CHAPTER-2

Human Resource Planning

1
 Objectives of The Chapter

To Understand
 Introduction to HRP
 Process, Control and Review Mechanism
 External Supply
 Labour market trends

2
 HRP
It is the process of forecasting a firm’s future
demand for and supply of right type of people in
right number at right time

3
 HRP
Organizations need to do human resource
planning so they can meet business objectives
and gain a competitive advantage over
competitors.

 Human resource planning compares the

present state of the organization with its goals
for the future
 Then identifies what changes it must make in
its human resources to meet those goals
4
 Factors Affecting HRP

 Type and strategy of the organization

 Organization growth cycle and planning
 Environmental uncertainties
 Time horizons
 Type and quality of forecasting information
 Nature of jobs being filled
 Off loading the work

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 Factors Affecting HRP

 Type and strategy of the organization

 Internal growth – Growth with M & A
 Narrow – Broad
 Informal – Formal
 Reactive – Proactive
 Flexible – Inflexible

6
 Factors Affecting HRP

 Organization growth cycle and planning

 Introduction
 Growth
 Mature
 Decline

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 Organizational Life-Cycle Stages and HR
Activities

LIFE-CYCLE TRAINING AND LABOR /

STAGE STAFFING COMPENSATION DEVELOPMENT EMPLOYEE
RELATIONS

Introduction Attract best technical Meet or exceed labor Define future skill Set basic
and professional market rates to attract requirements and employee-
talent. needed talent. begin establishing relations
career ladders. philosophy of
organization.

Growth Recruit adequate Meet external market Mold effective Maintain labor
numbers and mix of but consider internal management team peace,
qualifies workers. equity effects. Establish through employee
Plan management formal compensation management motivation, and
succession. Mange structures. development and morale.
rapid internal labor organizational
market movements development.
 Organizational Life-Cycle Stages and
HR Activities (cont’d)
LIFE-CYCLE TRAINING AND LABOR /
STAGE STAFFING COMPENSATION DEVELOPMENT EMPLOYEE
RELATIONS

Maturity Encourage sufficient Control Maintain flexibility and Control labor costs
turnover to minimize compensation costs. skills of an aging and maintain labor
layoffs and provide new workforce. peace. Improve
openings. Encourage productivity.
mobility as
reorganizations shift
jobs around.

Decline Plan and implement Implement tighter Implement retraining Improve productivity
workforce reductions cost control. and career consulting and achieve flexibility
and reallocations, services. in work rules.
downsizing and Negotiate job security
outplacement may and employment-
occur during this stage. adjustment policies
 Factors Affecting HRP

 Environmental uncertainties
 PEST factors impose the uncertainties

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 Factors Affecting HRP

 Time horizons
 Short term plan
 Long term plan

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 Factors Affecting HRP

 Type and quality of forecasting information

 Strategic information
 Organizational information
 HRP information

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 Factors Affecting HRP

 Nature of jobs being filled

 Shop floor or managerial
 Off loading the work
 Outsourcing

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 Process of HRP

 Environmental scanning
 Organizational policies and objectives
 HR demand forecast
 HR supply forecast
 HR programming
 HRP Implementation
 Control and evaluation
 Surplus
 Shortage
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 Forecasting as a Part of Human Resource
Planning
DEMAND Choose human SUPPLY
FORECASTING resource programs FORECASTING

Determine
organizational Internal programs External programs
objectives •Promotion •Recruiting
•Transfer •External selection
•Career planning •Executive
Demand exchange
•Training
forecast for
each objective •Turnover control

Aggregate Internal supply forecast External supply forecast

demand forecast
Does aggregate
supply meet Aggregate supply
aggregate forecast
demand?
No
Yes 15
Go to feasibility analysis steps
 Process of HRP

 Environmental scanning
 Economic factors
 Technological changes
 Demographic changes
 Political and legal issues

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 Process of HRP

 Organizational policies and objectives

 Vacancies are to be filled up from within or from
outside
 Is there any opposition from unions
 How to downsize the organization
 To what extent, production and operation can be
automated

17
 Process of HRP

 HR demand forecast
 It is a process of estimating the quantity and
quality of people required to meet future needs of
the organization
 It is affected by two sets of factors i.e. internal
and external

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 HR Demand Forecasting

 Managerial judgment
 Delphi technique
 NGT
 Ratio trend analysis
 Regression analysis
 Work study technique
 Flow models

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 HR Demand Forecasting

 Managerial judgment
 Managers use their experiences and judgments
to good effect
 Managers sit together, discuss and arrive at a
figure which would be the future demand for
labour
 It may involve top down or bottom up approach
 Applicable for small organizations where data
base is not adequate
 Forecast form

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 The Delphi Technique
Leader identifies judgment issues and develops questionnaire.

