Human Resource Planning and Development Analyzing and Forecasting Supply

Analyzing and Forecasting Supply

Introduction
In the last module, we discussed a number of definitions of Human Resource Planning and
began to "make the case" for HR Planning. In addition, we looked at models of evaluation for
HR Planning as well as some of the subsets of HR Planning, including succession and
replacement planning. We looked at leadership development as a very special HR Planning
intervention that takes place as a part of effective succession management.

In order to successfully complete any HR Planning intervention, we learned in Module 2 that

supply analysis and forecasting is an integral part of any HR Planning model or process.

In this module, we will more fully examine supply analysis and forecasting.

Learning Outcomes
After completing the assigned readings, the online content and related activities, you will be able
to define and apply a variety of factors to a number of "real" situations that are facing
businesses, government, and not-for-profit agencies today.
These factors will include:
• Define and describe a number of methods of supply analysis
• Discuss the dimensions of supply analysis
• Apply methods of supply analysis that are appropriate to specific situations
• Discuss the impact of supply analysis on business strategy and, ultimately, productivity
• Begin to use supply as a forecasting tool

Supply Analysis
Supply analysis is simply:

The process of considering the total supply of labour within your organization
+
Its constituent’s parts

Two factors that supply analysis considers:

1. Individuals currently employed with the organization, as well as those individuals
potentially employed in the organization.
2. What will likely happen to those employees in the organization if no HR Planning
intervention takes place, and if some interventions take place? This is the dynamic part
of the supply analysis.

Elements of Supply Analysis

The constituent parts will depend on your ultimate interest, but there are some common
elements:
Human Resource Planning and Development Analyzing and Forecasting Supply

• Current demographic information (age, gender, employment equity designation)

• Current skill sets (qualification) and competencies
• Years of service of seniority in the organization
• Current competency levels
• Current geographic locations
• Current behavioural attributes
• Performance information
• Career desires

Forecasting
Forecasting is a subjective but systematic process that allows you to make educated
assumptions or estimates about the future.

Forecasting is based on the assumptions that are made after having reviewed both the current
and projected supply analysis.

We use forecasting as a tool to imagine the future of the supply we have analyzed.

Put another way, forecasting gives us the ability to say "what if". If we do not like what we see,
then we can make changes to our forecast by imagining interventions, or changes, to the supply
analysis. Those interventions become HR Strategies designed to achieve our desired future.

Productivity
output
Productivity =
unit of HR input

An increase in productivity means that we need fewer people to produce the same number of
widgets. See diagram on the left.

Productivity is impacted by other factors such as supply analysis and forecasting.

Dimensions of Supply Analysis

Internal supply: present and projected future

External supply: present and projected future

But will this provide a complete analysis?

Remember the pincushion metaphor from the first module?

We can use it to look at the impact of each of these dimensions on our supply.

Let us take a look at this diagram:

Human Resource Planning and Development Analyzing and Forecasting Supply

But what is happening outside the organization?

The supply movement occurs outside of the organization.

A complete supply analysis considers four dimensions in order to give the "true picture":
1. Future external supply
2. Present internal supply
3. Present external supply
4. Future internal supply

Inventories
An inventory typically begins with basic pay information including:
• Employees' current positions, where he/she has been (such as by seniority, age),
and a copy of their resume or recent training opportunities.
• The inventory can begin with a simple aggregation of the employees' personnel
files.

An inventory is a snapshot of the current situation that can include:

1. Basic or "tombstone" information about employees only

2. Basic or "tombstone" information about employees only

Strictly speaking, an inventory includes only "what is" information.

However, inventories include predictions about what employees will do in the future; for
example, their levels of promotability, or their potential.

Promotability is current:
• Ability to move to the next level
• To take on more responsibility
• To manage a greater range of duties
Human Resource Planning and Development Analyzing and Forecasting Supply

Potential is future-oriented:
• Is more long range
• Means having demonstrated the ability to acquire more skills
• Is identifying that the employee has the capacity to achieve another level one skills have
been acquired

Be careful in including assessments of promotability or potential! Unless you have shared this
information with the employee, there is a serious issue with making decisions based on these
assessments.

Movement Analysis
Movement Analysis is the heart of supply forecasting.

Movement Analysis
• a technique that is used to estimate the future supply in the organization
• concerned with the flow of people through the organization as events in their work and
personal lives occur

There are several forms of movement analysis and each type is concerned with projecting
future supply.

Ripple Charts
A ripple chart is one of the more effective ways of predicting movement throughout an
organization, in cases where an organization is stable and has a "promote from within" policy.

The value of a ripple chart is that it can show you any vulnerability you may have if people do
move up through the organization. Vulnerabilities will occur if you see that you will not have
enough people at the more junior levels of the organization to move up as the vacancies occur.

A ripple chart is simply a graphic depiction of what happens when a position is filled at the most
senior level of the organization.

It is used to predict the vacancies that may occur as people move up through the ranks

Turnover Analysis
Turnover tracks the movement of people into and outside of the organization. It is useful to
marry the actual with projected supply.

Turnover includes people who leave for reasons other than death, disability, or retirement.

Voluntary turnover can be very costly. Every time a competent employee leaves the
organization, you lose every dollar you have invested in that staff member, including recruitment
and selection costs, training, etc., and you have to spend money to find new staff (the industry
standard for this is often expressed as four times the annual salary of the employee).

