Wisdom on Workforce Planning

Peter Howes

MY JOURNEY IN WORKFORCE PLANNING (WFP) commenced in detail some thirty-five years ago. At that stage, I was a lecturer at the Queensland Institute of Technology (QIT, now the Queensland University of Technology) in Brisbane, Australia. In 1978, I introduced a course on workforce planning as an elective in the human resources management degree at QIT. The course was called Corporate Manpower Planning.

The only text I could find at the time was a small book called Practical Manpower Planning by John Branham, published by the Institute of Personnel Management (now the Chartered Institute of Personnel and Development, or CIPD) in London. To run the course, I mainly used various articles. These included articles from the Institute of Manpower Studies in the United Kingdom (now called the Institute for Employment Studies) and articles from the newly formed Human Resource Planning Society in the United States (now called HR People & Strategy).

During 1978–1979, I was on the organizing committee for the first national conference for the Institute of Personnel Management Australia (IPMA, now called the Australian Human Resources Institute AHRI), to be held in Queensland. I was responsible for the content for all of the keynote and stream sessions. I made workforce planning the focus of every session in the entire conference.

During 1981, I completed my sabbatical at BP (then called British Petroleum) in Melbourne. The focus of my sabbatical was to build the WFP systems for BP in Australia. This experience became the catalyst for me to leave an academic career and establish my own consulting firm, called HRM Consulting. (Many years later, we changed our name to Infohrm. In 2010, Infohrm became part of SuccessFactors, an SAP company.) I spent the next thirty years working in the field of workforce planning and workforce analytics. Our primary business in the early years was running public workshops in human resource management, including a three-day workshop called Practical Techniques in Manpower Planning, which I first ran in September 1982.

Over the next three decades, I and others within HRM Consulting/Infohrm ran variations on this workshop more than 500 times across fifteen countries, as well as conducting more than 200 major consulting projects in WFP across ten countries. In 1991 I first partnered with Dr. Jac Fitz-enz to set up the Saratoga benchmarking program in Australia. This commenced my journey of integrating workforce planning and workforce analytics. In 2006 Infohrm first developed web-based workforce planning and analytics software that is used by many companies large and small around the world. This software is now the SuccessFactors Workforce Planning software, which in February 2012 became the basis for SAP’s cloud-based Workforce Planning software. The reflections and observations presented here are based on this background.

There are some key principles or personal reflections about WFP that I think are important for any company to consider. These are:

WFP is a risk mitigation process.

It is useful to think of workforce planning as a strategic staffing process.

WFP is a planning process, not a budgeting process.

Focus on the gap and not the actual forecasts.

Developing a methodology or framework for the WFP process is a critical factor in success.

Scenarios are an essential component of the WFP process.

The biggest challenge in WFP is how to institutionalize the process by creating a Centre of Excellence and using effective technology.

Forecast competencies as well as numbers.

Ensure that WFP leads to action.

This chapter focuses on these reflections rather than on the specific techniques of workforce planning.

THE RISK MITIGATION PROCESS

I like to think of workforce planning as being a risk mitigation process, meaning that we undertake WFP only when the risk of not doing it is too great. I believe any organization needs to be very pragmatic in its reason for undertaking workforce planning. We do not undertake WFP because it constitutes “best practice” in our people management practices. If an organization is confident that in the future it will easily be able to find people with the right skills that it needs, and if these recruits could be quickly onboarded and could quickly become fully productive, then there is little need for workforce planning. What the company needs is simply very good staffing practices. If a company can offer good career paths for its workforce, again, there is little need for WFP. In my experience, these two situations rarely take place across all or even most workgroups. Hence, for most organizations, workforce planning is a critical requirement to reduce the risk of not being able to fill critical job roles in the future.

An example of risk mitigation as an outcome of workforce planning can be seen in a case study for National Grid. National Grid is a major utility company with operations in the United Kingdom and the United States. National Grid presented its story at the Infohrm conference in London in December 2009. A couple of years ago, Infohrm completed a workforce planning project within the high-voltage electricity transmission business in the United Kingdom. As part of this project, we forecast that the projected gap between supply and demand for power engineers out till 2020 was likely to be in the order of 350. While this number may not appear large, further research estimated that this was going to be more than the total output of power engineers from all universities in the United Kingdom over this forecast period.

National Grid would also be in competition with other energy companies in the recruitment of these graduates. This finding led the CEO of National Grid to say, “This is one of the biggest challenges we face as a business.” Based on these findings from the WFP project, in 2010 National Grid offered fifty scholarships to technical officers to upgrade their qualifications to degree level. This is risk mitigation.

STRATEGIC STAFFING

As previously stated, I like to talk about workforce planning as being the equivalent of strategic staffing. Almost all HR practitioners and line managers have been involved in staffing processes many times in their careers. I like to differentiate between tactical staffing and strategic staffing. A tactical staffing action within a company commences with a vacancy, which then kicks off a two-step process: (1) a recruitment process, and then, when we have more vacancies than positions to fill, (2) a selection process to assess the candidates.

