WORKFORCE

PLANNING

Workforce plans are produced following the overall strategic planning and the HR
planning processes, which set out the specific quantitative plans and details of how
the capability needed for the future realization of the corporate goals will be acquired
and retained. The HR strategies discussed in the previous chapter provide the context,
the firm's posture on competitive advantage, the direction of travel, and the assump-
tions and the reasoning behind the strategy. Workforce planning puts the facts and
the figures on how the people who are part of the plan will achieve the objectives, and
the options for developing and finding capability, and for using different kinds of
contractual arrangements to bring this capability into the service of the organization.
All management is about decision-making in an environment of risk and uncer-
tainty. Effective management aims to reduce the risk and uncertainty as far as this is
possible in an imperfect world by the acquisition of the best available information and
the use of a system. Improved HR information systems mean there is no reason why
data driven decisions on HR planning should not be the basis for assessing risks, as
we argued in Chapter 5. The expanding range of options available to organizations in
the workforce profile widens the scope of workforce planning from the simple question:
how many people do we need? to the more fundamental question: what capability
does the organization need to remain competitive in the future period under review?
The first part of the chapter explains the workforce planning processes and for
reconciling the forecast need ('the demand') for capability with the forecast supply of
labour/capabilities. There seem to be two meanings to the term 'workforce planning'.
It is used to describe the practical processes needed to ensure the people required
are in place throughout the planning period. That is the subject of this chapter. The
term is also used to mean the acquisition of capability, whatever its source, and the
cost-effective utilization of labour through appropriate workforce strategies, shift
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systems and the allocation of people to tasks, adjusting the contractual relationship to the
firm according to efficiency and effectiveness criteria. The flexible working issues raised are
the subject of the next chapter.
The specific issues for workforce planning to examine are:

1 Balancing the cost between the utilization of plant and workforce: this involves
comparing costs of these two resources in different combinations and selecting the
optimum. This is especially important when costing projects.
2 Determining needs for capability: an essential prerequisite to the process of recruit-
ment is to avoid problems of unexpected shortages, wastage, blockages in the promo-
tion flow and needless redundancies. The company will also be aware of the pace of
change, and the uncertainty of the future, and may therefore place a premium on work-
force flexibility, encouraging the consideration of the non-standard type of employ-
ment contract, and other sources of capability, such as franchise arrangements,
subcontracting, and the like.
3 Determining training needs: this is fundamentally important to planning training
programmes, for which it is necessary to assess the types of skills, experience and
attributes required in the future workforce, including not only quantity but also the
quality of the skills required.
4 Talent management and development: a succession of trained and experienced
personnel is essential to the effectiveness of the organization, and this depends on
accurate information about present and future needs, careers and ways to identify and
develop talented people.
5 Productivity: the business plan will, of necessity, make assumptions about productivity,
and the human resource implications of mergers, acquisitions and divestment
decisions will have an impact on the organization's employment relationships. In addi-
tion, there are some significant decisions and assumptions to be made about costs,
including pay and benefit costs, the terms and conditions of service and the altern-
ative ways of finding and using capability.

In this chapter we will concentrate on the demand and supply of labour and problems arising
from the process of reconciling these factors. Any workforce planning system has to be based
on analyses of demand and supply and the plans and decisions that follow these analyses.

A SYSTEM OF HUMAN RESOURCE PLANNING

Below are the main elements contained in the 10 point plan (as described as the end of the
last chapter), when we establish what expansion, contraction or redeployment of people will
be required over the planning period. The aspects of the HR strategy we are concerned
with here, therefore, are:

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1 Assessing future requirements to meet objectives (demand).

2 Assessing current resources and availability of resources in the future (supply), and
applying a cost:value model to decide the most cost effective way to meet the need.
3 Producing and implementing the plan in detail, i.e. balancing forecasts for demand
and supply, related to short-term and/or long-term timescales.
4 Monitoring the system and amending as indicated.

