Purpose and Stages of Workforce Planning

As has been discussed, workforce planning is the process of developing and implementing plans and programs to ensure that the right number and type of individuals are available—at the right time and place—to meet organizational needs. Because any effective human resource management program helps the organization achieve its strategic goals, workforce planning is one of the fastest-growing and most important areas of human resource management. While workforce planning may have, at one time, been one of those weather-like corporate activities that everyone talked about but nobody acted on, demographic and business exigencies, along with the new economy, have pushed workforce planning to the forefront of most HR programs.

As new technologies such as state-of-the-art information systems, robots, and office automation are introduced into the workplace, workforce planning will be used to answer questions such as the following:

  • How can organizations assimilate technology into the workplace?

  • What impact do these new technologies have on job design?

  • Which skills are needed by the firm?

Workforce planning is also concerned with the challenges of the aging workforce, unemployment, and the economic impact of shifting from a manufacturing to a service economy.

Purpose of Workforce Planning

  • Reduce costs by helping management anticipate shortages or surpluses of human resources and correct imbalances before they become unmanageable and expensive.

  • Provide a better basis for planning employee development that makes optimum use of workers’ attitudes. 

  • Improve the overall business planning process. 

  • Provide more opportunities for women and underrepresented populations in the future growth and strategic plans of the organization. 

  • Promote greater awareness of the importance of sound human resources throughout all levels of the organization.  

  • Provide a tool for evaluating the influence of various HR actions and policies.

With advances in technology, workforce planning is easier than ever. For example, technology allows organizations to create human resource information systems that include important HR-related records for every employee within the organization. Through human resource information systems, organizations can easily access employee job preferences, work experiences, job histories, and performance evaluations.  This information can be used in workforce planning to promote the interests of the individual as well as those of the organization. 

Four Stages of Workforce Planning:

  1. Supply Analysis

  2. Demand Analysis

  3. Gap Analysis

  4. Solution Techniques

When discussing supply and demand, HR must forecast future employment needs. This requires HR to understand where the business is headed and what goals it hopes to achieve. Will more or fewer employees be needed? What skills must current and future employees possess? Does the business hope to grow or remain stable? What technological advancements have impacted the business and its need for employees? HR should understand the numbers and types of individuals that desire a job with the company. These individuals may exist outside of the company, be current employees looking for promotions, or be employees of competitors in the industry.

Supply Analysis

The development of a human resource planning system requires a careful analysis of the organization’s present workforce. How many employees are working for the organization? What jobs do they perform? How many employees are in each job category? Information also must be collected about the skills and characteristics of each employee. In a small organization, collecting information about the present workforce is not a difficult task. In a large organization, human resource information systems (HRIS) and internet software systems are used to handle the enormous mass of information. For the information to be useful, a system must efficiently collect and organize it, keep it current, and have it immediately available.

Categorizing Jobs

Forecasts of human resource needs are usually made for job categories rather than individual jobs. A company with 1,000 employees, for example, would have 1,000 positions, one for each employee, but only 200 or 300 different jobs and only 10 or 20 job categories. The jobs need to be grouped into a limited number of job categories since trying to forecast and plan for each separate job would be a cumbersome task. Three criteria should be used to group jobs into similar categories:

  1. The specific skill, preparation, and educational requirements needed to perform the job,

  2. The degree of responsibility and location of the job in the organizational hierarchy, and

  3. The nature of the activities performed.

The job of a tax accountant, for example, would be very similar to that of a cost accountant and an internal auditor. These accounting positions would also be somewhat similar to the job of financial analyst. However, other office jobs, such as file clerk or inventory control clerk, would not be similar and categorizing all of these jobs as office jobs would overlook some of the important differences among them.

In classifying the jobs within an organization, a balance needs to be achieved between having too many job categories and too few. Having too many categories would be unwieldy and produce too much useless detail (such as hiring 1.2 receptionists when employment increases by 20 percent). And if too few job categories are established, important differences among jobs may be overlooked, and the planning system will not be as useful.