From a WFP perspective, my interest is in the recruitment process. I believe that over the past two-plus decades, we have confused recruitment technology with recruitment methodology. Some twenty-five years ago, we had the automation of the recruitment process with technology systems like Resumix. Then, about ten years ago, we saw the growth of Internet job boards like Monster.com. Over the past few years, we have seen the growth of social collaboration websites like LinkedIn growing their impact on the recruitment process. Within success factors, we have also seen the acquisition of Jobs2Web as part of the next generation of recruitment technology.

I’m fully supportive of the growth and evolution of technology to support the recruitment process. This technology, however, does not change the underlying methodology, which has not really changed for more than fifty years. This ongoing methodology of tactical staffing is, effectively, we advertise and pray. We simply hope that more appropriate candidates apply than we have jobs to fill, whether we have a one-off position like an actuator or geologist or a group of positions, such as taking on 100 graduates as part of a graduate recruitment program. Traditional tactical recruitment is appropriate if there are enough candidates in the marketplace who will or are likely to apply for positions within the company as the vacancies occur. In today’s business environment, for specific job roles like engineers and most jobs based on a math or science foundation, this is a high-risk approach to recruitment.

With strategic staffing, we make our best forecast of the projected vacancies by job role over a more extended period, typically two to five years into the future. When we know the magnitude of the projected vacancies over multiple years, we can determine new recruitment strategies that cannot be implemented when we are dealing with a short-term vacancy. Some of these strategies include:

Developing new career paths. With extended lead times, I believe most companies can build required future job roles internally. This generally means moving people through a different sequence of positions to historical career paths combined with short-term projects and secondments (a temporary transfer within the company). By having the clarity of future requirements as a result of a workforce planning process, most companies can have more confidence about future requirements and consequently make the investment to build new career paths. This will become a more critical staffing strategy to address shortages in critical job roles in companies in the future.

Developing and articulating the employee value proposition for critical job roles. In an ideal world, organizations would build out the EVP (employee value proposition) for all job roles, but this is not realistic because of the resources required. I would argue that EVPs should be developed for all critical job roles within a company. I would start with those critical job roles where we forecast that there will be a significant gap between projected demand and projected supply over the next few years. The more we can articulate the EVPs, then the more we are likely to attract external applicants as well as retain individuals currently in these roles within the company.

Developing the employment brand of your company. I do not believe it is feasible for any organization to fully develop the employment brand for the company as a preferred employer across the board for all occupational groups in all business units in all geographical locations. Once a company knows the job roles where it expects to have the largest gap between projected supply and demand, and it assesses that these job roles may be difficult to fill from the external labor market, then it makes sense to work on building the employment brand in these job roles first.

How can a company build its employment brand? One option is having specialists in the job roles with the projected shortages or their managers speak at conferences and seminars, provided they are articulate and engaging and will present the company as a great place to work. Another option is to build the company’s profile in the print and electronic media around topics associated with the critical job roles. This can include press releases, interviews, and blogging. It is also advisable to build the employment brand at universities for those disciplines where shortages are expected in the next two to ten years. The basic activities would include having key specialists from the company giving guest lectures in various subjects. A more strategic approach would include working with key academics from targeted universities where you want to focus your graduate recruitment. This could include building assignments for selected subjects around your workplace, having a strong summer internship program where academics help select the students you take on, or co-funding research for selective universities. Another option can be funding a research post or postdoctoral fellowship in selective universities where the academic filling the role can be the link with the outstanding students you want to engage with. The workforce planning or strategic staffing is the link to tell us in which disciplines it is most strategic and cost-effective to make this type of investment.

In summary, I think of workforce planning as being the same as strategic staffing. The forecasted gap between projected supply and demand provides the cumulative recruitment scope for the multiple years of the forecast period. This allows us to be more creative in our recruitment strategies than we can be with tactical staffing.

WORKFORCE PLANNING IS A PLANNING PROCESS, NOT A BUDGETING PROCESS

While this might sound obvious, it’s amazing how often individuals confuse WFP as a budgeting process rather than a planning process. One of the key differentiators between WFP and budgeting is the time frame for the forecasts. Most budgets are out for a maximum of twelve months, whereas a workforce plan has a forecast period of between two and ten years. Forecasting the workforce requirements for six to twenty-four months is a very important task, but it’s not workforce planning. I like to call this shorter time frame planning “resource planning.”

In addition to the time frame of the forecast, there are other factors that differentiate resource planning from workforce planning. One factor is the population covered. Resource planning is typically undertaken for the entire workforce, while WFP is undertaken only for critical job roles. Over the next six to twenty-four months, all organizations need to know the total labor cost to run their business, broken down by job family and occupational group as well as by organization unit, location, and grade. These are normal workforce reporting and segmentation activities required to run any organization. Under workforce planning, we are primarily focusing on the critical job roles that we are at risk of not being able to fill. If we attempt to undertake workforce planning for every job role, then I predict the process will collapse as the resources required to complete it are too great for the return achieved.

