Why You Shouldn’t Underestimate the Value of Workforce Demand Forecasting
For your organisation to strategically plan its future workforce, you need to forecast demand for the requirements of the business. How many staff will you need? What capabilities will they need to have? What job roles will they be doing, and which roles will be particularly critical for future business success?
Sounds simple enough to predict the future, right? Forecasting your future workforce is probably one of the most challenging aspects of workforce planning. To help dispel some of the mystique of this important but complex activity, we’ll talk you through what you can do to effectively undertake workforce demand forecasting.
But first a definition.
What is HR demand forecasting?
Human resource demand forecasting is the process of estimating both the quantity of the workforce required and he quality of this workforce. When measuring the quality of the workforce you need to look at the capabilities required to deliver your organisation’s objectives and goals.
What you need to know before you start
You’ve commenced your workforce planning, you’ve articulated your future business operating environment, now it’s time to focus on the workforce. Right? Not quite. Before deciding which type of demand forecasting is right for you, there are a few questions you’ll want to be able to answer:
- What is the scope of your workforce plan?
- What do you want to forecast?
- Who needs to be involved?
- What models or methods will you use?
- What time periods will you forecast?
- Are you including scenarios?
Are you doing a whole of organisation workforce plan, or just part of the organisation?
The scope of your plan will impact on how you go about demand forecasting, the resources you’ll need, the stakeholders you include in the process, and the time it’s likely to take.
Are you forecasting capacity and capabilities, or just one of them?
For some organisations, it’s all about the numbers or capacity. For others, future business success will be driven more by workforce capabilities. And for other organisations still, it will very much be a combination of both. Determining what’s right for your organisation should one of your early decision points.
Are you forecasting headcount or FTE?
This will very much depend on the context of your organisation and which measurement makes more sense. Do you need to understand the actual number of people (i.e. headcount)? Or do you need the collective total, aka full-time equivalent (FTE)? This will further depend on the purpose of your plan. If your plan will feed into other planning activities, such as determining organisational accommodation needs, you’ll most likely want to forecast on headcount.
Who needs to be involved?
HR or workforce planners are generally the stewards of workforce planning. However, it’s important to work collaboratively with stakeholders across the business for demand forecasting. Getting the right people involved in each part of the workforce planning process starts with identifying the stakeholders <link to stakeholders paper> who can advise on the issues that need addressing based on their day-to-day experience with them.
What are the types of demand forecasting?
There are many different methods of forecasting that can be either quantitative or qualitative. They each have pros and cons, but the most important thing is to choose a method that’s most appropriate for your organisation or the job role that you’re forecasting. Depending on the complexity of your organisation, you might even use different methods for different roles or different parts of the organisation. Regardless of which method you use, it’s important you’ve got the best information available, the right people involved and a robust process.
What time periods will you forecast?
This covers the overall time span of your plan and at what points in time over that span that you need details for your workforce. If you’re doing a five-year strategic workforce plan, you may only need to understand your workforce needs at years one, three and five. If you’re doing a three-year operational workforce plan, you may need to forecast every year.
Are you including scenarios in your workforce plan?
If you’re including scenarios, your demand forecasts will need to consider all of your scenarios. (We’re talking the good, the bad, and the ugly.)
The challenges of forecasting the future workforce
There’s no way around it. Demand forecasting is one of the most challenging components of workforce planning, least of all because you’re dealing with hypotheticals. To ensure you’re investing your attention and resources in the right areas, it’s worthwhile to segment your organisation and focus on what will be the pivotal or critical roles.
Segmenting your workforce enables you to understand the different needs of different roles. (A one-size-fits-all approach is rarely effective in clothing, so you can’t expect it to work here either.) Segmentation can be done in a number of different ways. A common approach is to use a job family framework or model which groups together functionally similar roles.
Once you’ve segmented your workforce into your job family model, it’s beneficial to identify what are the pivotal, critical or crucial job roles. The language is important here, as determining these roles is often quite controversial—every role in an organisation is important but determining those that are truly critical can be tricky. It ultimately doesn’t matter exactly what terminology you use, but it’s important to understand which roles are pivotal to your future business success.
What are pivotal roles?
Pivotal job roles are typically those that are directly responsible for delivering on the organisation’s objectives. Their work has a direct strategic impact, but also represents the most significant risks.
Pivotal roles can exist anywhere within the organisation which makes determining criteria on how to identify extremely beneficial. In our experience, pivotal roles will often be those which:
- Present the greatest risk if they are not filled by high performing staff or are left unfilled.
- Deliver the current or future core business of the organisation.
- Historically have been difficult to fill and/or are likely to be difficult to fill in the future.
- Take a long lead time to reach full productivity.
- Form a critical mass.
Why you need to consider this
The drivers behind your workforce plan impact which roles are ultimately determined to be critical. If you’re doing a strategic workforce plan and your business is changing, what’s critical in the short-term might be quite different to what’s critical in the longer term. For an operational workforce plan with a shorter time span, what’s critical today may still be critical next year. Hot tip: When deciding which roles are critical, consider whether you have any new or emerging job roles. These will give you some indication to what business changes may lie ahead.
Determining your future workforce capacity
Capacity demand forecasting determines the number of staff needed, rather than what the organisation can afford or what would be nice to have. (Surely every organisation wants someone who solely troubleshoots their printer problems? No? Just us? Okay.) This requires a robust process using the best available information and involving the people who understand what workforce the business needs. These people will usually be a combination of line managers and specialists, with workforce planners or HR staff facilitating the process.