Figure 7.1 shows how workforce planning and human resource strategies can be devised.
Strategic planning requires the planners to assess the national/international political,
economic, social and technological trends (a PESTEL analysis), and to look at how their
own organization is responding. The planners will also wish to assess the likely challenges
and opportunities available - perhaps through using a SWOT analysis - looking at the
strengths, weaknesses, opportunities and threats to the organization. Strengths and weak-
nesses are usually internal, whilst threats and opportunities are external.

Figure 7.1 Human resource and business planning

IMPLEMENTING BASIC REQUIREMENTS FOR

HUMAN RESOURCE PLANNING

Sound HR planning needs to be based on the following principles and actions:

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1 It has to be fully integrated into the other areas of the organization's strategy and
planning.
2 Senior management must give a lead in stressing its importance throughout the organ-
ization. Organizations are great store houses of information. The systematic collection
of relevant data is now made easier by the use of new technology (see below), as
stated earlier.
3 In some larger organizations, a central workforce planning unit responsible to senior
management may be established. The main objectives of this unit could be to
coordinate and reconcile the demands for human resources from different depart-
ments, to standardize and supervise departmental assessments of requirements and
to produce a comprehensive organizational plan. In practice, the HR department
would normally play a leading role in the task. In smaller organizations these respons-
ibilities would probably be carried out by a senior member of staff, and could be by the
person responsible for a particular business unit, such as the manufacturing manager
or the production manager.
4 The time span to be covered by the plan needs to be defined. Because of the abiding
problem of making forecasts, a compromise is often adopted in which a general plan
is produced to cover a period of several years, and a detailed plan produced for the
first year. If the system is operated as a continuous, overlapping plan, the three or five-
year period of general forecasting could be maintained, and each first year is used in
turn for purposes of review and revision for the future. The high degree of uncertainty
in our environment has already been mentioned, arguably, this calls for attaching more
importance to forecasting and scenario planning, even if the outcome of the exercises
is the preparedness of the organization to respond quickly to new circumstances.
5 Forecasting for long periods ahead in the face of uncertainty results in a requirement
for agility and versatility within HR strategic planning. Long term HR planning has
been replaced by a move to the more flexible use of labour, and a preparedness to
outsource and to invest in cheaper labour markets. A second response is to be more
attentive to 'weak signals' from the business environment: to have a sensitivity to any
signs in order to pick up new trends quickly.

Although the more capital intensive organizations may plan for longer periods, in most cases
there are broad statements of strategic intent, with detailed plans for 12 months and increas-
ingly generalized plans as each year goes out. For many situations, organizations find them-
selves 'muddling through'.

Planning techniques
The strategic plans are overall guides, but in our rapidly changing economic conditions,
companies are moving from defined strategies, which are fixed for the period, to strategic
options.

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Whatever the approach to strategic planning, what matters is that the business
strategists, involving the HR function, develop the list of key options for the business, along-
side the HR implications. From this stage, specific strategies have to be selected. A number
of techniques can be applied to help determine which strategy is most suitable. All require
that the key criteria for success have been identified.

■ Ranking the options, whether or not they all have equal weight, allows the strategists
to set out a priority order for actions, possibly keeping as many options still open for
as long as possible.
■ Decision trees rank options by eliminating those which do not meet the criteria already
predetermined.
■ Scenario planning helps managers to select options by matching them against prob-
able future scenarios. Scenario planning is especially useful for uncertain
environments.

Scenario building is not just based on a hunch, but tries to build plausible views of
different possible futures for the organization based on groupings of key environ-
mental influences and drivers of change which have been identified. The result is a
limited number of logically consistent, but different scenarios which can be considered
alongside each other.
Johnson and Scholes (1997: 103)

The scenarios examined could be, for example, the consideration of what the organization
and the business model would look like in the event of any of the following happening:

■ major shifts in market conditions, such as a return to high inflation rates, or another
euro zone crisis
■ the merger or acquisition of the company or of one of its competitors
■ relevant new technological developments, such as 3D printing
■ conflicts in areas which affect the business, for example wars in the Middle East.