How to Calculate Turnover:

𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝑺𝒆𝒑𝒂𝒓𝒂𝒕𝒊𝒐𝒏𝒔
Turnover Rate =
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝑬𝒎𝒑𝒍𝒐𝒚𝒆𝒆𝒔
Human Resource Planning and Development Analyzing and Forecasting Supply

The period of time you select is up to you - it could be monthly, quarterly, or annually. Most
organizations will express this as an annual figure.

Average Number of Employees =

𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝑬𝒎𝒑𝒍𝒐𝒚𝒆𝒆𝒔 𝒂𝒕 𝒕𝒉𝒆 𝑩𝒆𝒈𝒊𝒏𝒏𝒊𝒏𝒈 𝒐𝒇 𝒕𝒉𝒆 𝑷𝒆𝒓𝒊𝒐𝒅+𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝑬𝒎𝒑𝒍𝒐𝒚𝒆𝒆𝒔 𝒂𝒕 𝒕𝒉𝒆 𝒆𝒏𝒅 𝒐𝒇 𝒕𝒉𝒆 𝑷𝒆𝒓𝒊𝒐𝒅
𝟐

The two most common methods used by HR to project turnover are:

• Examining previous rates and adjusting them to reflect your assessment of the
environment (things like the economy, pay rates, etc.)
• Analyzing trends by geographic location or occupational categories

Turnover rate is widely used, but it measures QUANTITY only.

You need to analyze it, to control it AND you need to understand it.

Replacement Analysis
Rather than identifying a target position for an individual, replacement analysis identifies
individuals for key positions. You are identifying how many people are going to be promoted,
transferred, etc. into that position. That is, identifying all individuals who can potentially replace
an incumbent. The trick is to produce a Replacement Chart.

A Replacement Chart is a visual representation of who will replace who, based on an

employee’s present performance and an assessment of future promotability.

Advantages of Replacement Analysis

• Identifies jobs where there is a shortage or surplus of promotable employees. If you do
not have sufficient names on your chart, you have a problem - the same is true if you
have a glut.
• It identifies promotional blocks. Too many employees means that there will be a number
who will no't be able to get ahead. This, of course, brings with it all of the attendant
problems such as morale issues, etc.
• It identifies those who need development and career redirection. Some employees, for
example, may simply not be ready for movement in the organization. The completion of
a replacement chart and the sharing of this information with staff makes sure that they
are in the loop, and learning plans can be set up in a meaningful way.

Markov Model
A Markov Model does not look at the people in the organization first; rather, it looks at the jobs.

The Markov Model determines the pattern of international mobility between one job and another
in the organization.
Q. What is the likelihood that any person in one job will move to another specific job?
E.g. What is the likelihood that a cashier will move to a customer representative position?

Key Notes on the Markov Model

A Markov Model assumes a stable environment. It assumes that patterns of employee
movement are relatively stable over time.

The model determines the likelihood that an individual in a job will exhibit one of the internal
types of movement. What is the probability (likelihood)?
Human Resource Planning and Development Analyzing and Forecasting Supply

Once the probability is determined, multiply the probability with the number of jobs in the
organization.

Ultimately, you can determine the number of external recruits needed by the organization.

In addition, like replacement planning, a Markov Model can identify shortages and blockages for
replacement candidates. Markov models are most useful in large organizations with relatively
few types of jobs.

Qualitative Methods of Supply Analysis

These methods are most useful when attempting to predict future supply in uncertain times -
when the workforce is undergoing rapid change.

Bottom Line:
Effective supply analysis and forecasting impacts productivity.
If individuals are properly trained, know what their jobs are, and the jobs themselves are
organized with some forethought, then productivity will increase.

External Supply
Before leaving supply analysis, let us consider some of the sources of external supply:

1. Companies always have outsource staff for one reason or another. The reason is that
some jobs lack replacement individuals or are entry level, so companies have to
outsource the labour market.
2. In addition, growth or expansion of an organization usually requires an increase of entry
level jobs, as well as promotions. Entry level recruits come from outside the
organization.
3. If HRP is not effective in putting developmental programs in place, then people may be
available but not ready to move in companies.

Your ability to find outside employees will depend on whether or not you keep track of what is
going on outside the organization.

Which sources belong to external supply?

• Applications coming in
• Networks
• Liaison with schools
• Headhunters / Placement Agencies
• Professional and media magazines
• Professional organizations
• Data banks
• Unions
• Walk-ins
• Newspapers
• Word of mouth
Human Resource Planning and Development Analyzing and Forecasting Supply

HR Planners must be aware of the marketplace, both the current and future.
This is where effective liaison with the staffers in the organization comes in handy, as does the
ongoing knowledge of what is going on in the external environment.

Dimensions of Supply Analysis

Within the organization, people (or the supply) are moving along in their "life cycle"; for example,
receiving education and training, promotions, pay increases, and getting older, etc.

Summary
Supply analysis is the process of considering the total supply of labour within the organization
and breaking it down into its component parts.

Methods of supply analysis include:

• Ripple charts
• Turnover analysis
• Replacement analysis, and
• Markov Models

As supply forecasting tools, such methods have a demonstrated impact on business strategy.

You have now completed this module. You can continue to the next module.