What is HR demand forecasting, and why is it important?
Have you ever noticed Christmas decorations for sale way in advance? Retail stores start putting up Christmas-related items right from mid-year. This is a simple example of demand being forecasted in advance, so the necessary steps to meet it are implemented on time.
In HR, forecasting demand means predicting the needs of the future workforce when the usual supply course is influenced and altered by external political, technological, economical, or other forces. When lags in future workforce skills are forecasted, HR leaders can plan training or hiring to ensure that the required workforce is available when needed.
6 HR demand forecasting techniques
Organizations today are spending more of their budgets on competitive intelligence to avoid the risk of falling behind competitors. According to a survey by SHRM, 49 percent of HR leaders stated that “competition from other employers” was one of the biggest reasons they struggled to hire the right employees. Human resource needs are key elements in a company’s strategic plan, which ensures that the right people are hired at the right time.
The HR department plays an essential role in supporting organizations by ensuring a solid talent base as well as forming and executing a strategic workforce plan. A major element in strategic workforce planning is forecasting future workforce needs and taking steps to meet them. Many job roles will become obsolete in the future, while others will require upskilling or reskilling to keep up with new technology. Take a look at future requirements here.
Below are some models HR leaders can use to forecast future demands.
The Markov model
The Markov model is a dynamic forecasting model and has become a fundamental quantitative analysis technology in human resource forecasting. Using this model, the HR department creates a list of employees’ skills, education, training, work experience, qualifications, ability levels, etc. They maintain reports in a timely manner and regularly update the status of the workforce to keep a check on the future talent and skill demands. This report allows HR leaders to fully forecast demand probability and the number of possible internal hires and transfers, then forecast the internal supply of human resources available within the organization.
The Markov model is a suitable HR demand forecasting technique in the field of informatics, telecommunications, electrical engineering, economics, and engineering.
Workload analysis is only suitable where the estimated workload is easily measurable. In this forecasting method, the total estimated production of services/goods for a predetermined period is forecasted. The HR team then estimates the number of employees that will be hired to fulfill the forecasted production capacity based on past data. Thus, demand for human resources is forecasted based on estimated total production and the contribution of each employee in producing each unit.
Under this technique, managers of the respective teams assess future workforce needs in different categories in their respective establishments. To forecast future workforce demand by skill category, managers will need to aggregate all data related to employees, retirement, upskilling or reskilling needs, and so on.
The managerial analysis method is used for forecasting highly professional skills, succession planning, and making short-term workforce forecasts.
Nominal group technique
The nominal group technique (NGT) is a demand forecasting method utilizing expert assessments.
Using this technique, the HR department identifies employees in key positions and creates an expert panel. They are presented with a set of questions related to HR demands. The solutions and ideas given by this panel are based on the panel members’ background knowledge and personal experience. The ideas received are collected anonymously and the panel votes on each idea, until one is finalized unanimously.
The Delphi technique is similar to the nominal group technique but differs in one manner. The nominal group technique entails minimal action from experts — only providing the solution. The Delphi technique calls for a facilitator to solicit and collect expert opinions on labor forecasts.
An HR leader provides the expert panel, which comprises internal employees in key positions as well as external experts on HR demand forecasting, with consecutive questionnaires wherein they must define the forecasts they have made and provide supporting rationale. After collecting the responses of the questionnaire, the facilitator creates a summary of all responses and sends it to the selected panel of experts to review. This is repeated until the experts reach a majority decision.
HR demand forecasting solution by HRForecast
Accurate HR demand forecasting is vital, as it is the first step in the workforce management process and sets the direction for the rest of the organization’s workforce management practices. Accurate demand forecasting allows an organization to ensure they have enough qualified staff on hand. However, with so many demand forecasting solutions, it can be hard to know which one will best suit your business needs. HRForecast, with years of experience delivering solutions to clients’ unique needs, offers HR demand forecasts through the scenario planning feature of the smartPlan solution.
Scenario planning is a technique used in HR forecasting to anticipate and prepare for possible future events or situations. It involves identifying and analyzing various possible scenarios and developing strategies to address them. Scenario planning can help organizations make informed decisions and mitigate risks related to workforce planning, recruitment, retention, training, and other human resource management activities.
Here’s an example of how scenario planning can be used in HR forecasting:
Let’s say an organization is looking to recruit and retain a highly skilled and specialized workforce in the technology industry. Scenario planning can be used to anticipate potential disruptions or changes in the industry, such as the emergence of new technologies, changes in government regulations, or shifts in customer demand.