EEOC Job Categories

Organizations that are required to submit Equal Employment Opportunity (EEO) reports often use the Equal Employment Opportunity Commission’s (EEOC’s) ten job categories to assist in categorizing their jobs. These job categories are as follows:

  1. executive/senior-level officials and managers

  2. first/mid-level officials and managers

  3. professionals

  4. technicians

  5. sales workers

  6. office and clerical workers

  7. craft workers

  8. operatives

  9. laborers

  10. service workers

The instruction booklet for explaining how to prepare EEO reports gives general definitions of the jobs in each category.

Human Resource Information Systems

The development of an effective planning system requires an inventory of the people working for the organization. This collection of information is called a human resource information system (HRIS). A carefully designed HRIS that is current and reliable can assist managers in many ways. The major uses of an HRIS include the following:

  • Human resource planning —to anticipate replacements and promotions.

  • EEO reports —to know how many employees of each gender and ethnic group are employed in each job category.

  • Compensation reports —to obtain information regarding how much each employee is paid, the overall compensation costs, and the financial costs of pay increases and other compensation changes.

  • Personnel research —to conduct research into such problems as turnover and absenteeism or to discover the most productive places to look for new recruits.

  • Training-needs assessment —to analyze employee performance in order to determine which employees need further training.

Skills Inventories

A skills inventory describes the skills and knowledge of employees and is mainly used for making placement and promotion decisions. This information should be stored in the company’s HRIS, where it can be easily retrieved and frequently updated. Each organization should identify the critical skills that are needed to make it effective and compile an inventory of which employees have which skills. This inventory should include everything that might be useful and job-related. For example, musical talents may be valuable to a nursing home, and a list should be made of employees who sing, lead music, or play musical instruments. The trend toward international business has made language skills increasingly valuable. Many hospitals, for example, maintain a current inventory of employees who speak foreign languages so that they can assist as needed in translating for patients or visitors.

Skills inventories can also be used to foster growth and prevent employee stagnation. The process used to create the inventory can itself be developmental for the job incumbents and their supervisors since it involves summarizing the employees’ past development, assessing the strength of their skills, and discussing the employees’ aspirations and training needs. The motivation to sharpen present skills or learn new ones is strengthened.

Sources of Employee Information

To develop a comprehensive HRIS, the company must obtain information from many different sources. Special forms and questionnaires can be developed for collecting the information, but if the forms create unnecessary paperwork, the system can lose much of its effectiveness. Therefore, before developing special forms to collect HRIS information, organizations should consider using the sources that are already available to them, such as application forms, performance evaluations, personnel change notices, disciplinary action reports, and payroll data.

Application Forms

Virtually every organization uses an application form as part of its hiring process. The application form ought to be designed in part to collect the information needed for a human resource information system. This information includes educational levels, skills, and other pertinent biographical data. Some organizations prefer to keep their initial application forms simple, asking only for information that will help them decide whether an applicant is a desirable job candidate. After a candidate is selected for employment, he or she is then asked to complete a second form that requests more detailed information for the HRIS.

Performance Evaluations

Because some information changes every year, an HRIS needs to be updated periodically to be useful. Important information that should periodically be updated includes employees’ skills and talents, present levels of performance, and potential for growth. Although this information can be obtained from performance evaluation forms, there may be problems in collecting and storing this information. An organization needs good information for long-range planning and promotion decisions, but if that information is available to employees, it may cause them to behave in ways they otherwise wouldn’t. In addition, supervisors may be unwilling to make negative judgments that might harm the careers of their immediate subordinates.

Personnel Change Notices

Since personnel changes occur throughout the year, this type of information needs to be updated more frequently than annually. Many organizations use a simple form called a personnel-change notice (also called a personnel action form, PAF, or a personnel information form, PIF) that supervisors are required to complete and forward to the human resource office. Usually, a supervisor indicates on the form the changes that have been made to an employee’s status, such as a transfer, termination, promotion, or upgrading of job duties.