To stress the planning orientation of workforce planning, I like to use the metaphor of a road sign. Imagine driving along a country road at 60 miles per hour, going around a curve, and seeing a T intersection road sign. Under the T intersection sign is another sign saying “300 yards.” The question I start with is: What is the purpose of this road sign? The answer is that there are multiple purposes. One purpose, but not the primary purpose, is to let us know that in approximately six seconds’ time we will need to make a ninety-degree turn to either the left or right. The primary purpose of the road sign is to tell us what we need to do immediately—take our foot off the accelerator—and what we need to do progressively over the next six seconds—put our foot on the brake, move our indicators to say whether we are turning left or right, place our foot on the brake again, and then begin turning the steering wheel either left or right depending on which way we want to turn.

Similarly, the primary purpose of a workforce plan is not to tell us the cumulative workforce requirements we will have in, say, five years—or more correctly, the cumulative workforce gap we will have in five years. The primary purpose, and hence the real benefit of a workforce plan, is to advise what type of HR or people management actions or interventions we need to start initiating now and progressively over the forecast period (say, five years). Like the road sign, the purpose of a workforce plan is to help us initiate actions now and progressively over the forecast period so we can address our future staffing gaps for our critical job roles. If we could instantly fill jobs, then this would be like we could instantly stop a car. Since physics doesn’t allow us to instantly stop a car, we need road signs. And because we can’t be confident of filling all of our critical job roles instantly as they become vacant, we need a workforce plan.

When we hear people make statements like . . .

We can’t undertake workforce planning because we are in industry that is changing too rapidly.

Because of mergers and acquisitions/industry consolidation/changing legislative environment/etc., we cannot undertake workforce planning.

We need to consolidate our business planning before we can undertake workforce planning.

. . . then we know these individuals don’t really understand the basic premise that workforce planning is based on. If you have more clarity and certainty about the future, then WFP adds less value. The more uncertain the future is for an organization, then the more value WFP will add.

MIND THE GAP

Anyone who has traveled on the London tube system will be very familiar with the phrase “mind the gap,” which is painted everywhere. This phrase is also very applicable in workforce planning. I like to think that the core of a workforce plan is the gap between the demand forecast and the supply forecast. It is the magnitude of the gap that we are concerned with and not the actual demand and supply forecasts.

Let’s assume we are a hospital system and we have today 2,500 nurses. Assuming the hospital has a strategy for organic growth over the next five years, let’s assume that its demand forecast for nurses in five years is 3,200. When we look at supply forecasts, we are not forecasting how many nurses the hospital will have in five years. What we are forecasting is how many nurses of the current workforce will be with the hospital system in nursing positions in five years. Factors we consider are age distribution and tenure profiles to forecast retirements, historical voluntary turnover rates to project resignations, and internal transfer and promotion rates to assess internal movement. Based on our modeling of these factors, we may assess that 1,400 of the nurses will still be employed in five years. Then, we can see that the gap is 3,200 – 1,400 = 1,800. This shows the cumulative gap over our forecast period of five years. This number 1,800 also represents the strategic staffing of nurses over the five-year period as opposed to traditional staffing that considers existing staffing. It is also possible for this number to be a positive number in terms of projected supply being greater than projected demand. In this case, we are projecting a surplus of staff in the particular job family we are forecasting. As we can see the surplus by year of our forecast, we have the option to proactively take action to prevent the surplus staff. For example, we can stop or minimize external recruitment as well as internal promotions and transfers into the particular role(s). Alternatively, we can also accelerate our existing transfers and promotions out of the particular job role(s) and perhaps create new career paths out of the job role(s). This is all part of what I would call strategic staffing.

There are other gaps we need to consider in WFP. If we use scenarios as part of our forecasting methodology, then we are also interested in the gap between the various scenarios, as this helps us to assess the risk associated with the gap. If we have two scenarios that have significant variations in the demand forecast under each scenario, then we have a significant variation between the two gap forecasts. In this case, we need to develop contingency staffing options for how we will address the gap. This situation also means that we will more vigilantly monitor the underlying scenario options to see which of them comes true. The second type of gap can be associated with forecasting how the competencies making up the job role may change over time. If we anticipate that the competencies required in a job role in the future are different from the competencies required today, then this is also a gap we need to proactively manage as part of the WFP process.

WORKFORCE PLANNING FRAMEWORKS

I believe it’s essential for any company undertaking workforce planning to develop a framework to explain the interaction between all of the tasks that make up WFP. When working with companies, I start with two or three generic frameworks that I have developed over time, and then I work with the client to customize one of the frameworks so that it specifically works for the client’s structure and processes as a company. In the following sections, I will share three frameworks on workforce planning. The first is the most simple (to highlight the key points), the second shows some of the extra details that need to be incorporated, and the third is more of a process model for workforce planning.

Simplified Workforce Planning Process

The most simplified WFP process is shown in Figure 1. It highlights some key aspects of workforce planning from my perspective. The core activity is the box labeled Matching Workforce Supply & Demand Forecasting. I see this as the core as all of the inputs into this activity are undertaken only to improve the quality of matching process. The return for WFP is based on the quality of the matching process. Here are my initial principles for workforce planning:

Demand forecasts must be based on the future business plans for the organization. Demand forecasts must be completed by line managers. The role of HR practitioners is to facilitate the generation of the demand forecasts. Historical staffing numbers and productivity measures are useful inputs into the demand process, but they are not the basis for preparing demand forecasts, as more and more, the past is not a good predictor of where companies will move to in the future.

