Forecasting of HRH, Demand Supply, and Gap Analysis

Forecasting the need of human resources

Forecasting implies the identification of number and types of human resources for particular period of time (i.e. how many will be required, by when and of what types). Forecasting uses information from the past and present to identify expected future conditions. In HR planning, forecasting consists of estimating demand and supply, and analyzing the gap between demand and supply.

a. Estimating/forecasting demand

Forecasting is the estimation of human resource requirement in terms of quality and quantity (i.e. people with right quality and right number) with time demarcation. Demand forecasting is affected by a number of external and internal factors. External factors may consist of environmental aspects like economical, technological, political, legal, and social. Internal factors like growth, expansion and restructuring of organization; introduction of new technology; initiation of new program; nature of the job; employees productivity, turnover and absenteeism; and replacement need of employees due to resignations, retirement and termination, are the relevant factors for human resource forecasting.

Demand forecasting can be used by using mainly two methods viz. qualitative/judgmental and quantitative/statistical. The qualitative/judgmental method includes Delphi technique, nominal group technique and managerial estimate whereas quantitative/statistical methods include ratio-trend analysis, and simple and multiple linear regression analysis. In context of health, methods like need based approach, service target approach, health demand approach, population-personnel ratio, and managed health care system are used to estimate demand of health manpower.

b. Estimating/forecasting supply

Forecasting human resources supply is the estimation of human resource availability in terms of quality and quantity, from internal and external sources (i.e. within the organization and from outside the organization). Like as demand, supply estimation is also affected by some of the external and internal factors. Forecasting external supply of human resources can be predicted on the basis of global, national, regional and local level; the affecting factors may be — supply & demand of jobs or skills, educational attainment levels within a region, compensation pattern, market competition, technological development patterns, and legislative measures. Internal supply can be estimated by reviewing the data in HRIS. The supply of internal supply is affected by movement, absence and turnover of employees which are often associated with compensation and benefits, promotional opportunities, and scope for personal growth and development.

There are a variety of methods to forecast HR supply. Judgmental/qualitative methods include skills competency inventories, replacement charts, staffing tables and succession planning; and similarly statistical/quantitative methods include ratio-trend analysis, gain & loss analysis and Markov analysis.

c. Gap analysis (comparison between demand and supply)

Gap analysis identifies the differences between the forecasted HR demand and forecasted HR supply, and determines the future human requirements (number and characteristics of employees needed). Ideally, the estimation of demand and supply could balance out (i.e. identifying no gap in both the forecast), but this is a rare situation. Most likely, either HR supply exceeds demand or demand exceeds supply. When supply exceeds demand, HR surplus is identified and when demand exceeds supply, HR shortage is identified. The closer the gap between demand and supply, the better for the organization to goes into human resource procuring.

The comparison of demand and supply, if create differences between the two, organization need to choose an appropriate action designed to eliminate the gap. For e.g. in case of demand exceeds supply (i.e. shortage of human resources), organization might choose the options like — overtime work with current employees, providing extra compensation and benefits, increase training and promotions of current employees, or recruit new employees. Similarly, in case of supply exceeds demand (i.e. surplus of human resources), organization may opt the alternatives like — attrition, early retirements, demotions, layoffs, and terminations. These types of alternatives of fulfilling the gap (between demand and supply) come under the activities designed by HR action plans.