The prime concern within traditional or ‘hard’ HRP relates to balancing the demand for and the supply of human resources. Demand reflects an organisation’s requirements for human resources while supply refers to the availability of these resources, both within the organisation and externally.
Key stages within the traditional HRP process are largely derived from the techniques associated with manpower planning. The approach can be depicted in a number of different ways (see, for example, Armstrong, 2001;
Bramham, 1988; Torrington et al., 2002) but the models have a number of key features in common. All are essentially concerned with forecasting demand and supply and developing plans to meet any identified imbalance resulting from the forecasts. The Bramham model has proved to be one of the most influential. It was initially devised in 1975 and the basic structure is still relevant, albeit with minor modifications, for example by Pilbeam and Corbridge (2002). This is the model used in this chapter as a framework for the key stages of traditional HRP; see Figure.
The process of human resource planning
Investigation and analysis
This stage is not explicit in all models but, arguably, those responsible for human resource planning need to know something about the current situation in order to assess the extent to which it is likely to alter or be affected by future developments.
This can help to ensure that the organisation is making most effective use of existing resources and can identify any potential problem areas; for example, if the composition of the workforce does not reflect the local community or if the organisation is not fully utilising the skills it has available. Movement through the organisation can also be investigated by tracking promotions, transfers and the paths of those in more senior positions.
Analysis and investigation can potentially cover a broad range of issues as the external supply of labour can be affected by a number of factors. A number of factors can influence the availability of people and skills at both local and national level, for example:
Data can be gathered to provide a snapshot of the current situation within the organization in order to identify current strengths and weaknesses. Information on organisational performance can include productivity and service levels, turnover and profitability and these may be measured at organisational, unit or department level. Analysis may also relate to ways in which human resources are currently managed, e.g. the extent to which the current workforce structure, job design and reward systems enhance or restrict productivity and performance levels.
Whereas corporate capability is primarily concerned with the current situation in the organisation, corporate strategy focuses on future direction. Factors to be considered here might include the organisation’s stage in its life cycle (see, for example, Kochan and Barocci, 1985); plans for consolidation or diversification; mergers, acquisitions and key organisational objectives. Each of these factors is likely to have some impact on the numbers and types of human resources required in the future. For example, a common consequence of mergers is for the rationalisation of merged activities to lead to a significant number of redundancies (CIPD, 2000).
The next stage in the process involves predicting how the need for and availability of human resources is likely to change in the future. Demand and supply forecasting can involve quantitative and qualitative techniques and the most popular approaches are outlined below.
Demand forecasting is concerned with estimating the numbers of people and the types of skills the organisation will need in the future. There are three main approaches to demand forecasting: objective methods, subjective methods and budgets.
Objective methods identify past trends, using statistical and mathematical techniques, and project these into the future to determine requirements. Three methods frequently referred to in the literature are time trends, ratio analysis and work study. Time trends consider patterns of employment levels over the past few years in order to predict the numbers required in the future. This can be undertaken either for the organisation as a whole or for sub-groups of employees.
It can also be used to identify cyclical or seasonal variations in staffing levels. Ratio analysis bases forecasts on the ratio between some causal factor, e.g. sales volume, and the number of employees required, e.g. sales people (Dessler, 2003). Work study methods break jobs down into discrete tasks, measure the time taken to complete each component and then calculate the number of people-hours required. The effectiveness of this approach is largely determined by the ease with which the individual components of jobs can be measured.
For many jobs, e.g. knowledge workers, this is extremely difficult and therefore work study will only be appropriate in certain circumstances. Even when it is appropriate, care has to be taken to avoid manipulation of timings by either employee or employer. One of the major criticisms levelled at objective methods is that they are based on assumptions of continuity between past, present and future and are therefore only appropriate if the environment is relatively stable and productivity remains the same.
In less stable environments, supplementary data on the causes of particular trends are necessary to distinguish between changes that are likely to recur and those that are not. Alternatively, past data can be used as a starting point and then amended to reflect potential or real productivity improvements.
The most common approach used in demand forecasting is managerial judgement, i.e. managers estimate the human resources necessary for the achievement of corporate goals. Estimates are likely to be based on a combination of past experience, knowledge of changing circumstances and gut instinct. The approach is more flexible and adaptable than objective methods but is inevitably less precise. There is also a danger that forecasts will be manipulated due to organisational politics and ‘empire building’.
For example, managers may inflate estimates of future requirements because they want to increase the size of their department (and thus possibly protect or improve their own position) or because they expect that estimates will be cut and want to secure at least some improvements in staffing levels. A more systematic use of the subjective approach is via the Delphi technique. A group of managers make independent forecasts of future requirements. The forecasts are then amalgamated, recirculated and managers then modify their estimates until some sort of consensus is reached.