Demand forecasting incorporates forecasting both numbers and job roles (or competencies). Forecasting numbers is mandatory if the WFP process is to have credability. Forecasting how job roles will change in the future is an important but often neglected aspect of demand forecasting. Most companies have their own term for defining job roles. It might be called competency profiles, skill sets, skill database, etc. The core to this part of workforce planning is to understand how the skills or competencies required to do the job are likely to change over the period of the forecast. In many cases, the change in skills required has a greater impact than the change in the actual numbers required.

FIGURE 1. A SIMPLIFIED WORKFORCE PLANNING PROCESS.

The supply forecasting process has much more potential for automation than demand forecasting. As mentioned earlier, by analyzing retirement patterns, voluntary patterns, and transfer and promotion rates, we can be fairly predictive in assessing the projected supply by critical job role into the future. Fortunately, software is available today to automate this process in a way that cannot practically be done with Excel pivot tables. The data required for modeling the supply forecasting is typically available in the core HRIS/payroll system of any company.

The Human Capital Strategy process shown in Figure 1 is a core part of the WFP process. I see WFP as an input to shape the formation of the HR strategic planning process, not an output from this process. Regrettably, too few companies use the output from a workforce planning process as input into the HR strategy formulation process. I see two other inputs into the formulation of the human capital strategy. I believe that the business planning process (which can go under many names, including strategic planning and corporate planning) is the single most important driver in formulating the HR strategy. I also see workforce analytics as an important input into the formulation of the HR strategy. Unfortunately, most companies confuse workforce reporting for workforce analytics but use neither as an input into formulating their HR strategic plan.

An important output from the HR strategic plan is the formulating of the human capital key performance indicators (KPIs) for the company. In most companies today, an HR strategic plan is more a PowerPoint presentation pack than a comprehensive document with action plans and accountabilities for execution of these actions plans. The HR strategic plan is more about building a shared mind-set within the company as to our people management priorities. In this case, the KPIs are the vehicle by which to operationalize the HR strategy. I believe any company can have only five to ten people KPIs out of 1,000-plus possible people measures. For a measure to become a KPI, it needs to meet three criteria. First, the measure must be aligned to strategy. Individuals must be able to articulate how execution on the KPI measure directly supports execution of the HR strategy and how this directly leads to the execution of the business strategy. The second criterion is that we know our results for the KPI and we have set a target, and hence we have a gap. We typically do not have the same target across the entire company as the workforce is heterogeneous not homogenous, and, hence, this needs to be reflected in the targets we set. Benchmarks are a useful input into setting the target but should not in themselves be the target. The third criterion for a measure to become a KPI is that the company needs to invest resources into interventions to achieve its target. In addition to formulating a few people KPIs to ensure execution of our HR and business strategy, I believe companies should monitor their performance on fifty to 200 other measures. I worry about companies living in blissful ignorance when it comes to their workforce, but this is a topic for workforce analytics rather than workforce planning.

More Advanced Workforce Planning Framework

Figure 2 shows a more advanced workforce planning framework. Let me summarize some of the additional elements that this framework shows.

FIGURE 2. A MORE ADVANCED WORKFORCE PLANNING FRAMEWORK.

Scenario Forecasting. I would almost consider it mandatory to use scenarios in a workforce planning process, particularly for demand forecasting. It is rare for any company to know what the exact nature of its business will be in five years, and, hence, exactly how many people it will need by job family by location. The more external factors there are that will impact the business, the more scenarios become essential. Typical external factors considered in scenarios include economic growth rates, commodity prices, foreign exchange rates, government policies, market share, commodity pricing, etc. In scenarios, I like to look for factors beyond the organization’s control that will impact its business and, hence, the required workforce over the forecast period.

For any company, there is an infinite number of permutations of scenarios for the future. I favor alternate scenarios when managing the trade-off between complexity and return. This gets beyond the simplicity of a single forecast but minimizes the complexity of multiple scenarios. When companies use three scenarios, the scenarios are often labeled as optimistic, pessimistic, and most likely. When this happens, too many individuals focus only on the most likely scenario. When we have only two scenarios, we are forced to think about the people management strategy implications of the variations between the alternate demand forecasts and, hence, the resultant variations in the projected gap between supply and demand. This helps as then WFP is a true planning process and not a budgeting process. When there are variations between the alternate scenarios, I stress that clients think of the variation as being the maximum plausible variation that could realistically be expected over the forecasted period and not the theoretical possible extreme that could occur. If I was working with an organization that had identified market share as an important dimension for its scenario, and if the organization’s current market share was, say, 35 percent, then it might be plausible for its market share over a five-year period to range from 25 percent to 45 percent. It’s unlikely that it could range from 10 percent to 70 percent, even though this is theoretically possible. It is essential that the senior executive team of the company signs off on both the scenario factors to be selected and the boundaries to the plausible range for each factor.

Labor Market Conditions. If we want more accurate supply forecasts, we need to consider the anticipated impact of the external labor market and the economic conditions. External economic conditions and the external labor market do impact voluntary turnover rates. I doubt there are many companies in the world that have experienced an increase in their voluntary turnover rates in the past year. This is not likely to be a result of better HR interventions but simply the result of more employees deciding not to resign in a period of poor economic conditions.