Prospective participants are identified and asked to cooperate.

Leaders send questionnaire to willing participants, who record

their judgments and recommendations and return the
questionnaire.

Leaders compiles summaries and reproduces participants’

responses.

Leader sends the compiled list of judgment to all participants.

Participants comment on each other’s ideas and propose a final

judgment.

Leader looks
for consensus

Leader accepts consensus judgment as group’s choice.

 The Nominal Group Technique
A small group of 4-5 people gathers around a table. Leader
identifies judgment issue and gives participants procedural
instructions.

Participants write down all ideas that occur to them, keeping

their lists private at this point. Creativity is encouraged during
this phase.

Leader asks each participant to present ideas and writes them

on a blackboard or flipchart, continuing until all ideas have been
recorded.

Participants discuss each other’s ideas, clarifying, expanding,

and evaluating them as a group.

Participants rank ideas privately in their own personal order and

preference.

The idea that ranks highest among the participants is adopted

as the group’s judgment.
 HR Demand Forecasting

 Ratio trend analysis

 HR needs can be estimated by examining past
trends
 Past rates of changes can be projected into the
future (extrapolation)
 Matching employment growth with an index eg.
ratio of production employee to sales (Indexation)

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 Example of Trend Analysis of HR
Demand
BUSINESS  LABOR = HUMAN RESOURCES
FACTOR PRODUCTIVITY DEMAND
YEAR (SALES IN THOUSANDS) (SALES/EMPLOYEE) (NUMBER OF EMPLOYEES)

2003 $2,351 14.33 164

2004 $2,613 11.12 235
2005 $2,935 8.34 352
2006 $3,306 10.02 330
2007 $3,613 11.12 325
2008 $3,748 11.12 337
2009 $3,880 12.52 310
2010* $4,095 12.52 327
2011* $4,283 12.52 342
2012* $4,446 12.52 355 24
*Projected figures
 HR Demand Forecasting
 Ratio trend analysis steps
 Select an appropriate business factor. This should be the best
available predictor of human resources needs. Frequently, sales or
value added (selling price minus costs of materials and supplies) is
used as a predictor in trend analysis.
 Plot a historical trend of the business factor in relation to number
of employees. The ratio of employees to the business factor will
provide a labor productivity ratio (for example, sales per
employee).
 Compare the productivity ratio for at least the past five years.
 Calculate human resources demand by dividing the business factor
by the productivity ratio.
 Finally, project human resources demand out to the target year
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 Regression Analysis
1. Statically identify historical predictor of workforce size
Example: FTEs = a + b1 sales + b2 new customers

2. Only use equations with predictors found to be

statistically significant

3. Predict future HR requirements, using equation

Example: (a) FTEs = 7 + .0004 sales + .02 new
customers
(b) Projected sales = $1,000,000
Projected new customers = 300
(c) HR requirements = 7 + 400 + 6 = 413
Determining the Relationship Between
Hospital Size and Number of Nurses
 Work-study Technique

 Work-study techniques can be used when it is possible

to apply work measurement to calculate the length of
operations and the amount of labor required.

 The starting point in a manufacturing company is the

production budget, prepared in terms of volumes of
salable products for the company as a whole, or
volumes of output for individual departments.

 The budgets of productive hours per unit of output are

then multiplied by the planned volume of units to be
produced to give the total number of planned hours for
the period.
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 Work-study Technique

 This is then divided by the number of actual working

hours for an individual operator to show the number of
operators required.

 Allowance will have to be made for absenteeism and

idle time.

 Work-study techniques for direct workers can be

combined with ratio-trend analysis to forecast for
indirect workers, establishing the ratio between the two
categories.
 The same logic can be extended to any other category
of employees.
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 Work-study Technique

Planned output for next year – 20,000 units

Standard hours per unit - 5

Planned hours – 1,00,000 hour

productive hour per man/year – 2000

Number of direct workers required - 50

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 Flow Models

 Flow models are very frequently associated with forecasting

personnel needs. The simplest one is called the Markov model.
In this technique, the forecasters will :

1. Determine the time that should be covered. Shorter lengths of

time are generally accurate than longer ones. However, the time
horizon depends on the length of the HR plan which, in turn, is
determined by the strategic plan of the organization.