The scope and details of the plan have to be determined. For large organizations, separate
plans and forecasts may well be needed for various subsidiary units and functions. In smaller
organizations one comprehensive plan will probably suffice for all employees. Where partic-
ular skills or occupations are strategically important, in recruitment or development, special
attention may be needed.
Workforce planning is reliant on data from the Human Resource Information System
(HRIS). The advances in information technology now make more complex analysis possible,
for example determining the likely causes of labour turnover, an analysis of applicant profiles
to determine recruitment failures, the relationship between sickness absence and job satis-
faction data, and the probable effects on labour turnover. The availability of cloud computing,

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such as 'private clouds' and of big data sets, has helped in this regard. HRIS can make a
difference because organizations always collect lots of data, but in the past have not had
the facility to bring the data together and to use it.

Glossary of terms

Cloud computing
The overall definition of 'cloud' is as a computing architecture, in which information
can be accessed as a network. 'Cloud computing' is also used to mean a number of
computers connected through a real time network.

Software as a service (SAAS)

The term 'cloud' also sometimes refers to a networked based service where the
customer can use a provider's applications running on a 'cloud' infrastructure, access-
ible from a number of devices through a web browser.

Platform as a service
This is where customers pay a subscription to use a service and a platform for hosting
applications and to produce new applications.

THE GAP ANALYSIS

The next stage is to make comparisons between the most probable situation required for
people management in the planning period or at least the next two years, and then the
present situation. The time period chosen is a function of the industry sector and the degree
of volatility in the business environment, and the present situation. This looks at the gap
between the current and the future needs (looking at hard to fill vacancies, talent manage-
ment, strategic issues of long term capability and competitiveness, for example).
From this analysis, an understanding of the size, the profile and the key issues in the
future requirements should emerge. The results should be expressed in both the likely
numbers of the groups and of the capabilities needed. The results will be fed into the work-
force plan and the strategy documentation. It is desirable to include those outcome meas-
ures that are to be used to determine the success of the plan.
Effectiveness measures can be defined as the extent to which HR policies and prac-
tices will give effect to the organization's objectives. Efficiency is the cost of the actions
needed to do so.

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RISK ASSESSMENT

Risk assessments can also be undertaken. An example of a risk assessment matrix is shown
below in Table 7.1.
The severity of the risk is multiplied by the probability of the event occurring, to produce
a score, where any total in excess of 6 is an unacceptable risk.
The value of the matrix is dependent upon whether those using it have a clear and
commonly understood notion of what 'minor' and 'major', etc. mean, and on what basis the
probability of the forecasted circumstances happening is assessed.

TABLE 7.1 RISK ASSESSMENT MATRIX. PROBABILITY OF

CIRCUMSTANCES HAPPENING X SEVERITY OF RISK

Severity of risk Extremely Improbable Extremely Remote Remote Probable

1 2 3 4
Minor Acceptable Acceptable Acceptable Review
1 1 2 3 4
Major Acceptable Review Review Unacceptable
2 2 4 6 8
Severe Acceptable Review Unacceptable Unacceptable
3 3 6 9 12
Catastrophic Review Unacceptable Unacceptable Unacceptable
4 4 8 12 16

FORECASTS OF FUTURE REQUIREMENTS (DEMAND)

This task is concerned with estimating the quantity and quality of human resources needed
to meet the objectives of the organization. Several methods of forecasting are in regular use,
some of them simple and non-technical, others sophisticated and involving specialist stat-
istical knowledge and skills. These include:
■ estimates based on managers' experience, opinions and calculations
■ statistical methods
■ work-study methods
■ forecasts based on measures of productivity.

In practice, these methods are often used in combination, especially in larger organizations.
The essential features of each type are briefly summarized below:

1 Estimates made by management: this is the simplest method of assessment and is,
therefore, the commonest method in use, especially in small organizations.