The process can help to minimise problems of manipulation in forecasts produced on an individual basis but, although the literature frequently refers to the technique as a common approach, empirical data suggest that it is rarely used in practice (Torrington et al., 2002).
In this method the starting point is not past data but future budgets, i.e. what the organization can spend if profit and market targets are met. According to Bramham (1988: 59), this is an extremely attractive approach: ‘it has the supreme advantage that, in working from the future to the present, the manager is not necessarily constrained by past practices’. However, future budgets are likely to be determined, at least in part, by assumptions about changes to past and current performance and are still reliant on the accuracy of predictions.
These different approaches to demand forecasting can be combined to provide more comprehensive forecasts. So, for example, objective methods may be used to give an indication of future requirements but projections can then be modified by managerial judgement or to take account of budgetary constraints. Similarly, estimates based on ratio data may be adjusted to take account of productivity improvements resulting from new working methods or the introduction of new technology.
Forecasts of internal supply are based primarily on labour turnover and the movement of people within the organisation. As with demand, the process for forecasting supply uses a combination of quantitative and qualitative techniques.
Measuring labour turnover – quantitative methods
The most common method of measuring labour turnover is to express leavers as a percentage of the average number of employees. The labour turnover index is usually calculated using the following formula:Number of leavers in a specified period–––––––––––––––––––––––––––––––––––––––––––– × 100%Average number employed in the same period
This measure is used most effectively on a comparative basis and frequently provides the basis for external and internal benchmarking. Labour turnover can vary significantly between different sectors and industries; for example, a recent survey into labour turnover (CIPD, 2002a) reports that the average turnover rate in the UK is 26.6 per cent but this varies from 56 per cent in wholesale and retail to 11 per cent in transport and storage.
There is no single best level of labour turnover so external comparisons are essential to gauge whether rates in an organisation are out of line with others in the same industry or sector (IRS, 2001a). However, even organisations with lower than average turnover rates can experience problems if people have left from critical jobs or from posts that are difficult to fill. Conversely, high turnover is not necessarily problematic. In circumstances where an organisation is seeking to reduce costs or reduce the numbers employed a high turnover rate might prove very useful (Sadhev et al., 1999).
The main limitation of the labour turnover index is that it is a relatively crude measure that provides no data on the characteristics of leavers, their reason for leaving, their length of service or the jobs they have left from. So, while it may indicate that an organization has a problem, it gives no indication about what might be done to address it.
Company A has 200 employees. During the year 40 employees have left from different jobs and been replaced. The turnover rate is 20%. Company B also has an average of 200 employees. Over the year 40 people have left the same 20 jobs (i.e. each has been replaced twice). The turnover rate is also 20%. Limitations about the location of leavers within an organisation can be addressed to some extent by analysing labour turnover at department or business unit level or by job category. For example, managers generally have lower levels of resignation than other groups of employees (IRS, 2001a).
Any areas with turnover levels significantly above or below organisational or job category averages can then be subject to further investigation. Most attention is levelled at the cost and potential disruption associated with high labour turnover. CIPD survey data (2002a) estimates the average cost per leaver to be £3933 a year, increasing to £6086 for managers. However, low levels of labour turnover should not be ignored as they may be equally problematic.
Low labour turnover can cause difficulties as a lack of people with new ideas, fresh ways of looking at things and different skills and experiences can cause organisations to become stale and rather complacent. It can also be difficult to create promotion and development opportunities for existing employees. Nevertheless, many organisations are keen for some levels of stability. While the labour turnover index focuses on leavers, the stability indexfocuses on the percentage of employees who have stayed throughout a particular period, often one year.
This therefore allows organisations to assess the extent to which labour turnover permeates the workforce. The formula used to calculate stability is:Number of employees with 1 year’s service at a given date–––––––––––––––––––––––––––––––––––––––––––––––––––––––– × 100%Number employed 1 year ago
This can be a useful indicator of organisational stability but does require a pre-set decision about a relevant period for which it is important to retain staff. To return to our earlier example: Company A has 160 employees with more than one year’s service and has a stability rate of 80%. Company B has 180 employees with more than one year’s service and has a stability rate of 90%. As with demand forecasting, labour turnover and stability indices are frequently used to project historical data into the future.
So, for example, if an organisation identifies an annual turnover rate of 8 per cent it may build this into future projections of available supply. Alternatively, managerial judgement may predict a reduction or an increase in turnover rates in the light of current circumstances and forecasts can be adjusted accordingly. More data on the length of service of leavers can be provided through the census method. This is essentially a ‘snapshot’ of leavers by length of service over a set period, often one year.