If an organization prepared a supply forecast in 2012 for the next five years out to 2017, I would anticipate that the company underestimated how many employees would resign over the five years if the company took its 2011 turnover rates and used them to extrapolate each year over the next five years. While 2011 rates might be useful for predicating 2013 and 2014 rates of voluntary turnover, I predict that they would underestimate the voluntary turnover rates in 2015–2017. My assumption is that as and when the economies around the world improve, many individuals will be more prepared to leave and join other companies as there will then be more opportunities. I also think that in many organizations, a growing group of employees are staying only because they are not prepared to take the risk of changing jobs in a poor economy. As the economy improves, their risk profile will change, and many will leave to join other companies.

This does not apply to some industries and occupational groups. Mining companies around the world have been experiencing higher turnover because of the increased demand in the labor market for virtually every occupational group they employ. In addition, occupational groups like nurses and cloud computing specialists have high turnover because of the shortages in the labor marker for their skills. In all these cases, we need to assess the external labor market to determine the impact these shortages will have on the current voluntary labor turnover rate within the company.

When we look at retirements, we also need to look at the impact of the external economy, particularly as companies move their workforce from defined benefits to defined contribution pension plans. Historically, companies could accurately predict when the segments of their workforce on defined benefits pension plans would retire, as it was generally a formula of age and tenure that gave the maximum pension payout. With the prevalence of defined contribution plans, which inevitably will lead to a lower annual pension payment, many people will not be able to retire by age 65. In the future, we will see many individuals forced to stay at work till they are over 70 years of age, and if their investment funds are not performing well financially, we can expect segments of the workforce to work till they are 80 when they would have preferred to have retired before they were 65. This is a workforce planning issue very few companies have even started to think about.

HR Strategy, Talent Management, and Strategic Staffing. In discussion of the simplified model, we spoke about how WFP was an input into the HR strategy formulation process. We need to also think about how WFP can impact both strategic staffing and the talent management process. Earlier, I spoke about how workforce planning can be thought of as a strategic staffing function. I would argue that all HR functions need to think about the strategic staffing function as well as the traditional (tactical) staffing function. By understanding the cumulative vacancies we expect in critical job roles over the forecast period, we can have more creative staffing options that are not possible under traditional staffing models, where we know only our current or short-term vacancies. The additional staffing strategies include developing new career paths, articulating the employee value preposition for critical job roles where we are forecasting to have significant vacancies over the next three to ten years, and developing the employment branding for these critical jobs.

The talent management process within any organization should be integrated to the WFP process. A key tenant in talent management is that it takes time to build capability. If we need a specified amount of capability in the future with specific competencies, then we need to understand both the magnitude and the profile of this future capability if we are going to be confident of building it. Workforce planning provides this insight for the talent management process. To use an older term, we can think of workforce planning as being the strategic training needs analysis process of the talent function.

Workforce planning can play a very important role in improving the financial performance of any organization. Having individuals attending job training is one of the most expensive processes available to a company to build the new capability required in its workforce. I believe that most of the new capability required within the workforce in the future can be built in a much more cost-effective manner. It has been my consistent experience that future capability can be acquired within a company if it moves individuals through a different sequence of job roles, building new career paths, complemented by how the company uses project teams and secondments. Organizations can build future capability as a byproduct of doing real work with this combination. We need the workforce planning process to tell us the new competency profiles we need and the magnitude we require, as well as telling us the magnitude of gap required over our forecast period for existing capability. Having access to this information gives the talent management function and the senior management team the confidence to build new career paths now to start building future capability as a by-product of getting today’s work completed.

When selecting individuals for project teams, organizations need to consider three criteria where today I think they consider only two. The two existing criteria used are who do we know has the current capabilities to complete the work required in the project team and who is available. While not perfect, most companies work through this process even if they do not have a robust skills inventory. My third criterion, which is rarely used in selecting individuals for project teams, is who will gain the most from the project in assisting the organization in building its required future capability. We can utilize this third criterion only if we have a robust workforce planning process within the company. This is a significant payback for our investment in workforce planning.

Performance Management and Workforce Planning. I believe that in all organizations, we need to improve the integration between the workforce planning process and the performance management process. In this case, I’m referring only to the use of the performance management process as a development function, not when it is part of the compensation process. As shown in Figure 2, there is generally a direct link in most organizations between the performance assessment process, the performance review process, and the individual development planning process. The individual and the manager assess the individual’s strengths and weakness. This is discussed during the review process and is used to formulate a development plan for the individual. In this process, I’m not concerned with the assessment methodology (360 review, assessment centers, behaviorally anchored rating scales, etc.). I believe there is a fundamental link missing in this traditional methodology. I believe that there should be a direct flow from the WFP process (matching supply and demand forecasts to determine projected gap by critical job role).

