Forecasting—whether it’s business forecasting, human resources forecasting, or financial forecasting—is the process of using data, insights, analytics, and experience to make predictions and preparations to meet a specific business need. According to the Institute of Business Forecasting and Planning, “whether you realize it or not, virtually every business decision and process is based on a forecast.”
Human resources or HR forecasting is an important activity for growing businesses. To be successful, growth-oriented businesses should periodically assess short- and long-term staffing needs based on projected sales, new product launches, market expansion, as well as other factors that might affect labor needs. An HR forecast should include the number of workers needed, the type of skills required to fill any gaps, and any costs or administrative tasks that will be required to increase or downsize your workforce.
Find out what growth-oriented businesses need to know about HR forecasting and practical steps you can take to ensure your business is ready to scale the size of its workforce to meet changing market conditions.
The basics of human resource forecasting
Just as a business plans for financial growth, it’s also important to plan for the growth of a workforce. HR forecasting is the process of predicting demand and supply—whether it’s the number of employees or types of skills that are needed and available to get the job done. Basic forecasting techniques include:
Yearly sales or production projections.
Quantitative assessments, using mathematical calculations, that examine how many employees are needed and when.
Qualitative assessments, based on judgment, that determine culture-fit and skill qualifications or desired personal and professional qualities.
Existing businesses that have been operating for several years can also conduct a trend analysis to create a staffing plan for the future. A trend analysis allows business leaders to examine the relationship between past and future staffing needs using an operational index metric. Newer businesses are advised to use a ratio analysis to forecast staffing needs. Using this technique, business leaders examine causal factors such as sales volume to predict staffing needs.
Why you need to evaluate labor supply and demand
The most successful businesses utilize human resource forecasting to minimize risk. It’s especially important for growth-oriented businesses to “limit exposure to surpluses or shortages in labor.” Entrepreneurs, owners, and business leaders can use strategic human resource forecasting and planning to better understand workforce needs. As you evaluate labor demand, your workforce may already have skills you can tap into as the business grows or you may find a need to augment or renew technology skills. Your business can meet labor demand from within, or use outside labor supply sources. As you build your HR forecast, it’s important to thoroughly review talent supply and factors impacting the availability of that talent. As Investopedia points out, it’s often more costly to recruit new hires than to upskill or train existing employees to increase productivity.
Some businesses need or want to invest all of its time and energy on growth. That’s why many businesses rely on HR services to help forecast labor demand and supply. HR services can create organization and replacement charts that help identify important roles and functional needs across your business. Supply forecasting includes a review of the current labor market and employment law to ensure your business is both competitive and compliant.
Other benefits of HR forecasting
To drive business growth and success, you need the right talent behind you. HR forecasting enables your business to determine skill requirements, evaluate demand, assess labor supply, understand workforce needs, and develop a strategy to meet your goals and growth objectives. In addition to effectively balancing labor demand and supply, HR forecasting emboldens your business to:
Develop effective budgets – By determining your workforce requirements, you also put your business in a better position to forecast costs. To meet your business goals, you may need to hire seasonal workers or increase salary levels to retain top talent. Benefits costs may increase as well. HR forecasting provides insight into those predicted workforce expenses so you can accurately plan for overall human capital costs.
Make more detailed workforce predictions – Beyond helping your business meet evolving needs for new skills, production, and productivity, HR forecasting also emboldens you to gain deeper insight into your workforce. HR forecasting and analysis helps you predict turnover related to retirement or market competition. It can also help you analyze how business strategy changes will impact your workforce including production of a new product, change in target audience, or the introduction of new employment or manufacturing regulations.
Forecast HR needs regularly – Business conditions are constantly changing, which means your workforce is too. To effectively meet your HR needs, it’s important to review talent requirements on an ongoing basis. For example:
If your business manufactures a product, labor needs will change as sales rise and fall. Your business may see seasonal demand for that product, or other changes in consumer demand. In this case, HR and sales forecasting should work together to identify sales spikes or declines that will affect production and labor needs. Analyzing these forecasts regularly can minimize the risk your business might fall behind on production and order fulfillment, produce too much inventory, or pay a bloated workforce.
Get help with HR needs and strategy
Growth-oriented businesses can bring in fully certified HR professionals to help with strategic HR planning and forecasting. Fully outsourced HR is built for growing companies that haven’t yet built an in-house HR team or instead want to focus time and money on the core business. HR services provide services and support for the entire employee lifecycle. With a team of HR experts on your side, you’ll have access to tools, resources, and manpower needed to complete essential HR projects including HR forecasting, salary benchmarks, job descriptions, and training programs.