Length of service has long been recognised as an influential factor in labour turnover. Hill and Trist (1955)identified three phases in labour turnover, the ‘induction crisis’, ‘differential transit’ and ‘settled connection’. People are more likely to leave during the first few months, as the relationship between the individual and the organisation is unsettled and insecure, and less likely to leave the longer they are in the organisation. The census method can help to identify patterns of leavers and any key risk periods.
Another way of investigating the relationship between labour turnover and length of service is to consider the survival rate, i.e. the proportion of employees recruited in a specific year who are still with the organisation at a certain later date. So, for example, plotting the survival rate of a cohort of 30 graduate trainees might show that 12 remain with the organisation after five years, giving a survival rate of 40 per cent. It is also common to measure the half-life of a cohort, i.e. the time taken for the cohort to reduce to half its original size.
Both survival rates and half-life measures can be useful for identifying problem periods and for succession planning purposes. The major drawback with all quantitative methods of turnover analysis is that they provide no information on the reasons why people are leaving. So, for example, the census method may show that the highes proportion of people leave in the first six months but the information on its own does not show whether this is due to poor recruitment or induction practices, the nature of the job, management style or other factors.
Thus, quantitative analyses can help to highlight problems but they give those responsible for planning no indication about how these problems might be addressed. Measuring labour turnover – qualitative methods
Investigations into reasons for turnover are usually undertaken via qualitative analysis. Popular methods include exit interviewsand leaver questionnaires. Exit interviews are normally conducted soon after an employee has resigned.
The benefits of exit interviews are that they can investigate reasons for leaving, identify factors that could improve the situation in the future and gather information on the terms and conditions offered by other organisations. Generally, exit interviews collect information on the following (IRS, 2002a):
There can also be a number of problems. The interview may not discover the real reason for leaving, either because the interviewer fails to ask the right questions or probe sufficiently or because some employees may be reluctant to state the real reason in case this affects any future references or causes problems for colleagues who remain with the organisation, for example in instances of bullying or harassment. Conversely, some employees may choose this meeting to air any general grievances and exaggerate their complaints.
Some organisations collect exit information via questionnaires. These can be completed during the exit interview or sent to people once they have left the organisation. They are often a series of tick boxes with some room for qualitative answers. The questionnaire format has the advantage of gathering data in a more systematic way which can make subsequent analysis easier. However, the standardisation of questions may reduce the amount of probing and self-completed questionnaires can suffer from a low response rate.
Reasons for leaving can be divided into four main categories:
Attention is usually concentrated on leavers in the voluntary, controllable category as organisations can do something to address the factors causing concern. However, distinctions between controllable and uncontrollable factors can become blurred. For example, in some instances, advances in technology and greater flexibility can facilitate the adoption of working methods and patterns to accommodate employees’ domestic circumstances, while the ‘reasonable adjustments’ required under the Disability Discrimination Act can reduce the numbers of people forced to leave work on health grounds.
The involuntary category is also worthy of attention as high numbers of controlled leavers can be indicative of organisational problems, e.g. a high dismissal rate might be due to poor recruitment or lack of effective performance management, while a high redundancy rate might reflect inadequate planning in the past. While exit interviews or leaver questionnaires can provide some information about why people are leaving, they do not necessarily get to the root of the problem.
For example, someone might say that they are leaving to go to a job with better pay but this does not show what led the person to start looking for another job in the first place. In order to produce human resource plans that address labour turnover problems, organizations need to differentiate between ‘push’ and ‘pull’ factors. The former relate to factors within the organisation (e.g. poor line management, inadequate career opportunities, job insecurity, dissatisfaction with pay or hours of work) that weaken the psychological link between an individual and their employer (IRS, 2001a).
Once an individual has decided to look for another job they are likely to base their decision on ‘pull’ factors, i.e. the attractions of the new job or organisation in relation to their existing circumstances. A report from the HR benchmark group (cited in IRS, 2002a) listed the top five factors affecting an employee’s decision to stay or leave an organisation as:
One way to identify the key ‘push’ factors is to conduct attitude surveys within the organisation. Over half of respondents to a recent survey (IRS, 2002a) use surveys to gather data that can be used to address labour turnover. Attitude surveys have an advantage over exit interviews and leaver questionnaires in that they can identify potential problems experienced by existing employees rather than those that have already decided to leave. This means that any response can be proactive rather than reactive.