I believe the development component of the performance assessment process in organizations needs several inputs. We need an assessment of performance and potential, the individual’s assessment about career preferences, and an assessment of projected future opportunities from the WFP process. Without the input about the forecasted future opportunities, I believe the career assessment—in the absence of any workforce planning data—is based on the implicit assumption that future opportunities will be similar to past opportunities. This is a very dangerous assumption and positions the organization to not be preparing for evolving and new job roles. It may also be preparing individuals for jobs that may not exist in the future or may be reduced in number. Workforce planning is essential if we want the performance assessment process and the overall talent management process to have a future orientation rather than a retrospective orientation.

Workforce Planning Process Model

Figure 3 shows a current process model for workforce planning. This model was evolved from previous models within Infohrm during 2007 and 2008. Acknowledgment is given to Amy Hammond and Anastasia Ellerby from Infohrm, who worked on this model.

I feel this model is fairly self-explanatory, but I will make a few comments. Based on my workforce planning consulting experience over the last three decades, I feel it is essential that any organization understand the essential prerequisites before commencing a workforce planning initiative. We need to be able to articulate what business need(s) we are going to address with workforce planning, and we must determine if we have adequate engagement from key business leaders to the project. From a project management perspective, we need to make sure we have scoped the resources required, we have adequate WFP capability, we can access the required data for preparing both our demand and supply forecasts, and we have an adequate methodology for undertaking the WFP projects. The key challenges for most companies are having the workforce planning capability and methodology and having adequate resources.

My standard recommendation to most companies is to undertake a pilot project first. This requires fewer resources, utilizes both internal and external consultants to assist, and has a much shorter time to completion so senior leaders can see the results quickly. I believe a pilot project can be completed in 100 days. If a company does not have the workforce planning capability, then it is logical to team with a consulting organization that has this expertise and to use the pilot project for skills transfer to the internal team. The major challenge here is to retain the internal staff involved in the pilot so that these people stay in the WFP function for the next two to three years. I believe it takes people two to three iterations of doing a workforce plan before they become confident in the area. Retaining internal skills is one of the biggest challenges most companies face.

FIGURE 3. A WORKFORCE PLANNING PROCESS MODEL.

Strategic Analysis. Because I believe that the linking of the workforce plan, and particularly the demand forecasting, to the overall business strategy is so critical, I like to show this as a separate step in the overall workforce planning process. This step involves understanding the strategic direction of the company in order to kick off the workforce planning process. I like to begin with a review of previous reports and presentations on the future of the company. This might include formal strategic plans or a study of proposed capital expenditure over the next five years. It could be studies of new products or services to be offered. Generally, there is a lot of prior research that is valuable for workforce planning. We must find and review these documents so we are not reinventing the wheel. The next step is a series of interviews with the company’s senior leaders. I start this at a very broad level in terms of what keeps these people up at night. What do they worry most about? This then becomes the basis for preparing the underlying scenario assumptions.

Once the strategic analysis is completed, we are in a position to finalize the selection of critical job roles we are going to undertake in the workforce planning project. It is not possible—or at least it is not sustainable, in my experience—to undertake WFP for the entire organization. The resources required lead to the process being abolished after one or two iterations. I thus do not believe it makes sense to attempt workforce planning for the entire organization. For example, it does not makes sense to undertake three- to ten-year workforce plans for those job roles where it will be relatively straightforward to recruit applications from the external labor market and it doesn’t take too long to have them fully productive. It makes more sense to me to allocate the resources available for workforce planning into doing a better job on the fewer critical job roles. Here are some of the type of criteria I would use for selecting the job roles for workforce planning:

Those job roles that we anticipate we will have difficulty in recruiting from the external labor marker (e.g., jobs requiring math and science)

Those job roles that have a long lead time before a person becomes productive

Those job roles where we have large numbers of people in the same job family and where getting more accurate forecasts can have a major impact on staffing

Those job roles that have a disproportionally high level of impact on the overall performance of the business

It may not be possible to undertake a workforce planning pilot on all critical job roles in the first iteration. It is more important that we focus on a few critical job roles that are seen to be a valid representation of roles to demonstrate the value of workforce planning. Then, in the second or third iteration, we can expand the scope to include all of the critical job roles. In some organizations, it may be useful to update the workforce plans every two years rather than on the conventional annual cycle. These companies may want to complete the forecasts for half the critical job roles one year and the other half the next year.

Forecasting. This is what I would consider to be the central component of the workforce planning process. Here are some additional comments I would add to my previous statements.

Demand and supply forecasting are undertaken only for critical job roles and not for every job role in the organization. In undertaking demand forecasts, we can use a combination of quantitative and qualitative demand forecasts. The typical quantitative techniques include regression analysis, time series analysis, decision analysis forecasting, and productivity benchmarking measures. More advanced statistical techniques such as linear programming and other optimization modeling are typically not used. It is important to be conscious of the limitations of quantitative techniques, which are based on the proposition of using the past to extrapolate the future. As the rate of change in society and organizations increases, then quantitative techniques become less appropriate. However, I still believe quantitative techniques have a role in workforce demand forecasting. I like to think of quantitative techniques as helping me to determine the “null hypothesis” future. By this, I mean that quantitative techniques play a valuable role in determining the future workforce required under the current levels of productivity. We then need to assess the levels of productivity change we expect as a result of new technology, revised work practices, outsourcing, or process reengineering. I like to think of quantitative techniques as being inputs in the qualitative process of decision making as to the demand forecast.

