Chapter 5

Determining HR Demand
Chapter Learning Outcomes 

• Understand the importance of demand forecasting in the HR planning

process 
• Recognize the linkages between the HR plan, labour demand
forecasting techniques, and the subsequent supply stage
•
Compare and contrast the advantages and disadvantages of various
demand forecasting techniques, including quantitative, qualitative,
and blended tecniques
Forecasting Demand
• Firm's future need for human capital, the types of jobs, and the
number of positions that must be filled for the firm to implement its
strategy
Quantitative Methods
• Trend analysis 
• Ratio analysis
•  Time series models
•  Regression analysis 
• Structural equation modelling (SEM)
Trend Analysis
• Forecast future human capital needs by extrapolating from historical
changes in one or more organizational indices
Steps for an Effective Trend Analysis
• Select the appropriate business/operational index
•  Track the business index over time
•  Track the workforce size over time
•  Calculate the average ratio of the business index to the workforce
size
•  Calculate the forecasted demand for labour
Ratio Analysis
• A straightforward method of examining the relationship between an
operational index and the demand for labour
• • Can be used to calculate demand requirements for direct labour and
indirect labour
• • Commonly used by many organizations
• • Could calculate ratio of sales to employees, the number of units
produced, the number of clients serviced, or production (i.e., direct
labour) hours
Time Series Models
•
Use past data to predict future demand
•  Can be a simple moving average or a weighted moving average, or use
exponential smoothing
• • Simple moving average may use the average values for actual demand data
over the past two or three periods as the estimate for future demand
• • Weighted moving average, in which all periods of actual demand data are
used to estimate future demand, but greater weight is given to more recent
demand data
• Exponential smoothing also uses all past demand data, but places much
greater weight on the most recent demand data
Regression Analysis
• Presupposes that a linear relationship exists between one or more
independent (causal, or predictor) variables, which are predicted to
affect the dependent (criterion) variable, future HR demand for
human capital
• The trend line may be used to extrapolate beyond the data at hand to
create a forecast.
• • Regression essentially draws a line that best describes the trend or
relationship between the predictor and the criterion.
• • The slope of that line represents the amount of variability in the
criterion that can be described by the independent variable.
Regression Analysis
• Regression models help HR planners to use large amounts of
organizational data  These models can be easily adapted to reflect
organizational changes or new assumptions, and are a good choice for
short-term, medium-term, and long- term forecasts
• Quantitative models based on historical data may not be the best
indicator of future needs if the business or environment is in a period
of significant transition .
Regression Analysis
Simple Regression Prediction Model
• Simple Regression Prediction Model
•  Y = A + BX
•  Y = dependent (target) variable
•  A = constant (y intercept)
•  B = slope of linear relationship between X and Y
•  X = independent (causal) variable
•  Y might include HR demand or the number of employees required.
 X might include sales level or production output.
Structural Equation Modelling (SEM)
• A statistical technique that permits the testing of multiple
relationships simultaneously in a theoretically derived model 
Forecasters can develop a model of labour demand based on their
own theory as to what factors may be driving demand • Requires
more data observations than regression
Qualitative Forecasting Techniques
• Scenario planning
• • Method most often used to develop organizational strategy •
Participants envision possible future conditions in which the
organization might operate • Requires participants to challenge
existing assumptions and to generate vivid pictures of possible future
states
Scenario Planning Process
• 1.Propose the forecasting question about the future state of the firm
or environment
• 2. Generate a list of factors that are likely to influence the outcome in
question
• 3. Sort the factors into naturally occurring groups and rank the
groups according to their importance to the main question and the
ability of the firm to control the factor
Scenario Planning Process
• Select the two groups of factors that are likely to have the strongest
and most unpredictable impact on the question and create four
quadrants 5. Name and describe in story form each of the resulting
quadrants 6. Suggest the skills, competencies, and organizational
requirements that would be necessary for the firm to be able to
operate in each of these four worlds 7. Generate a demand forecast
necessary to fulfill the firm's requirements in each of the four worlds
Delphi Technique
• A process in which the forecasts and judgments of a selected group of
experts are solicited and summarized in an attempt to determine the
future HR demand
Advantages of Delphi Technique
• Avoids many of the problems associated with face-to- face groups
including reluctance on the part of individual experts to participate
Disadvantages of Delphi Technique
• Time and costs  Results cannot be validated statistically  Selection
of experts can skew the results  Potentially insufficient attention
given to developing criteria due to having too narrow a scope of
experts
Delphi Technique Steps
• Define and refine the issue or question
• 2. Identify the experts, terms, and time horizon
• 3. Orient the experts
• 4. Issue the first-round questionnaire
• 5. Issue the first-round questionnaire summary and second round of
questionnaires
• 6. Continue issuing questionnaires
Nominal Group Technique
• Long-run forecasting technique utilizing expert assessments
HR Budgets
• Quantitative, operational, or short-run demand estimates that contain
the number and types of jobs required by the organization as a whole
and for each subunit, division, or department
HR Budgets: Staffing Table
• HR budget process produces a staffing table
•  Information about a set of operational assumptions or levels of
activity
•  Total HR demand requirement for operational or short- run time
periods
Combining Quantitative and
Qualitative Methods
• Two basic methods can both be used in order to test the reliability of
the forecast
Differences Between Quantitative
and Qualitative Methods
Simulation
• A blend of qualitative and quantitative modelling that incorporates a
set of assumptions about relationships among variables in a
mathematical algorithm  Can simultaneously model demand and
supply, and is very useful for testing the impact of assumptions on the
outcome of the model
• Can aid in the development of a better understanding of what factors
influence demand and supply, and what processes may be causing
bottlenecks in the flow of human capital
Simulation Steps
• Using qualitative methods, collect the relevant variables 2. Describe
how these variables interact together by developing a process model
to map the relationships between variables 3. Use simulation
software and develop the algorithms to estimate the model
• Test the model using historical data to validate the assumptions used
in its development 5. Different assumptions can be easily tested in the
model by inputting new scenarios and re-running the simulation
Summary
• This chapter examined various quantitative, qualitative, and blended
techniques that organizations use to forecast future requirements for
HR demand