Since it can be difficult to give a specific figure when forecasting future staff numbers, you can instead utilise a percentage increase or decrease. This can be good if you don’t want managers to get caught up in the detail of specific numbers; forecasting a 5% increase might be a better way for managers to think about capacity against workload.
We strongly encourage organisations to not get caught up in decimal places when forecasting for strategic workforce planning You don’t want to talk about the specifics of 43.4 graduate engineers when you’re trying to understand the directional change. It’s more than okay to round your forecasts. The only exception is if it’s an operational workforce plan which requires greater granularity.
Understanding your drivers
While capacity forecasting is about numbers, understanding what’s driving those numbers is essentially as important as the numbers. Consider any potential risks in capacity. Understanding what is driving those risks is critical to mitigating them. It’s not enough to know that you need 50 policy advisers—you need to know why you need them and what aspects of the scenarios or future business objectives dictate that it’s 50, rather than 35. The diagram below shows the capacity demand forecast for a business unit, with two scenarios, in a five-year strategic workforce plan. The difference between the two lines comes down to the reasoning that sits behind these numbers. It indicates how critical the information needed to support them is.
Forecasting demand for future capabilities
It’s important to understand what capabilities will be needed to successfully deliver future business, particularly if capabilities are likely to change over time. This will typically be a combination of core capabilities (i.e. those that the majority of staff need) and technical capabilities that relate to specific job roles.
For many organisations, accurately forecasting future capability requirements is critical for ensuring business success, so it’s important that you undertake a rigorous assessment of:
- What capabilities you will need.
- The importance of the capabilities.
- The current level of proficiency in each capability.
- Forecasting the future desired level of proficiency.
The business knowledge and expert judgement of managers and specialists will be particularly important for ensuring the accuracy of your forecast. It’s also important to remember that your forecast should be based on the collective capability of teams, rather than specific individuals.
Creating capability frameworks
If your organisation has a capability or skill framework, use it as a starting point. Just don’t assume that current capabilities will match future capabilities. Be prepared to supplement them, particularly if your forecasting process identifies future emerging capabilities.
If your organisation doesn’t have a capability framework, there are many frameworks available through various associations, consulting firms, other organisations and government bodies. If you don’t have an existing framework, it is worth investigating these prior to holding your initial discussions. While you are unlikely to find an existing framework that perfectly fits your organisation, you’ll most likely find one that is close and will just need some adjusting. (Plus, it’s much easier to modify an existing framework than to start with a blank sheet of paper.) This process should be done in conjunction with forecasting staff numbers using a facilitated, structured discussion.
Something to keep in mind
Regardless of the process used, it is important that it is rigorous and whoever is doing the forecast can articulate a rationale for it. It’s also important that qualitative information is gathered in addition to any ratings. As with forecasting the number of staff needed, understanding future capabilities is not just about a number or the capability; what’s driving that need is often more important, so keeping good records of the supporting rationale for forecasts is important. Consider the diagram below. It shows what the quantitative assessment might look like with current and future desired proficiencies across five capabilities, listed in order of importance. Plus, it also feeds your analysis of what capability risks the organisation faces.
How to get the best results from demand forecasting
So far, we’ve talked about the what of demand forecasting—now let’s talk about the how. In our experience, a collaborative, robust process and a tailored combination of workshops and interviews will get the best results. Keep in mind that:
- This process should be structured and well-planned, with clear objectives and activities designed to glean the information needed.
- Most importantly, it must involve the “right” people, i.e. those who have the best knowledge and ability to forecast the true future workforce needs.
Leave no stone unturned
This is a broad statement, but there are a number of areas that can often go unnoticed:
- The facilitator of the process will often need to tease out information, and may need to challenge those making the forecasts, ensuring they are talking about what will be needed, rather than what would be good to have or what can be afforded.
- It’s important to create an in-built validation process, typically with more senior managers who will review the demand forecasts and make any necessary adjustments.
- You’ll also need to plan for capturing data and how you’ll store it. Understanding the rationale for your forecast is crucial, so you’ll need to plan how to capture all of the qualitative comments that support the quantitative forecast.
Present data for all stakeholders to see
Capturing, managing and presenting the data gathered through workforce planning, particularly demand forecasting, is often a challenge. Still, it’s an incredibly valuable part of the process that facilitates a universal understanding of future workforce and business goals. There are a number of systems you can use for this, ranging from Excel all the way through to specialist workforce planning software, which all have their pros and cons.
Effective collaboration is the key to demand forecasting and, speaking more generally, workforce planning as a whole. We’re harnessing all our experience to develop our own software driven by our collaborative approach to workforce planning.
Demand forecasting is a different way of thinking about the workforce. For many involved in the process, it can be quite challenging and feel uncomfortably unfamiliar. But, by using a collaborative and constructive approach, appropriate methods and involving the right people, you’ll achieve a good outcome. One that can positively impact the future of your organisation.
The more experience you and your organisation gain at demand forecasting, the more effective it will be. But even if your first iteration isn’t easy, it will still be valuable for your organisation to have considered your workforce in that way.
PS. Visual downloads for demand forecasting…
If you’re doing an internal presentation on demand forecasting, we created a couple more downloadable visuals with for you here:
Book a call today with the team at Panorama and let’s discuss how workforce planning software can drive efficiencies in your organisation.