Demand forecasting is the process of estimating the future quantity and quality of people required. The basis of the forecast must be the annual budget and long-term corporate plan, translated into activity levels for each function and department. In manufacturing company, the sales budget would be translated into a production plan giving the number and type of products to be produced in each period. From this information, the number of hours to be worked by each skilled category to make the quota for each period, would be computed. Once the hours are available; determining the quality and quantity of personnel will be the logical step.
Demand forecasting must consider several factors- both external as well as internal. Among the external factors are competition (foreign and domestic), economic climate, laws and regulatory bodies, changes in technology, and social factors. Internal factors include budget constraints, production levels, new products and services, organizational structure, and employee separations. Demand forecasting is common among organizations, though they may not do personnel-supply forecasting.
There are several good reasons to conduct demand forecasting. It can help
- Quantify the jobs necessary for producing a given number of goods, or offering an given amount of services.
- Determine what staff-mix is desirable in the future
- Assess appropriate staffing levels in different parts of the organization, so as to avoid unnecessary costs
- Prevent shortages of people where and when they are needed most
- Monitor compliance with legal requirements with regard to reservation of jobs.
Forecating Techniques: Forecasting techniques vary from simple to sophisticated ones. Before describing each technique, it may be stated that organizations generally follow more than one technique. The techniques are:
- Managerial Judgement
- Ratio-Trend Analysis
- Regression Analysis
- Work Study Techniques
- Delphi Technique
- Follow Models
Managerial Judgement: This technique is very simple. In this, managers sit together, discussand arrive at a figure which would be the future demand for labour. The Technique may involve a “Bottom-Up” or a “Top-Down” approach.
Ratio-trend analysis: This is the quickest forecasting technique. The Technique involves studying past ratios, say, between the number of workers and sales in an organization and forecasting future ratios, making some allowance for changes in the organization or its methods.
Regression analysis: This is similarto ratio-trend analysis in that forecast is based on the relationship between sales volume and employee size. However, regression analysis is more statistically sophisticated.
Work-Study Techniques: It can be used when it is possible to apply work measurement to calculate the length of operations and the amount of labour required.
Delphi Technique: The Delphi technique is a method of forecasting personnel needs. It solicits estimates of personnel need from a group of experts, usually manager.
Flow Model: Flow models are very frequently associated with forecasting personnel needs. The simplest one is called the Markov Model.