Disciplinary Actions Reports

Information regarding formal disciplinary action also may be included in the HRIS. Some organizations use special forms for reporting this information to the employee, to a union representative, and to the human resource office, where it can be added to the employee’s personnel file.

Payroll Data

Human resource information systems sometimes contain each employee’s salary history, including base pay, percentage increases for each year, and any bonuses and special awards that have been given. This information may be part of the data provided through the performance evaluation form. However, some organizations prefer to use a separate form for submitting recommendations for pay increases and bonuses.

In organizations that do not have a comprehensive HRIS, the payroll system represents a convenient starting point for developing an HRIS. Many firms have computer-based payroll administration systems, and others use time-sharing or computer service firms for processing payroll. These systems typically contain some of the basic employee data that can serve as the foundation for a human resource information system. The payroll system could be expanded to include other relevant data, or a separate system could be established and interfaced with the payroll system to provide the additional data required.

Demand Analysis

After an organization’s present workforce has been analyzed, the next step in developing a human resource planning system is to forecast future employment needs. This requires an analysis of the demand for labor that answers these three questions:

  1. What employees will be needed in the future?

  2. What kinds of skills and talents will the employees need?

  3. When will the new employees be needed?

Forecasting employment needs is more of an applied art than a science. Even though many sophisticated forecasting techniques have been developed, actual forecasting is usually informal, highly judgmental, and subjective. The accuracy of employment forecasts is related to the length of time they cover, with short-term forecasts tending to be much more precise and accurate than long-term forecasts.

In developing an employment forecast, the forecaster is required to make various assumptions about economic conditions and the future of the organization. While it might be safe to assume that economic conditions a year from now will be much the same as the present, the assumption of “no change” may not be a very sound one for long-term planning. Over a long period of time, economic conditions and organizational strategic objectives tend to change dramatically.

Forecasting staffing needs can be more accurate in organizations that have stable environments. If the demand for an organization’s products is quite steady and if the production technology does not change much over time, the employment forecasts can be quite accurate. However, employment forecasts are usually more valuable for organizations in volatile environments, even if they are not as accurate. In organizations where new technologies or operating processes are frequently introduced, some form of forecasting and planning is essential. Plans for adequate staffing are particularly crucial in an organization that has rapidly expanding technology, an unstable business environment, or a heavy reliance upon managerial, professional, and technical talent.

Employment forecasts need not produce exact estimates of future employment needs to be useful. The forecasting process itself, apart from the numbers that result, facilitates the planning process. Requiring managers to think about the future and to anticipate the kinds of events that might occur is a useful process, even though the events that do occur may be quite different than those anticipated. Having a forecast that is wrong is usually better than having no forecast at all since an incorrect forecast can be modified as conditions change and new assumptions become necessary. The value of a forecast should be judged not so much by how close it was to the actual needs but by the degree to which it caused managers to think about and anticipate future situations.

Forecasting employment needs involves two quite different time periods: long-term forecasting and short-term forecasting. These two periods differ in terms of the methods used for forecasting, their impact on an organization, and the people responsible for the forecasts.

Long-Term Forecasting

Long-term forecasts typically cover a time frame of two to ten years and are typically adjusted each year on a rolling basis. For example, after one year, what was the four-year forecast becomes the three-year forecast, and a new four-year forecast is developed. The sophistication of long-range forecasting varies greatly from company to company. Some organizations attempt to identify how many employees in each job category will be needed to satisfy their strategic business plans for the next several years. Other organizations only try to forecast the total number of people in the major divisions. Still other organizations are content to identify some of the major social changes that may occur and try to maintain an awareness of the environmental and technological changes that could influence their future human resource needs.

All long-term forecasts should be based on strategic business plans. Until someone has identified what an organization expects to be doing and the level of its business activity, forecasting how many employees will be needed is a futile exercise. However, once the projected level of business activity has been identified, several methods of forecasting long-term employment demands can be used, such as unit demand, expert opinion, and trend analysis.

