country. With falling birth rates in many developed countries and people live longer, the average age of the workforce will increase. While older staff tends to be more loyal and reliable than younger workers, older employees might be less flexible and adaptable to changes. This will substantially change workforce planning for a business.

Retirement age. This means the legal age when people can stop working and claim money from their pensions. When the retirement age is raised, it automatically means more people in the labor force. When the retirement age is lowered, it automatically means less people in the labor force. Many Western economies such as France and the UK, faced with an increasing number of elderly people, have considered increasing the retirement age.

Longevity. This happens when people, on average, are living longer. This distinct demographic change happens in economically developed societies such as Japan or Switzerland. Increase longevity coupled with a declining birth rate and an ageing population has been causing an increase in dependent population.

Increased dependent population. It consists of people who are below the legal working age, out of work and all the retired population. Dependent population in a country is supported by working population – the TAX payers. The larger the ageing population is, the less people will be working which adds further pressure on TAX payers to contribute towards government expenditure. The smaller the ageing population is, the more people will be working which reduces further pressure on TAX payers.

Changes in consumption patterns. Different age groups in the society have different spending patterns: children spend much money on toys and schooling, middle-aged people spend much money on housing and cars, and old people spend much money on holidays and healthcare-related goods and services.

Changes in employment patterns. When more people go to university, the average age of people entering the workforce increases. When labor supply is insufficient or unsuitable, some businesses may relocate overseas. When the population is aging, more firms may retain staff beyond retirement age due to labor supply shortages.

2. Changes in labor mobility. The mobility of labor determines how freely labor can move to different locations (geographical mobility) as well as their flexibility in changing to different jobs (occupational mobility). Labor can be geographically mobile, especially within a country, but there are limitations which include:

Fear of unknown. This means that people might prefer home comforts and familiarity with the surrounding environment and are unwilling to leave their homes for longer period of time. Uprooting the family and finding a new school for the children can also be too difficult or too expensive for many people.

Relationships. Strong friends and family ties are the key constraint for most people’s reluctance towards geographical mobility. The weaker the relationships, the more people might be willing to relocate for work.

Age. Young people tend to be more geographically and occupationally mobile because they have fewer reservations about moving to different places and jobs, including those overseas. They are also more willing to take risks as they do not have that many financial commitments, so they often change careers. The more mature the worker is, the less mobile he or she is.

Relocation costs. This includes moving expenses such as remortgaging property, consideration of different house prices, cost and availability of transportation, etc. Additionally, lack of relocation allowances offered by the firm might be another reason for decreased mobility.

Cost of living. This includes the overall cost of living in a particular area of a country such as housing costs other housing-related expenses like utility bills. High cost of living in a particular area can deter people from relocating into these areas, thus reducing the potential supply of labor. Low cost of living in a particular area can encourage people to relocate into these areas, thus boosting the potential supply of labor.

Specialization. The workers who are highly specialized in their area of expertise may find it difficult seek employment opportunities in other industries which causes them to become immobile. Occupational mobility tends to be greater with acquired attributes of a worker such as education, qualifications, skills or experience and training empowering the workers to be more flexible.

Culture incompatibility. Unfamiliar language and severe cultural differences tend to limit international mobility. The similar the culture, the more workers are willing to change to a different country.

Discrimination. If employers discriminate against people’s age, gender, religion or race, then this will also hinder the occupational mobility of workers. If employers forbid discrimination against people’s age, gender, religion or race, then this will encourage the occupational mobility of workers.

3. New communication technologies. Advances in communications technologies, such as email, E-Commerce and video conferencing, can bring both opportunities and threats to Human Resource Management (HRM). On one hand it allows flexibility in workplace and people work from home, but on the other it may also lead to capital-intensive businesses to require fewer employees. Information and Communications Technologies (ICT) in human resource planning can be used in the following workforce planning processes:

Recruitment. New technologies such as the use of company websites, online application forms, commercial providers to advertise jobs such as LinkedIn or Glassdoor speed up communication and exchange of information.

Meetings. New technologies such as video conferencing software such as Skype or Zoom allow businesses having facilities in different locations to reduce the costs of meetings.

Appraisals. New technologies such as collaborative tools of Google Docs or Microsoft Team can be used by both the manager and appraise to set targets and review progress. Such technologies are more efficient than moving documents such as appraisal forms back and forth between different parties.

Flexible working patterns. New technologies such as mobile phones and the Internet have enabled many people to work at home away from the office. Effective use of flexible time and teleworking helps to boost labor productivity and cut costs for both the business and the employees.

Online training courses. New technologies allow employees to participate in off-the-job training courses with specialist trainers such as Coursera for a fraction of the cost held in physical location. Participants can also work online from the comfort of their office or at home.

4. Infrastructure. Improved infrastructure may improve the labor market. Transport facilities include commuter routes, public transport, integrated transport network, etc. Better technology such as broadband access allows for more flexible working practices such as hotdesking, flexible hours, working from home, child care facilities, etc.

Each of the following categories requires decisions to be made by the managers involved; hence human resource planning must be flexible to react to changing organizational objectives as well as external and internal factors.

Despite attempts to achieve effective workforce planning, external influences affect the accuracy of the forecasts as businesses are constantly exposed to the forces of change such as an economic recession which reduces demand for human resources.

What happens without workforce planning?

Poor planning can result in an inability to hire the right people at the right time. Also, weak workforce planning results in poorly trained staff.

Example 2: A report in South China Morning Post revealed that poor recruitment practices in Hong Kong cost businesses approximately USD$5 billion per year with managers in Hong Kong having to spend 20% of their time correcting the mistakes made by their staff.

Additionally, falls in motivation and the quality of output and increasing levels of absenteeism. This will most likely result in higher levels of labor turnover causing an increase in costs because workforce planning consumes a lot of time and money.

In summary, workforce planning means planning on how many employees will be needed in the future with regards to retirement, vacancies, expansion, etc. as well as what kind of employees should be sought after.