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Assessments of this kind are provided from two main sources: the estimates submitted
by individual line managers and the estimates produced by senior management,
advised by the HR department. Since these forecasts rely entirely on personal judge-
ments, they have an obvious potential weakness of subjectivity. However, this can be
mitigated in the following ways: first, in submitting assessments, managers should
include explanations, justifications and the strategic reasons to support their claims;
second, these assessments 'from the bottom up', should be compared with those
prepared by senior management, perhaps by an ad hoc staffing committee with the
purpose of discussing and reconciling discrepancies.
2 Statistical methods: a number of statistical techniques are now used for forecasting,
which vary in their degree of sophistication. Some of the techniques most often used
are: simple extrapolation, which attempts to predict growth or decline of a variable or
set of variables for a period of time; regression analysis, based on assumptions about
the stability of certain relationships; and econometric models, in which past statistical
data are studied on the assumption that relationships between a number of variables
will continue in the future.
3 Work-study methods: work study is a systematic analysis of working methods, covering
the people, skills, materials and machines, and in particular the work hours needed per
output unit to achieve maximum productivity. Work-study data may be used to forecast
productivity, detailed production schedules for specific periods of time within the plan,
and to estimate the total numbers needed to achieve production targets within a
specific period, with a given level of technology in use. The production schedules may
comprise the following details: product quantities; production methods; machinery
needed and available; times for individual operations; and quantity and quality of labour
needed and available. Work-study techniques are particularly appropriate for estim-
ating human resource requirements for work that is directed towards end products.
Where the product mix and the forecast changes are too complex to use this approach,
a simple added value method can be adopted (Example 7.1).

ASSESSMENT OF CURRENT RESOURCES AND AVAILABILITY

OF RESOURCES IN THE FUTURE (SUPPLY)

Current resources
As a basis for estimating the future supply of people, an accurate account of the current
situation is needed. Each organization has to decide for itself the quantity and quality of
information it needs, but some broad bases can be established for analysing existing
resources, namely, operational functions, occupations, status and skill levels, and other
specific categories (for example, qualifications, trainees). Understanding the potential

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E EXAMPLE 7.1
X
A Using an added value approach where the added value (at constant prices) has to be increased
M from £12 million per annum to £14 million per annum, what is the effect on the demand for
P employees?
L Clearly a number of assumptions are made, about existing working practices, etc., but
E
we can build in changes to our calculation:
7.1
Year 2013
Added value for the year = £12,000,000
Average no. of employees = 400 people
No. of weeks worked per annum = 46 weeks
Average hours per week = 35 hours
Total hours, per worker per week

35 × 46 = 1610 work hours

Total work hours per annum
400 × 1610 = 644,000 work hours
Productivity
£12,000,000 = £18.633 per work hour
644,000

Year 2018
Planned added value = £14,000,000
Productivity increase 5% = £19.564 per work hour
Required work hours

£14,000,000 = 715,600.08 work hours

19.564

No. of people required

£715,600.08 = 444.5 people
1610

However, if working hours are reduced further by one hour per week, and holidays increased
by one week per year, the work hours change to the following amount, which changes the
forecast numbers as shown:

34 × 45 = 1530

£715,600.08 = 467.7 people

1530

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effects of retirements can be enhanced by age profiles. However, age discrimination legis-
lation reminds us that decisions based purely on age are no longer legally acceptable.

Operational functions
An initial count of all employees is made, based on divisions into functional units (for
example, sales department, store's branch, repair workshop, etc.). Specific categories
produced by subsequent analyses may be related to these units, if desired.

Occupations
Employees are categorized according to occupational groups. These categories may
usefully be related to strategically significant occupations and anticipated recruitment prob-
lems. Although broad homogeneous groupings will normally suffice, for certain key occupa-
tions detailed and specific categorizations may well be needed. In order to facilitate and
standardize the task of occupational analysis and definition, the Office of Population and
Censuses publishes the Standard Occupation Classification (SOC). The broad groupings
conventionally used for occupational analysis are managers, supervisors, professional staff,
technical staff, clerical staff, manual and other staff (skilled, semi-skilled and unskilled). For
the service sector, it may be better to keep to occupational titles, e.g. airline pilot, geolo-
gists, economists, etc.

Status and skill levels

To a certain extent, the categorization of employees by occupation also implies a categoriz-
ation by status and level of skills. This kind of analysis is especially relevant to the task of
producing data for planning succession to senior levels.