In demand forecasting there are a number of qualitative forecasting techniques that we can use: interviews, focus groups, nominal group technique, Delphi technique, and reparatory group. I like to think of the qualitative techniques as being techniques for group decision making. In demand forecasting it’s very rare that one individual has all of the information to prepare a demand forecast. Qualitative techniques are about structuring the interactions to facilitate the generation of the most accurate forecasts that can be complied.

In supply forecasting we can be more confident in using historical data as the basis of preparing Supply Forecasting. The basis of supply forecasting is to determine of the current workforce how many will still be here in the future at our forecast points, one, two, five, or ten years in the future. In supply forecasting we are thinking of the current workforce as the cohort and assessing the retention. For supply forecasting we ignore the external recruitment that will occur over the forecast period. This is essential if we are to assess the projected gap by job family/occupational group over the forecast period. There are three factors we take into account when determining the supply forecast: retirements, voluntary termination rates, and the internal transfer and promotion rates.

In determining retirement rates we need to understand the age distribution and the tenure profiles. When individuals are members of “defined benefits” pension funds it’s possible to be very accurate in projection retirements as the rules of most of these retirement plans maximize the payout based on a combination of tenure and age. It’s not unnatural that individuals would elect to retire when the payout is at the maximum amount. In most companies there has been a movement from defined benefits to defined contribution pension plans. Basically these newer plans are less generous to individuals, and the amount available for pensions depends on the financial performance of the plans the funds have been invested in. It’s likely in the future that as more of the workforce in companies reaching retirement age will be in defined contribution funds, we will not be able to determine retirements based on age and tenure. It’s likely that many individuals will not be prepared to take retirement at 60 or 65 years of age as their funds will not support retirements. This will become a major issue for companies over the next twenty years.

The second factor in calculating future supply will be assessing how many individuals will voluntarily leave the company over the forecast period. To assess this we need the following information. We need to assess voluntary turnover by occupational group, organization tenure, organization unit, and by location. Once we have the turnover rates for all of these segments, we can extrapolate the turnover and projected loss. It is very dangerous to try and use total voluntary turnover rates or turnover rates by occupational groups as the basis for determining supply forecasts. While the aggregate numbers may turn out to be correct, they will hide the higher and lower numbers from all of the segments. In supply forecasting we are not trying to just understand the projected total workforce that will still be with us in, say, five years’ time. We need to know these forecasts by occupational group/job family, by organization unit (division, branch, etc.), and by location. We need the segmentation to ensure the accuracy of the forecasts. For example, if we knew that the voluntary termination rate for mechanical engineers in the mining division was 10 percent and we had 500 mechanical engineers, then it would be incorrect to say we will lose fifty engineers per year, and hence we will lose 250 over the five years, giving us a net supply of 250. It would be more accurate to say that we will lose 50 + 45 + 40 + 37 + 32 = 204 over the five-year period. While more accurate, this will still overestimate how many will leave. If the total voluntary turnover is 10 percent, then we know that this will vary with tenure, so it might be 15 percent in the first year of tenure and 5 percent in the fourth and fifth year. In this case using the average of 10 percent will overestimate how many mechanical engineers will leave. In our fourth year of forecasting we should look at the turnover of individuals in the fourth year or longer in tenure and ignore the turnover rate in the first three years of tenure or the average over the total tenure profile. In order to complete this level of analysis, we need technology to automate the process.

When we have analyzed the voluntary turnover rates, we need to look at the external labor market. If the current labor market for the occupational groups we are forecasting for are relatively depressed, then we need to assess if we believe the external labor market will grow, shrink, or stay steady. If we think the labor market will grow after, say, three years, then we need to increase the projected voluntary turnover rates in three years’ time. If we simply project historical rates, we will underestimate loss rates in the market if projected to grow more rapidly, and we will overestimate loss rates if we forecast labor markets will become less strong.

Risk Analysis. The central phase of the overall workforce planning process is to assess the risk associated with the projected gap between the demand and supply forecasts. The risk is different from simply understanding the magnitude of the gap. There may be large gaps for some job families, but we assess there is an adequate pool of candidates in the marketplace, so our main focus will be to gear up our recruitment activities, both externally and internally. Generally, it’s business as usual but with a large volume of work to do. We may have other job families where the gap is not as large numerically but there is a much greater risk because of the lack of supply in the external labor market, typically combined with a long lead time required to build this capability internally. Examples of job families include relationship managers in private banking, geologists and geophysicist in mining and oil and gas, loss adjusters in general insurance. The focus of workforce planning in the past few years has been to think about risk and not just the size of the gap. With job families where we assess significant risk in the size of the gap we often have to develop new career paths rather than relying on traditional career paths. We may need new career paths to not just accelerate the level of capacity that we need in the future, but also to build new capabilities that will be required in the job family in the future. From my experience, most of the risk identified in workforce planning is to build new capability that will be required in the future that has not been required in the past.