Unit Demand

The unit demand method of long-term forecasting requires managers to know what business activity will be performed by their units in future years and how many people will be needed year by year to achieve their business objectives. After this information has been obtained from each unit manager, it is aggregated to form an overall forecast for the organization. Using unit demand forecasting, executives in Japan’s major air carriers forecasted a serious pilot shortage during the 1990s. For example, Japan Airlines found that 60 captains would retire annually in the latter half of the 1990s, and radical traffic expansions would exacerbate the shortage. By anticipating the problem, however, the airline had an opportunity to recruit and train an adequate number of replacements.

One of the advantages of unit demand forecasting is that unit managers typically have very accurate information regarding how many people are required for different production levels. For example, doubling the production of a department does not necessarily mean that twice as many employees will be needed. The unit manager is in the best position to know how many new positions will be needed to achieve the additional level of output. One of the major disadvantages of unit-demand forecasting is that collecting the necessary data requires the cooperation of a large number of people, and some people simply do not cooperate. Furthermore, the information sometimes cannot be aggregated meaningfully since each unit manager may have used slightly different assumptions.

Expert Opinion

Long-term employment needs can be forecast from the subjective estimates of experts. Expert opinions may come from a group or from a single individual, such as the human resource director or a long-range planning specialist. This form of forecasting is considered to be the least sophisticated approach to employment planning. Experts typically base their judgments on their own intuition or past experience, the opinions of others, or the economic and social conditions they observe.

One way to achieve greater confidence in the estimates of experts is to combine the opinions of many experts. Three methods for combining this information include pooling, group consensus, and the Delphi technique.


Estimates can be pooled by asking experts to submit their individual opinions and then simply averaging their estimates.

Group Consensus

A second method is to bring the experts together in a group discussion and ask them to achieve a consensus. Research on group decision-making suggests that the group consensus will probably be more accurate than pooling the separate estimates.

Delphi Technique

A third method is to use the Delphi technique, which consists of having experts provide their best estimates of the future through a series of questionnaires or interviews. This information is collected by a person called an intermediary, who summarizes it and then submits a report back to the experts. If any expert’s views are not consistent with the rest of the group, that expert is asked to justify why he or she thinks differently. This information is then collected by the intermediary and again circulated to all the experts in written reports. Written reports are used rather than face-to-face discussion because the reports are more convenient and less biased. They allow the experts to privately consider each other’s opinions.

Trend Analysis

When conducting a supply analysis to forecast employment needs, HR uses trend and ratio analyses. Past trends are used to indicate where the labor force is headed. In the past three to five years, what type of people are taking jobs at similar companies? Do newly hired employees tend to stay in their jobs or leave for another company?

Trend projections are based on the statistical relationship between a factor related to employment and the employment level itself. For example, in many organizations, employment needs are related to the levels of sales, production, or types of services provided. If such a relationship exists, the human resource planner can use the forecasted levels of sales, production, or services to estimate how many employees in each job category will be needed. Some form of informal trend projection is typically involved in the two techniques described previously—unit demand and expert opinion.

Identifying the most appropriate factor related to employment is a critical step in making trend projections. Sales levels may be the most appropriate factor for predicting employment levels in many organizations, although manufacturing firms may find that their employment levels are more closely associated with the number of units produced. The nature of an organization’s business must be considered in determining the most significant factor related to employment. For example, airlines may discover that their employment levels are most closely related to the number of flights, whereas nursing homes usually find that their employment levels are closely related to the number of patients.

Successful identification of the best factor involves a careful historical analysis of employment levels and the volume of business activity. Historical information can be used in several ways to develop trend projections. One method is a simple, long-run trend analysis. If the organization’s volume of business activity for the next five years is expected to continue at the same rate as the previous ten years, a simple linear extrapolation can be made to show the volume of business for each of the five years being forecast. Since employment levels are correlated with the volume of business activity, this linear extrapolation would also indicate how many employees in each job category will be needed.

Short-Term Forecasting

Short-term forecasting typically refers to predicting employment demands for a one-year period. However, short-term forecasts may be as long as two years for oil and steel companies and as short as three to six months for seasonal businesses, construction companies, or computer manufacturing firms. The responsibility for short-term forecasting usually belongs to the immediate supervisors and unit managers.


