Demand And Supply Forecasting 404625

Demand and Supply Forecasting: Factors and Methods Article shared by

Read this article to learn about the factors and methods of demand and supply forecasting!

Demand Forecasting: Demand forecasting is a quantitative aspect of human resource planning. It is the process of estimating the future requirement of human resources of all kinds and types of the organisation.

Factors: Forecasting of demand for human resources depends on certain factors such as: (1) Employment trend in the organisation for at least last five years to be traced to determine the future needs. MENTS:

(2) Organisation has to find out the replacement needs due to retirement, death, resignation, termination etc. (3) Improvement in productivity is yet another factor. To improve productivity organisation needs better employees with skills and potential. Productivity leads to growth but depends on the demands for the product of the enterprise in the market. Higher demand may lead to more employment of skilled personnel’s. (4) Expansion of the organisation leads to hiring of more skilled persons. The base of human resource forecast is the annual budget. Manufacturing plan depends upon the budget. Expansion in production leads to more hiring of skills and technology.

Methods of Demand Forecasting: There are three major methods of demand forecasting. They are as follows. MENTS:

(1) Executive Judgment:

Executive or Managerial Judgment method is the most suitable for smaller enterprises because they do not afford to have work study technique. Under this method the executives sit together and determine the future manpower requirements of the enterprise and submit the proposal to the top management for approval. This approach is known as ‘bottom up’ approach. Sometimes the of top management sit together and determine the needs on the advice of personnel department. The forecasts so prepared sent for review to the departmental heads and after their consent approved the need. This is known as ‘top down’ approach. The best way is the combination of the two approaches. Executives at both levels equipped with guidelines sit together and determine the human resources need of the organization. (2) Work Load Forecasting: MENTS:

It is also known as work load analysis. Under this method the stock of workload and the continuity of operations are determined. Accordingly the labour requirement is determined. The workload becomes the base for workforce analysis for the forthcoming years. Here due consideration is given to absenteeism and labour turnover. This method is also known as work study technique. Here working capacity of each employee is calculated in of man-hours. Man-hours required for each unit is calculated and then number of required employees is calculated. The example is given below: (a) Planned annual production = 2, 00,000 units (b) Standard man-hours required for each unit = 2 Hours MENTS: (c) Planned man-hour needed for the year (a x b) = 4, 00,000 hrs.

(d) Planned annual contribution of an employee = 2000 hrs. (e) No. of employees required ————- (c/d) = 4, 00,000/2000 = 200 This method is useful for long term forecasting. (3) Statistical Techniques: Long range demand forecasting for human resources is more responsive to statistical and mathematical techniques. With the help of computers any data is rapidly analyzed. The following are the methods of forecasting used under this category: (a) Ratio Trends Analysis: Under this method the ratios are calculated for the past data related to number of employees of each category i.e. production, sales and marketing levels, work load levels. Future production and sales levels, work load, activity levels are estimated with an allowance of changes in

organization, methods and jobs. The future ratios are estimated. Then future human resources requirement is calculated on the basis of established ratios. This method is easy to understand. Value depends upon accuracy of data. (b) Econometric Models: Econometric models are built up on the basis of analysis of past statistical data establishing the relationship between variables in a mathematical formula. The variables are those factors such as production, sales, finance and other activities affecting human resource requirement. Econometric model is used to forecast human resource requirements based on various variables. (c) Bureks Smith Model: Elmer Bureks and Robert Smith have developed a mathematical model for human resource forecasting based on some key variables that affects overall

requirement for human resources of the organisation. They have given an equation. En = (Lagg + G) 1/x/ y Where En = Estimated level of demand for employees Lagg = Turnover or overall current business activity G = Total growth in business activity anticipated thought period ‘n’ in term of rupees x = Average productivity improvement from today thought planning period. y = Conversion figure relating today’s overall activity to required employees. This method is used when the values of G, x and y are accurate. To obtain the values of G, x and y different statistical techniques are used. (d) Regression Analysis: Regression analysis is used to forecast demand for human resources at some point of time in future by using

factors such as sales, production services provided etc. This method is used when independent and dependent variables are functionally related to each other. Nowadays computers are used to solve regression equations for demand forecasting.

Supply Forecasting: Supply forecasting means to make an estimation of supply of human resources taking into consideration the analysis of current human resources inventory and future availability.

Existing Inventory: The first step in supply forecasting is to take a stock of existing HR inventory as follows. (a) Head Count: Count of the total number of people available department-wise, sex- wise, designation-wise, skill-wise, pay roll-wise etc. (b) Job Family Inventory:

It consists to number and category of employees of each job family i.e. the jobs related to same category like office staff, sales and marketing staff, production staff, maintenance and industrial engineers, quality control engineers etc. (c) Age Inventory: It consists of age-wise number and category of employees. This gives us age composition of human resources. Dynamism, creative abilities innovativeness is present in young employees while making of proper judgment and display of maturity is shown by elderly employees. Organisations prefer both young and old employees. Human resource planning should give due consideration to age-wise human resource mixing young and old employees in due proportions. (d) Inventory of skill, experience, values and capabilities:

Organisation should take a stock of present inventory of skill, employees with number of years of experiences (10 yrs, 15-yrs, 20 yrs and more etc.), values and capabilities. (e) Inventory of Qualifications and Training: This consists of educational qualifications of the employees academic and technical and special qualifications if any and the training received by the employees. (f) Inventory of Salary grades: This includes pay and allowance-wise and total emoluments-wise stock taking. (g) Sex wise Inventory: Inventory of male and female employees of the organisation. (h) Local and Non-Local-wise Inventory:

It includes the stock of local employees and the employees belonging to other areas such as different states of India. (i) Inventory of Past Performance and Future Potentialities: There are several human capacities or potentials required for performing jobs at the workplace. Requirement of these along experience need to be taken into consideration while taking stock of human resource inventory.