2. Establish categories, also called states, to which employees can

be assigned. These categories must not overlap and must take
into account every possible category to which an individual can
be assigned. The number of states can neither be too large nor
too small.
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3. Count annual movements (also called ‘flows’) among states
for several time periods. These states are defined as
absorbing (gains or losses to the company) or non-absorbing
(change in position levels or employment status). Losses
include death or disability, absences, resignations and
retirements. Gains include hiring, rehiring, transfer and
movement by position level.
4. Estimate the probability of transitions from one state to
another based on past trends. Demands a function of
replacing those who make a transition.

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 VACANCY ANALYSIS
Historic departures used to project turnover

LEVEL # EMPL TURN % Expected Vacancies Expected to Remain

TOP MGMT 100 20 % 20 80

MID MGMT 200 24 % 48 152

LOW MGMT 600 22 % 132 468

SKILLED W 600 16% 96 504

ASSY WKRS 2000 12 % 240 1760

TOTALS 3500 536 2964

AVERAGE TURNOVER PERCENTAGE = 536 / 3500 = .1531

 HR Supply Forecasting

 Existing human resources (HRIS)

 Skill inventory
 Management inventory
 Internal supply
 Inflow and outflow
 Succession or replacement chart
 Transition matrices (Markov analysis)
 Personnel/yield ratio
 External supply
 Labor market trends and recruitment
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Employee Replacement Chart for
Succession Planning
MARKOV ANALYSIS
(STATISTICAL REPLACEMENT ANALYSIS)

TO:  A TRANSITION MATRIX

FROM:
TOP MID LOW SKILLED ASSY EXIT

TOP .80 .02 .18

MID .10 .76 .04 .10

LOW .06 .78 .01 .15

SKILL .01 .84 .15

ASSY .05 .88 .07

------------------------------------------
 MARKOV ANALYSIS – 2
(Captures effects of internal transfers)
(Start = 3500) A TRANSITION MATRIX
FROM/ TO:  TOP MID LOW SKILLED ASSY EXIT
TOP 100 .80 .02 .18

MID 200 .10 .76 .04 .10

LOW 600 .06 .78 .01 .15

SKILL 600 .01 .84 .15

ASSY 2000 .05 .88 .07

---------------------------------------------------------
END YR WITH: 100 190 482 610 1760 [358 left]
NEED RECRUITS ? 0 10 118 240* 368 tot
NEED LAYOFFS ? (10)* (10) tot
KEEP STABLE 100 200 600 600 2000 = 3500 Tot
 MARKOV ANALYSIS – 3
(Anticipates Changes in Employment Levels)
Employment needs are changing. We need a 10% increase in skilled
workers (660), and a 15% decrease in assembly workers (1700) by
year’s end.
------------------------------------------------------
(Start = 3500) A TRANSITION MATRIX
FROM/ TO:  TOP MID LOW SKILLED ASSY EXIT
TOP 100 .80 .02 .18
MID 200 .10 .76 .04 .10
LOW 600 .06 .78 .01 .15
SKILL 600 .01 .84 .15
ASSY 2000 .05 .88 .07
---------------------------------------------------------
END YR WITH: 100 190 482 610 1760 [358 left]
NEED RECRUITS ? 0 10 118 50*
NEED LAYOFFS ? (60)*
NEW LEVELS 100 200 600 600 1700 = 3260 tot
PERSONNEL / YIELD RATIOS
Past experience has developed these yield ratios for recruiting a Cost
Accountant:

FOR EVERY 12 APPLICATIONS RECEIVED, ONLY 1 LOOKS

PROMISING ENOUGH TO INVITE FOR AN INTERVIEW

OF EVERY 5 PERSONS INTERVIEWED, ONLY 1 IS ACTUALLY

OFFERED A POSITION IN THE ORGANIZATION

OF EVERY 3 JOB OFFERS MADE, ONLY 2 ACCEPT THE POSITION

OF EVERY 10 NEW WORKERS WHO BEGIN THE TRAINING PROGRAM,

ONLY 9 SUCCESSFULLY COMPLETE THE PROGRAM

THUS: 100 APPLICATIONS MUST BE RECEIVED, so that

8.33 JOB INTERVIEWS CAN BE HELD, so that
1.67 JOB OFFERS CAN BE MADE, and
1.11 PEOPLE MUST BE TRAINED, so that we get
ONE NEW COST ACCOUNTANT!!!
 Barometers of Labour Supply

 Net migration
 Education levels of work force
 Demographic changes in population
 Technological developments
 Demand for specific skills
 unemployment rate
 Govt policies and regulations
 Economic forecast
 Attractiveness of an area
 Attractiveness of an industry in a particular place
 Staffing Alternatives to Deal with
Employee Surpluses

Source: Compliments of Dan Ward, GTE Corporation

 Staffing Alternatives to Deal with
Employee Shortages

Source: Compliments of Dan Ward, GTE Corporation