HRForecast will help to identify several possible scenarios, such as a sudden increase in demand for the company’s products or services, a shortage of qualified candidates in the job market, or a major competitor entering the market. For each scenario, the potential impact on the workforce is analyzed, and strategies are developed to address the situation, such as increasing recruitment efforts, offering training and development programs, or implementing retention incentives.
Using the results of scenario planning, the organization can proactively prepare for future events, reduce the impact of unexpected changes, and ensure that it has the necessary human resources to meet its goals and objectives.
Accurately forecasting demand begins with defining the demand-side metrics your business cares about and identifying key parameters such as critical future job roles and skills requirements based on HRForecast’s extensive macroeconomic data. This involves analyzing current workforce data, identifying future business goals, and determining the skills, knowledge, and competencies needed to achieve those goals.
HR demand forecasting typically involves the following steps:
- Analyzing past and current workforce data, including turnover rates, employee performance, and skills inventory
- Identifying future business goals and objectives, including growth plans, new products or services, and market expansion
- Determining the skills and competencies required to achieve business goals based on an analysis of current and future workforce needs
- Evaluating internal and external factors that could impact workforce demand, such as changes in technology, economic conditions, and competition
- Developing HR strategies and plans to address workforce needs, such as recruiting, training, and development programs
Once the gaps in headcount, costs, and competencies for the coming years have been predicted, it’s time to respond through strategic workforce planning.
What data is required for HR demand forecasting?
You can choose a specific technique or combine techniques to derive more valuable insights. However, for all types of forecasting techniques, the below types of data must be available and updated.
Future job trends data
Job trends data is interpreted from a past time frame to determine which job sectors are strengthening or weakening. If the trend shows that certain new job roles will become mandatory, then the organization may allocate resources for job retraining.
Demographic data shows which regions of the country have concentrations of different professions and who work in those jobs. For example, it shows if a particular profession is concentrated in one part of the country and compares salaries for the same job in different parts of the country.
Talent pool data
The current talent pool and the expected future talent pool directly impact an organization’s future productivity. Therefore, an organization needs to know the current talent and skills available within the organization itself to increase productivity in the future. A future skills-based forecast will help you understand which employees need to be reskilled or upskilled to meet future demand.
Competitor analysis data includes understanding the competition’s company culture and benefits packages. HR leaders then can make sure their company remains competitive by attracting candidates and creating an environment in which people are happy to work.
HR metrics provide HR leaders with the data they need in determining whether the company is spending its resources wisely. These metrics further help HR leaders to understand what the future expenditure should be to match the future workforce demand. Here are the key HR metrics you can track to forecast HR demand.
The absenteeism rate can be an early indicator of employee turnover. When forecasting future workforce demand, a high absenteeism rate gives an insight into how many employees would be terminated or how many should be hired to fill the productivity gap that occurs due to absenteeism.
Further on, the turnover rate helps HR leaders estimate the number of replacements that will be needed in the coming years. Turnover includes voluntary resignation by employees and the number of terminations over the previous calendar year. Such data gives a broad picture of the current state of employees and warrants deeper analysis.
Take a look at all the workforce planning metrics HR leaders can measure to come to a more concrete forecast.
Key questions to ask before approaching HR demand forecasting
Who will be responsible for the planning and forecasting stage?
When businesses want to introduce a new product or service in the market, an expert panel is assigned to go through the pros and cons they could face. Experts can be people who have long experience in the organization and know how HR needs have evolved and been met in the past.
What is the timeline for the forecast?
HR demand forecasts can have a timeline of up to five years. Within five years, technical HR forecasts will have doubtful value due to newer technology and unpredictable events. During the strategic workforce plan execution period, HR leaders must continually review and monitor the performance of the plan to change any variables that could be hindering the results.
What job positions should you focus on?
It’s crucial to focus on hiring key positions initially because key job positions require specific skills that are scarce, making candidates competitive in the job market. This means that hiring for key positions could take longer, and operations could be disrupted when such positions are left vacant for a long time.
Every business plan is subject to change. Therefore, HR leaders must use proper forecasting techniques and closely study current trends. These trends help you analyze upcoming changes and how the organization will have to alter its current plan to cope with the changing situation.
Contact us to learn how we can prepare you for your future workforce through insights by combining externally and internally focused research on your organization, competitors, and industry.