Other specific categories

In addition to the basic kinds of analysis described above, it is normally necessary to
produce other types of information, especially for critical groups and occupations, such as
the qualifications of employees, and records of employees at the various stages of
development.
Apart from the purposes of workforce planning, an organization may be expected to
have detailed records of its employees, showing their qualifications, experience, particular
skills and aptitudes, which are relevant to its functions and objectives. On this basis the
organization can assess the strengths and weaknesses in its general pools of skills and
experience in particular areas, and will be in a good position to plan for recruitment and
selection, transfer or promotion, training, retirements, etc.
For the period to be covered by the plan, the analysis will project the flow of numbers
of employees passing through all forms of training programmes, both internal and external.

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LABOUR TURNOVER

As human resource planning is an exercise in projecting likely future situations based on

past trends, it is important to obtain information about those trends which indicate any signi-
ficant changes. These data are invaluable as a background against which the forecasts
produced by other methods already described may be finally assessed. The changes that
are likely to be significant in workforce planning, and value analysis, are those that affect
shifts in the relative numbers of employees in the various categories represented in the HR
information system. A well known problem in organizations with high-cost operational goals,
for example, is the tendency for administrative and supporting staff to grow disproportion-
ately to the relatively small number of operational staff.
Labour turnover (wastage) has traditionally been calculated by the following formula:

Number leaving in a year

 100 = x%
Average number of employees

This index can be considerably distorted, however, by untypical features in the organization's
employment pattern. For example, redundancies, acquisitions, and there is a value in
researching voluntary turnover as an indicator of other problems. A significant element of
wastage may be limited to a specific category, which may give a false impression of move-
ment in an otherwise stable labour force. A commonly used guide to predict labour turnover
in one part of the labour force is the Labour Stability Index, which is calculated by the formula:

Number of employees exceeding one year's service

 100 = x%
Number of employees employed one year ago

Even more sophisticated results can be obtained by the use of the actuarial/statistical
techniques known as cohort and census analysis. In the same way that life expectancy for
age groups can be actuarially assessed, a so-called survival curve can be graphically plotted
to enable predictions to be made about the relationships between employees' length of
service or age and rates of wastage.
Labour turnover is service and age specific. Hence we would expect a higher amount
of wastage amongst new starters than within a stable work force.
Table 7.2 gives an example of a cohort analysis, drawn from the Civil Service, using
the 'Markovian' wastage rate, which is calculated as follows:

Number of leavers during the year probability that

 100 = staff will not be
Number of staff present at start of year present at year end

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TABLE 7.2 AN EXAMPLE OF COHORT ANALYSIS

Length of service Survivors at Leavers Central Markovian Mean
(completed start of period wastage rate wastage rate strength
years) (I) (M) (Q)

0 1000 113 0.120 0.113 943

1 887 161 0.200 0.182 806
2 726 144 0.220 0.198 654
3 582 55 0.100 0.095 554
4 527 31 0.060 0.059 511
5 496 24 0.050 0.048 484
6 472 18 0.040 0.038 462
7 454 13 0.030 0.029 446
8 441 13 0.030 0.029 433
9 428 13 0.030 0.030 420
10 415 12 0.030 0.029 408
11 403 12 0.030 0.030 396
12 391 391 (2.00) 1.00 195
13 0 0 0 0 0
Total 1000 6712

Expectation of service = 6712 ÷ 1000 = 6.7 years

Half life = 5 years (approx.)
Population surviving for 2 years: 73 per cent
Population surviving for 5 years: 50 per cent
Population surviving for 10 years: 42 per cent
Source: Smith and others (1976: 58).