However, it also means that organisations can make problems worse if they do not act on the findings. ‘Telling employees that an organisation cares enough to get their opinion and then doing nothing can exacerbate the negative feelings that already existed, or generate feelings that were not present beforehand’ (IRS, 2002a: 40). The final method to investigate labour turnover to be discussed here is risk analysis. This involves identifying two factors: the likelihood that an individual will leave and the consequences of the resignation (Bevan et al., 1997). Statistically, people who are younger, better qualified and who have shorter service, few domestic responsibilities, marketable skills and relatively low morale are most likely to leave (IRS, 2001b).
The consequences of any resignations are likely to be determined by their position in the organisation, performance levels and the ease with which they can be replaced. The risk analysis grid (Bevan, 1997) shows how the two factors can be combined . This then enables the organisation to target resources or action at the people it would be most costly to lose. Within human resource planning literature most attention is concentrated on forecasts of people joining and leaving the organisation but internal movement is also a key factor in internal supply.
Techniques to analyse movement of employees within an organisation are potentially more sophisticated than the techniques for analyzing wastage rates but the most sophisticated tools, e.g. Markov chains and renewal models, are rarely used (Torrington et al, 2002). A simpler approach is to track employee movement to identify patterns of promotion and/or lateral mobility between positions as well as movement in and out of the organisation or function, see Figure. In many respects forecasting is the key stage of traditional human resource planning.
A combination of quantitative and qualitative methods can be used to determine the organisation’s future requirements and the availability of human resources. Therefore much hinges on the accuracy of forecasting but there are a number of potential problems that can affect the reliability of any predictions. The first issue here is the difficulty of relying on past data to cope with a volatile and uncertain environment. Recent examples of significant discontinuities include the foot and mouth epidemic in the UK and the terrorist attacks in New York on 11 September 2001. Both events were largely unforeseen and both had significant impact on certain industries, e.g. foot and mouth affected farming and tourism in the UK and the terrorist attacks severely affected the airline industry. Other problems can include the lack of reliable data, the manipulation of data for political ends and the low priority given to forecasting in many organisations.
Human resource plans
The likely results of forecasting activity are the identification of a potential mismatch between future demand and supply. If future demand is likely to exceed supply, then plans need to be developed to match the shortfall but if future supply is likely to exceed demand, then plans need to be developed to reduce the surplus. A number of options are illustrated in Figure. While the detailed content of action plans will be determined by the nature of the imbalance between demand and supply and HR and corporate objectives, they are likely to cover at least some of the following areas:
Risk analysis grid
Employee ‘movements’ in an organisation
Reconciling demand and supply
If supply exceeds demand:
The scope and content of plans are also influenced by the time-scales involved. Schuler (1998) suggests that the main phases of HRP should be undertaken for three different time horizons – short term (1 year), medium term (2–3 years) and long term (3 years+). Advocates of human resource planning argue that the process helps to ensure vertical and horizontal integration, i.e. the alignment of human resource policies and practices with corporate goals and with each other.
So, for example, plans to address supply shortages by altering selection criteria can influence the type of training required, the level of pay and reward offered to existing and prospective employees and the way the employment relationship is managed. However, in practice the situation is likely to be complicated by the fact that the balance between demand and supply may vary in different parts of the organisation; for example, supply shortages may be identified in some areas while surpluses are predicted in others.
The development of action plans can potentially help to ensure that managers are aware of significant inconsistencies. The adoption of a more holistic approach can therefore reduce some of the problems associated with these complexities; for example, an organisation may need to recruit some staff at the same time as it is making others redundant but knowledge of this can help to ensure that both activities are handled sensitively.
Implementation and control
The final stage of the traditional HRP process is concerned with implementation of HR plans and evaluation of their overall effectiveness. This stage of the model tends to be rather neglected in the literature but there is little point in developing comprehensive plans if they are not put into practice. Implementation of plans is likely to involve a number of different players, including line managers, employee representatives and employees, but the extent of involvement can vary considerably.
The shift towards ‘softer’, more qualitative aspects of human resource planning places far more emphasis on the need to involve employees throughout the process (e.g. through the use of enhanced communication and tools such as attitude surveys) than is apparent in a ‘harder’ focus on headcount. Control relates to the extent to which the planning process has contributed to the effective and efficient utilisation of human resources and ultimately to the achievement of corporate objectives. The IPM (now CIPD) suggests three criteria for evaluating the effectiveness of the HRP process (IPM, 1992):
This latter point emphasises the need for the constant review and modification of human resource plans in the light of changing circumstances. One of the main criticisms levelled at traditional approaches to HRP has been the inflexibility of plans resulting from the extrapolation of past data and assumptions about the future. The emphasis on flexibility is much more explicit in later models of HRP as the purpose of HRP has become less concerned with ensuring continuity and more on enabling organisations to adapt within unpredictable environments.
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