Labour Wastage: Labour wastage should be taken into while making future forecast and find out the reasons of people leaving the organisation. Action can be taken to arrest the labour wastage and replacement of uncontrollable losses. HR manager must know how to make wastage analysis. For measuring permanent total loss due to labour the following labour turnover formula is used.

Labour Turnover Rate = Number of Employees left specified period (Say one year)/ Average Number of Employees during the same period x 100 HR Managers have to calculate the rate of labour turnover, conduct exit interviews etc. This helps them forecast, the rate of potential loss, causes of loss etc. The steps can be taken to reduce loss. HR Manager can calculate labour stability index by using the formula given below. Labour Stability Index = Number of Employees with one year’s service or more / Number of Employees one year ago x 100 By knowing all these labour instability can be arrested and labour turnover can be minimised. The potential losses can be classified as permanent total loss, permanent partial loss, Temporary total loss and Temporary partial loss. Let us analyse these losses. (a) Permanent Total Loss:

Permanent total loss is due to deaths, voluntary quits retirement, dismissals, retrenchment, and promotions out, demotions and transfers out. This can be filled in by new recruits, promotions in and transfers in. (b) Permanent Partial Loss: Permanent partial loss is due to loss of some skills, potentials and capabilities because of ill health or accidents. To get rid of this loss organisation can acquire new skill, knowledge, values, and aptitudes among the existing employees by providing adequate and necessary training. (c) Temporary Total Loss: Temporary total loss is due to loss of aptitudes, values, change in outlook and attitude of existing employees towards their jobs, department and organisation. Absenteeism is also a reason for this. This can be prevented by taking steps to minimize absenteeism to forecast loss of human resources due to it. Attitude of the employees towards organisation can be improved by

knowing the causes of change and making efforts to remove those causes. (d) Temporary Partial Loss: This loss is due to consultancy or advice offered by the employees of the organisation to others. This loss of labour hours has to be there because many organisations encourage this practice as there is revenue to the organisations also. If you think of revenue obtained by the organisations this loss to some extent is subsided. But these organisations not claiming from the fees or commission received by the employees, this loss is cognizable. After forecasting potential loss, potential additions are also to be taken into .

Potential Additions: Potentials added to the present inventory of human resources minimize the impact of potential losses. Potential additions are of following types:

(1) Permanent total: Permanent total additions are due to new recruitment, promotions granted to juniors, transfer effected from one department to another. (2) Permanent Partial Additions: These consist of acquisitions of new skills, knowledge, by the present employees. This will increase the stock of human resources in the organisation. (3) Temporary Total Additions: These consist of deputation of employees from other organisations. This will temporarily make additions to the stock of human resources. (4) Temporary Partial Additions: These come to the organisation through the consultancy and advice by the employees of other organisations.

Sources of Supply:

Estimation of supply of human resources depends upon internal and external sources. Internal Factors: Internal source of supply of human resources include the output from established training programme for employees and management development programmes for executives and the existing reservoirs of skills, potentials, creative abilities of the organisation. External Factors: External factors can be grouped into local and national factors. (a) Local Factors: Local factors include the following: (1) Population densities within the reach of enterprise. (2) Current and future wage and salary structure from other employers. (3) Local unemployment level.

(4) Availability of employees on part time, temporary and casual basis. (5) The output from local educational institutions and training institutions managed by government and private establishments. (6) Local transport and communication facilities. (7) Availability of residential facilities. (8) Traditional pattern of employment locally and availability of human resources with requisite qualifications and skills. (9) The pattern of migration and immigration. (10) The attraction of the area as a better place to reside. (11) The attraction of a company as a better workplace and company as a good paymaster. (12) The residential facilities, educational health and transport facilities.

(13) The regulations of local government in respect of reservation of backward and minorities communities. (b) National Factors: National factors include the following: (1) Trends in growth of working population of the country. (2) National demands for certain categories of human resources such as technical and management professionals, computer professionals, medical practitioners, technicians, secretaries, craftsmen, graduates etc. (3) The output from universities, technical and professional institutions. (4) Impact of changes in educational patterns. (5) Cultural patterns, social norms and customs. (6) Impact of government training schemes.

(7) Impact of government policies in respect of employment regulations. (8) Migration and immigration patterns. (9) Impact of national educational facilities. The net human resource requirement depends upon the human resource requirement of the organization for future i.e. demand forecasting and the total supply of human resources available.