The Workforce Planning Process

Workforce planning is the process of predicting an organization's future employment needs, as well as the availability of current employees and external hires to meet those employment needs, develop talent capabilities, and execute the organization's business strategy. The workforce planning process typically includes five steps:

1. Identify the business strategy and competitive advantage. A firm's strategic vision, mission, and strategy affect current and future staffing requirements by influencing the types and numbers of employees needed. It is also important to understand the behaviors and skills your company needs from employees to execute its business strategy so that you can enhance these behaviors through talent management.

2. Articulate the firm's talent philosophy and strategic staffing decisions. Firms differ in their commitment to tasks such as promoting workers and retaining workers as well as in their preference for hiring people with certain skills or training them after they are hired. Because these factors influence the nature of the firm's future labor supply and the type of workers it will need, they are important to understand when forecasting and planning.

3. Conduct a workforce analysis. Forecast both labor demand and labor supply, and identify any gaps between the two.

4. Develop and implement action plans. Develop action plans to address any gaps between labor-demand and labor-supply forecasts. The action plans should be consistent with the firm's talent philosophy. If not, the talent philosophy should be refined to close the gaps. Action plans can include recruiting, retention, compensation, succession management, and training and development. Action plans can be short-term or long-term, depending on the firm's needs and the predictability of the environment. Organizations usually develop both short-term and long-term plans, and review and update the long-term plans based on external and internal changes. Action plans to address aging workforce issues, or workforces that have a disproportionate number of similarly aged employees, may need a longer time frame, as would a strategy to redesign benefits and compensation to retain employees in tight labor markets.

5. Monitor, evaluate, and revise the forecasts and action plans. Evaluate the effectiveness of the workforce plan in meeting recruiting and hiring goals. As the environment changes, forecasts and action plans may need to change.

Forecasting is not an exact science; it is rare for a forecast to be exactly right. Given this uncertainty, it is usually best to construct estimates as a range, providing low, probable, and high estimates. Recalculate estimates as changes happen in the organization's internal and external environments and as the firm's relevant assumptions and expectations change.

Although creating forecasts and plans is easier in more stable organizations and more challenging when a company faces rapidly changing conditions, planning is most valuable for firms experiencing (or that will experience) rapid change because of the greater need to guide actions in the face of uncertainty. The time frame for workforce planning should reflect the length of the business planning cycle. Business plans typically have both a long-term (e.g., three to five years) and a short-term (e.g., annual budget) component. Workforce planning typically reflects both of these time frames. Short-term workforce planning involves the necessary sourcing, recruiting, development, and separation activities to be accomplished in the coming year, although these short-term actions should also support the long-term human resource and staffing strategies.

The core of the workforce planning process involves forecasting the firm's future demand for labor of different types (and the likely future supply of this labor), identifying projected labor surpluses or shortages, and developing action plans to address any forecasted talent gaps. Action plans should proactively address both projected surpluses and shortages to minimize them in ways consistent with the firm's business strategy, talent philosophy, talent strategy, total compensation goals, and broader HR strategy. Figure 1 illustrated the workforce planning process.

At the very least, workforce planning should be done for those positions throughout the organization that create wealth, as well as those considered critical for the success of their unit and the firm as a whole. If innovation and intangible assets such as knowledge or creativity generate a firm's competitive advantage, then top management and knowledge workers are essential. If an organization's competitive advantage is based on service, its success depends on the quality and performance of its customer-facing employees. If a vacancy in a position would create problems for the organization, then the position is a good candidate for workforce planning. The accurate identification of these key positions is extremely important, as their being vacant or poorly staffed can affect the organization's ability to perform well. Positions in which top performers significantly outperform average performers can also be important for workforce planning as these positions have the potential for above-average returns on the investment made in workforce planning. Ensuring that the most effective and productive people are placed into these positions can positively affect any company's bottom line.

We next discuss how organizations can forecast the likely future demand for their products and services, which influences their ultimate demand for labor.

Forecasting Labor Demand

The first step in the workforce planning process is to forecast the organization's demand for labor given its forecasted business activity and business needs, which depend on its business strategy. We next discuss forecasting business activity and forecasting business needs.

Forecasting Business Activity

The first requirement in projecting staffing needs is to understand the firm's likely future business activity. An organization's product demand directly affects its need for labor. If an organization is experiencing growing demand for what it does or makes, it will probably need to hire more people to meet this increased demand, unless, of course, it plans to increase the automation of its manufacturing processes. Even if the organization does plan to automate, automation may increase the demand for a different type of talent able to use and maintain the new machinery or technology even as the demand for employees with currently required skills decreases. On the other hand, if the demand for the organization's products or services is decreasing for any reason, its need for employees is likely to fall, perhaps to the point that it needs to downsize rather than hire new workers. Millions of manufacturing jobs in the United States were lost when the global demand for goods weakened after the 2001 and 2008 recessions. It is...