In many organizations, short-term employment forecasting is accomplished through the process of budgeting. Managers are expected to identify the kinds of resources that they will need for the upcoming business period. If they need additional personnel to fill new positions demanded by their unit’s objectives, then this information should be included in their budgets. The budget represents a plan of future business activity that includes financial and capital resources as well as human resource needs. Although managers are often irritated by the time required to develop a budget, this time is usually very well spent and can have an enormous impact on the success and effectiveness of their units.

The quality of short-term forecasts is heavily influenced by a manager’s ability to make accurate estimates. Although the forecasts are largely judgmental, various techniques have been developed to facilitate short-term forecasting. Some managers use rules of thumb for determining their staffing needs, such as having three technicians assigned to each repair crew or two sales clerks assigned to each cash register. Other managers base their staffing estimates on comparisons with similar units in other organizations.

Most business organizations rely on a “bottom-up” method of short-term forecasting in which unit managers identify their employment needs; however, an alternative method is a “top-down” approach. The top-down approach occurs when top managers place constraints either in terms of budget allocations or the number of employees and then require unit managers to plan their objectives given these constraints. This type of forecasting is often found in government agencies. Limited tax revenues may require governmental units to impose ceilings on spending, thereby forcing managers to decide which activities they can pursue given the limits. In this situation, the number of employees who can be hired determines how much work will be done, rather than having the amount of work determine how many employees to hire. Hence, the number of employees is constrained by available income.

Workload/Ratio Analysis

The most accurate method of short-term forecasting is to use information about the actual work content based upon a job analysis of the work that needs to be accomplished. This type of short-term forecasting, often called workload analysis, involves the use of productivity ratios to identify personnel needs. The workload analysis identifies both the number of employees and the kind of employees required to achieve the organizational goals.

The first step in workload analysis is to identify how much output the organization expects to achieve. This is then translated into the number of employee hours in each job category that will be required to achieve it. If the level of output is expected to change, the change in employment can be estimated by calculating how many employee hours will be needed. For example, a company that manufactures water beds and expects to increase sales by 20 percent in the coming year needs to analyze which activities will be influenced by the increase. Although the increased production level may not require additional clerical and managerial positions, the number of production jobs will need to increase. If it takes 2,000 employee hours per week of production time to produce the present number of water beds, then it would require 2,400 employee hours per week of production time to achieve a 20 percent increase. This increase of 400 employee hours per week would require ten additional production workers, assuming that each worker works a 40-hour week. A similar analysis must also be made for other activities influenced by the increasing demand for water beds.

Table 1.1
Short-Term Forecasting for a School District
Grade Ideal Teacher-Student Ratio Student Enrollment (Projected) Teachers (Projected)
Current Year Next Year Current Year Next Year
Kindergarten 1:18 962 960 54 54
First 1:20 914 962 46 48
Second 1:22 896 914 41 42
Third 1:24 945 896 40 37
Fourth 1:26 1,021 945 39 38
Fifth 1:28 968 1,021 35 38
Sixth 1:30 943 968 31 32
Total 6,649 6,666 286 287

In the table above, for example, the expected student enrollment for next year is shown for several grade levels. For grades in which the enrollment is expected to rise, more teachers will also be required in order to maintain an ideal teacher-student ratio. Fewer teachers are projected to be needed for grades whose enrollment is predicted to drop.

Some hospitals use a patient acuity system that is a form of workload analysis to measure the level of care patients will need and to plan for adequate staff. Law offices also use a workload analysis to determine how many legal assistants to hire. Legal assistants are not as expensive as lawyers and can perform many of the tasks lawyers would otherwise need to do.

An important consideration in both short-term and long-term forecasting is whether productivity will change; greater productivity per employee could reduce the demand for labor. Productivity changes due to experience and training can be forecast with some degree of confidence based upon previous experience with present employees. However, productivity improvements due to technological changes are much more difficult to forecast since managers do not know in advance whether new technological breakthroughs will be made. Regardless of how secure managers may feel in forecasting productivity changes, they should at least consider the possibility that productivity might change and anticipate how such a change might influence the demand for labor.