Apart from wastage as a factor complicating human resource planning, any internal
variations in working conditions, such as a reduction or increase in working hours or retire-
ment age, will affect the situation.
Finally, there are external factors that also need to be taken into account when the avail-
ability of human resources is being considered. They may be categorized as macro- (national)
or micro- (local) influences. At the macro level the commonly significant factors are:

1 The intervention by the state in the field of employment as a user and protector of the
labour force in the form of employment legislation, regional development schemes,
governmental and related agencies.
2 National trends affecting the working population such as, for example:
(a) the higher percentage of older people
(b) changes to the school leaving age
(c) the percentage of people pursuing courses of higher education, and the types
degree or diploma courses

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(d) the variety of contractual arrangements available (part-time, job-sharing, etc.) is

a reflection of the need for part time and flexible working arrangements
(e) welfare and benefit policies, and those designed to reduce unemployment.
3 International recruitment possibilities (e.g. the recruitment of nurses for hospitals in
the UK from outside the EU and from mainland European countries).

The important factors at micro level are:

1 The nature of the local population: numbers, growth or decrease, reserves of skills,
availability of part-time labour, etc.
2 The level of unemployment and its location.
3 The competition from other employers.
4 The costs of labour, local premia and the ease of travel to the locations.
5 The attractiveness of the area to live in and the degree of development of the area,
such as: accessibility, schools, medical facilities, costs of housing.
6 Plans of central and local government and other organizations that may significantly
affect the area.
7 Types of transport links.
8 The reputation of the organization and how this is sustained.

THE PLANNING STAGE

The last stage, in which the plan is produced, is based on the information that the preceding
stages have provided. This involves:

■ matching the forecasts for supply and demand

■ identifying key areas essential to the achievement of objectives
■ making plans to minimize the effects of possible shortages or excesses of staffing
considering whether the best use is currently being made of the organization's human
resources.

As we described earlier, situation planning is a technique that helps senior management to

understand the various alternative possibilities by looking at the consequences of following
different policy options. There are now a number of computer-based approaches with soft-
ware available to represent the options graphically, such as those developed by the Institute
for Employment Studies, which examine staffing systems - building in the variables that
influence the numbers employed in any given hierarchy of positions and showing how vari-
ations, for example in labour turnover or in recruitment rates, influence the numbers employed
in the different grades. The rates of change are sometimes called 'flows' and the numbers
employed in the grades or jobs 'stocks'.

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The simplified example of a bank's system shown in Figure 7.2 illustrates this. (In prac-
tice, there may be many different levels, not just three, and also cross-overs to other systems.
The computer models can handle much greater complexity than is shown here.)
The flows (or rates) can be varied to show the effect on stock sizes or the stock sizes
may be held constant to show the effect on the flows (rates) over the planning period. By
varying such factors as these, and by introducing proposed policy changes within the plan-
ning exercise, such as age at retirement, the likely consequences in terms of the main policy
options can be discovered before the organization is committed to any change.
Until the preliminary analyses have been made and the final plans formulated, no
meaningful plans can subsequently be made for recruitment and training of staff. Finally, it
is worth emphasizing once again that planning cannot guarantee any particular levels of
success in ensuring that the right number of employees of the necessary quality will be
provided to meet an organization's requirements. The most important benefits from HR
planning are that any staffing restrictions on future operations can be avoided, and the

Figure 7.2 Computer models - forecasting based on a systematic relationship

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Figure 7.3 Summary of main elements of a system of workforce planning

strength of the organization's capabilities can be taken into account in the strategy
(Figure 7.3). There should be a regular review at various periods throughout the life span of
the plan. This review could be incorporated into an annual general review of corporate
objectives, achievement, budget planning, etc., in accordance with the system for a running,
overlapping plan, as already discussed.

QUESTIONS

1 The wastage (turnover) rate for a group of your sales representatives is high (25 per
cent) whilst the stability index is low (5 per cent). What conclusions do you draw
about this group of sales representatives? Do you have a major problem or not?

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2 From a SWOT analysis, what do you see as the current risks facing your organization?
How do you assess the work force planning risks deriving from your analysis?
3 Name the methods of forecasting demand commonly used, and comment on the
advantages and disadvantages of each one described.
4 What are the main stages in producing the HR plan, comment upon how these plans
are integrated with the overall business strategy?

REFERENCES
Johnson, G. and Scholes, K. (1997). Exploring Corporate Strategy. London: Prentice Hall.
Smith, A. R. and others (1976). Manpower Planning in the Civil Service. HMSO.

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