The second step of the human resource planning process involves an analysis of future organisational or personal capabilities. Capabilities include the skill level of employees, productivity rates and number of employees, etc. In the past, more emphasis was on predicting the number of employees of human resource supply the company was likely to have in the future. Organisations may use varieties of procedures to estimate the supply. These procedures are generally categories as either quantitative which use mathematical or statistical procedures or qualitative which use subjective judgement approaches.

The quantitative procedure generally uses past information about job categories and the number of people retiring, being terminated, leaving the organisation voluntarily and being promoted. One of the most well known quantitative procedures is the Markov analysis. This technique uses historical rates of promotion, transfer and turnover to estimate future availabilities in the workforce. Based on the past abilities, one can estimate the number of employees who will be in various positions within the organisation in the future. Qualitative or judgemental approaches are much more popular in forecasting human resource supplies. Among the most frequent used methods are replacement planning, succession planning and vacancy analysis. Replacement planning evolves an assessment of potential candidates to replace existing executives and other top level managers as they retire or leave for other organisations. Succession planning is similar to replacement planning, except that it is more long term and developmentally oriented. Finally, vacancy analysis is much like the Markov analysis, except that it is based on managerial judgements of the probabilities. If knowledgeable experts provide estimates, vacancy analysis may be quite accurate.

In recent years, organisations have become concerned with a broader range of issues of future capabilities. For example, organisations have begun to estimate their future productivity levels. Towards this end, bench marking is a technique that has become popular. Bench marking involves comprising an organisation’s human resource practices and programmes to other organisations.

Although bench marking often focuses on an organisation’s competitors, best practices bench marking focuses on the programmes and policies used by outstanding organisation. For example, Federal express, leadership evaluation system, employee survey programme and total quality management efforts are frequently studied by other organisations because of their reputations.

In this step, the organisation must determine what is human resource needs will be in the future. This includes the number of employees that will be needed, the types of skills that will be required. Productivity rates needed to complete successfully. There are methods for examining the future number of employees; also several procedures are there for predicting the number of employees needed in the future. This is referred to as the human resource demand two basic approaches or estimating human resource demand are qualitative and quantitative methods.

Two quantitative techniques for estimating human resource demand are ratio analysis and regression analysis. Ratio analysis involves comparing the number of employees to some index of work load. If your organisation was planning its future training and development (T&D) staffing demand in five years, you could estimate the number of employees likely to be employed by the company in five years. And then use this ratio to determine the number of T&D employees needed in given years. For example, if your company was expecting to have 5,000 employees in five years, this ratio would suggest that around 21 T&D employees would be needed.

Regression analysis relies on factors or predictors that determine the demand for employees, such as revenues, degree of automation, and so forth. Information on these predictors from past years, as well as the number of workers employees in each of these years is used to produce an equation or formula. The organisation can then enter expected figures for the predictors, such as revenues and degree of automation into the formula to obtain an estimated number of employees needed in future years.

Regression analysis is more sophisticated than ratio analysis and should lead to more accurate predictions of employee demand. Although both procedures are widely used, they have their weaknesses. A major weakness is the factors that were related to workforce size may not be relevant factors in future years.

Turning now to qualitative tools for estimating the demand for employees, the most common tool is the bottom-up forecast where department managers make estimates of future human resource demands based on issues, such as new positions needed, positions to be eliminated or not filled, expected overtime hours to be worked by temporary, part-time or independent contractor employees and expected changes in workload by department. Like any other technique, bottom-up forecasting has its shortcomings. For instance, line managers may overestimate the demand in order to ensure that they don’t find themselves understaffed.

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