TATA INSTITUTE OF SOCIAL SCIENCES

Demand Forecasting
HR FORECASTING
Group 2

Prepared By: Aalok Bohade Aditi Yadav Brajesh Jha Deepak Sachdeva Priyanka Bhutiya Stanzin Lhaskyabs

Human Resource Forecasting

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he first thing that strikes ones mind on hearing the word forecasting is Prediction. But [Saffo, 2007] explains that the difference between prediction and forecasting is that prediction is concerned with future certainty while forecasting looks at how

hidden currents in the present, influence possible changes in direction. The primary goal of forecasting is to identify the full range of possibilities. Having said that we can surely conclude that there is no crystal ball that would give us the right picture of the future and thus help us in managing, planning our present in a better way. The field of forecasting includes the study of judgement as well as of quantitative or statistical methods.2 The figure below the impact of organizational environment on decision

Takers schema1. Hogarth and Makridakis define "schema" as a person's belief and value system relative to the judgmental task". The Perceived Uncertainty Model of human resource forecasting technique represents an organizational adaptation to perceived uncertainty in the environment1.In todays complex and competitive business environment, HR managers need to focus on modelling and forecasting techniques designed to address business needs2. Following exhibit shows how modelling and forecasting can be used to define HR programs to support business strategies.

Source: Modelling and Forecasting: Focussing on people as a Strategic Resource

As per the literature HR Forecasting techniques can be divided into four categories: judgemental, stock-and-flow models (primarily Markovian), demand forecasting models and integrated models3. Out of these four, judgemental forecasting based on qualitative techniques is the most prevalent forecasting technique used. Various techniques involved in judgemental forecasting are: supervisor estimates, rules of thumb, replacement charts and the Delphi technique. Supervisor estimates involves executives of the organization spend significant amount of time and the accuracy of such forecasts largely depends upon their skills. Rules of thumb demonstrate directives such as X number of employees for every Y number of additional items produced. Replacement charts are straightforward organizational charts showing the replacements required for various positions in the organization. The Delphi technique is an iterative process involving questionnaire to be sent to a panel of experts to get their forecasts till the consensus is formed. The primary advantages of Delphi technique are: anonymity in refining the judgement based on additional input, accuracy of forecasts increase with the increased attention and it does not

require historic data3. The primary disadvantage of these judgemental techniques is that the result obtained cannot be verified statistically. However these flexible approaches take into lot of factors which quantitative methods cannot take, and thus provide forecasts which are practical and economical. Stock-and-flow models, which mainly deals with the supply side issues, projects the movement of employees through the organization and forecasts the number of employees required in various positions in future. However, this method cannot be used in a highly complex and uncertain environment. Third method which is integrated models, is used to simulate the organization and the effects on the organization from various business scenarios; movement and availability of individuals with various skills; future demand for various skills; and various HR activities3. The final type of forecasting model is the one designed to forecast future needs based on relationship between staffing levels and indicator variables such as sales or production volume. Apart from these methods, quantitative techniques such as regression models provide relatively accurate results for short, medium and long range forecasting. However accurate these quantitative techniques are, they have an inherent disadvantage of dependence on historical data. Sometimes organizations use customised stochastic- technique for short-term demand forecasting of manpower requirements for a particular functional skill group5. Whichever technique or model an organization implements, continual testing of new variables and retesting of old variables should be done to improve the model and keep it contemporary. Forecasting should be an integral part of the firms overall human resource planning efforts and if it is done simply and logically, can improve managements understanding of Human Resource implications of various business strategies.

References:
1

- A Perceived Uncertainty Model of Human Resource Forecasting Technique Use - Thomas H. Stone and Jack Fiorito
2

- http://www.forecastingprinciples.com/index.php?option=com_content & task=view&id=3&Itemid=3#field_1

3

Modelling and Forecasting: Focussing on People as a Strategic Resource - Thomas P. Bechet and William R. Maki
4

Forecasting Human Resources Requirements: A Demand Model Robert Meehan, New York Power authority and S. Basheer Ahmed, Lubin Graduate School of Business, Pace University
5

- A Stochastic Model of Demand Forecasting for Technical Manpower Planning - N. K. Kwakt, Walter A. Garrett, Jr. and Sam Baronet