Strategy, Impact, and Cost Modeling. Traditionally this step in the workforce planning process involved building HR interventions to address the projected gap for the critical job roles for which forecasts had been prepared. This then becomes a logical extension of the risk assessment previously prepared. In my experience, this is the most straightforward aspect of the workforce planning process, but it consumes the most resources, particularly in the execution stage. This step is where we are able to draw upon our knowledge as to best practice HR interventions to address the strategic staffing gaps we have identified. It is much easier to select or develop HR interventions once we have a good “road sign” as to the future risks in our workforce. The types of strategic staffing interventions that are available to a company are well known. David Ulrich, for example, talks about the “Six Bs”: Build, Buy, Borrow, Bounce, Bind, and Boost. There are, however, additional strategic staffing interventions that can be implemented when we have the clarity of workforce planning.

In formulating our strategic staffing interventions, we need to assess the impact of our interventions on addressing the forecasted gap and then use this to determine the level of investment we make into each intervention. This is an interactive process, and it helps us balance the level of investment with the degree of risk we are trying to mitigate.

Action and Accountability. The final step in the workforce planning process is to allocate accountability for the implementation of the proposed strategic staffing interventions. This process is reasonability straightforward and is based on the principles of project management and change management. The role of workforce planning is to identify the projected gaps in critical roles over the forecast period. We then used our HR expertise to design and implement interventions to address these gaps. Like the road sign we start immediately with the initiatives we need to start now because of the lead time to build capability.

SOME FINAL SUGGESTIONS

To conclude this chapter I will briefly highlight some additional suggestions based on my experience over the past thirty-five years working in the field.

When undertaking workforce planning it essential to forecast the numbers required by critical job roles over the forecast period. Without forecasting numbers we will have little credibility with senior executives when we present our findings. In addition to forecasting numbers I believe it’s critical to forecast competencies. In my experience, there are more organizational consequences of changes in competencies than there are consequences in change in numbers. In this context I’m using the terms competencies, skills, and job roles interchangeably.

When working with senior managers on the demand forecasts I find many managers and executives reluctant to commit themselves to actual forecasts during demand forecasting interviews and focus groups.

In my experience, most managers are comfortable, with the right information, to prepare demand forecast over two years. Their level of confidence in the forecasts as the figure above shows is high. Most managers felt uncomfortable preparing forecasts beyond two years, and this becomes a tipping point where the level of confidence in the forecasts drops dramatically. In many ways this is not surprising as many more factors that can affect the business and hence the demand forecasts can change over a longer period. Managers are less confident about the impact of the economy, changes in commodity prices, interest rates, economic growth rates, competitor practices, government regulations, and so on. After drawing this simple diagram I then update it where the two-year forecast becomes the current headcount, the third-year forecast becomes the new first-year forecast, and so on. I stress to the managers that we do not prepare, say, a five-year forecast and never come back to it. Clearly we have less confidence in a five-year forecast than a two-year forecast, but over the next year we are not going to implement specific actions that impact us five years out. We want our best effort to get the correct directional forecast five years out but we will have several opportunities to revise the forecasts over the five-year period.

Another suggestion in preparing demand forecasts is to not allow managers to use the same level of rigor in the numbers that they are used to in budgeting. An example: If you have 500 mechanical engineers and you expect the numbers to grow at a steady rate over, say, five years, I would only allow forecasts that are rounded to the nearest 10, with forecasts such as 520 or 570. To have a forecast of, say, 519 takes away from the fact that workforce planning is a planning process and not a budgeting process. If you have 5,000 mechanical engineers, then I would round my forecasts to no less than the nearest 50. Although a small issue, it helps to keep it as a planning and not a budgeting process. Our goal is to understand directionally what the gap is.

My single biggest frustration from consulting in workforce planning for the past 35 years is how often the workforce planning process is not sustained in companies. While it’s legitimate to have a one-off project in workforce planning within a company I believe the real benefits come from having a sustainable process. There are two prerequisites for making it sustainable. First we need to create a Center of Excellence in Workforce Planning. I actually prefer it to be a CoE in Workforce Planning and Analytics. This would follow all of the standard processes in creating a CoE. The second prerequisite to making workforce planning a sustainable process over time is to implement workforce planning technology to automate the process. This can be technology developed in-house, such as HP did, or it can be third-party workforce planning and analytics technology. I do not consider Excel pivot tables to be workforce planning technology. Excel is a good prototyping environment but is not sustainable over time as it’s far too labor intensive to maintain and is not appropriate technology for modeling supply forecasting, career paths, etc.

My final comment is that we must position workforce planning as a business process, not an HR process. Workforce planning is a process that assesses the risk of business execution from not having the right human capital available. Workforce planning is one of the most powerful vehicles to make HR a critical strategic resource within companies.

Peter Howes has 40 years of experience in HR as a practitioner, academic, and consultant and is now in his third year as Vice President at SuccessFactors. His focus is Workforce Analytics and Workforce Planning. He was formerly CEO of Infohrm, a consulting and technology company specializing in Workforce Planning and Workforce Analytics that he founded in1982.

Peter is a Life Fellow of the Australian Human Resources Institute and a Fellow of the Australian Institute of Management. In 2003 he was awarded the Outstanding Alumni award for the Business Faculty at Queensland University of Technology.

His favorite pastimes are rugby and wine. He is married with two adult children. Peter is based in London and Brisbane.