Gap Analysis

After supply and demand are evaluated, a gap analysis occurs. In a gap analysis, HR determines the “gap” between the current and the desired labor force. This gap can exist in terms of the number of employees (needed vs. desired) and in terms of skills and abilities (needed vs. desired). Essentially, HR asks the question, “Where are we now, and where do we want to be later?” This question is answered most accurately when HR conducts a thorough supply and demand analysis. Indeed, the more accurate the supply and demand analysis, the more accurate HR is in determining the true gap.

After an organization’s present workforce has been analyzed and future employment needs have been forecast, a careful analysis must be made of changes that need to occur in the employment levels in each job category. This analysis involves a comparison of the supply and demand for labor, as well as an assessment of how many employees will leave due to attrition. From this analysis, action plans are created and implemented.

Turnover Analysis

The accuracy of employment forecasts depends heavily on the accuracy of turnover forecasts. Knowing how many employees are expected to leave is as important as knowing how many new positions will be created.

Two processes are involved in estimating turnover levels: collecting historical information and analyzing economic trends. For most organizations, the turnover rates of previous years are the best indicators of future turnover. Consequently, an organization should collect historical information on the turnover levels for each year and analyze how the levels have changed. Separate turnover statistics should be computed for each job category. These estimates should then be adjusted for unusual economic conditions. Changes in unemployment rates usually cause inverse fluctuations in turnover rates—as unemployment goes up, turnover goes down.

When analyzing turnover, employees’ reasons for leaving must be identified. Turnover may be caused by any of these reasons: (1) retirement, (2) death or disability, (3) layoff, (4) discharge, (5) quiting, or (6) promotion within the company to another division. Although the turnover numbers may be quantitatively the same regardless of the reason, a significant qualitative difference exists among the reasons for turnover.

Little can be done about turnover caused by retirement. Although some organizations try to encourage early or delayed retirement, they generally are limited in the degree to which they can influence retirement decisions. Turnover caused by layoffs and discharge, however, is largely at the discretion of the organization. High turnover rates created by extensive layoffs can be reduced by careful employment planning and long-range business forecasting. Employees are usually discharged either for disciplinary reasons or because of incompetent performance. If an organization’s turnover levels are high because many employees are being discharged, the organization may need to improve both its selection procedures and its management by providing better training and supervision.

Employees usually quit when they have better job offers or when they dislike their present jobs. If several people quit because of unpleasant working conditions, the work environment needs to be examined and improved. However, not much can be done to eliminate competing alternatives from other organizations.

Promotions and transfers within an organization do not constitute a real form of turnover. Although promoted employees must still be replaced, most managers are proud to see their subordinates find better opportunities within the company.

Solution Techniques

After a gap analysis is conducted, HR must implement a solution technique. Here, HR develops and implements a plan to obtain the desired number of employees in a given time frame. How will HR increase the number of employees in the company? How will HR ensure the employees have the desired skills and abilities that align with the goals of the organization? HR develops a strategic plan to help make sure the business is in the best place it needs to be.

Solution analysis examines how an organization can get what it needs (within budget constraints) by using the “build,” “buy,” or “borrow” strategies. During solution analysis, an organization decides whether to “build,” “buy,” or “borrow” talent needed to attain the staffing levels and KSAs (knowledge, skills, and abilities) required to meet organizational objectives:

HR can “build” its own solution technique by developing one from scratch. By doing this, HR is able to craft a plan tailor-made to the company’s own “gap.” However, this can be a time-consuming process. HR can “buy” a solution technique by hiring consultants to help. Although this may cut down on time, it can be costly. HR can also “borrow” a solution technique by benchmarking and using techniques implemented by competitors.

  • Building - Redeploying, training, and developing the current workforce to meet the future needs of the organization.

  • Buying - Recruiting and hiring employees.

  • Borrowing - Outsourcing, leasing, and contracting with others to get the work done.

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