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Chapter 2 Human Resource Planning

Learning Objectives
• Appreciate the importance of HR planning
• Explain the relationship between strategic HRM and HR planning
• Identify the key environmental influences on HR planning
• Understand the basic approaches to HR planning
• Describe the ways of forecasting HR requirements and availability
• Understand the requirements for effective HR planning

Chapter Outline
Chapter 2 of the text is divided into four sections, each of which is designed to provide a valuable
introduction to human resource planning and how human resource planning is/can be undertaken. The first
section introduces the concept of human resource planning (HRP) and its purpose. Section two highlights
the need for organisations to consider environmental trends and issues in developing strategic human
resource planning. The different approaches to forecasting the demand and supply of human resources
(quantitative and qualitative) are presented in section three. The fourth, and final section, examines what is
required for human resource planning to be effective.

Importance of human resource planning

Human resource planning is the responsibility of all managers. It focuses on the demand and supply of
labour and involves the acquisition, development and departure of people. This is recognised as a vital HR
function as the success of an organisation depends on its employees.

The purpose of HR planning is to ensure that a predetermined number of persons with the correct skills are
available at a specified time in the future. Thus, HR planning systematically identifies what must be done to
guarantee the availability of the human resources needed by an organisation to meet its strategic business
objectives. To achieve this HR planning cannot be undertaken in isolation. It must be linked to the
organisation’s overall business strategy, and concentrate on the organisation’s long-range human resource
requirements.

Cooperation between the HR function and line management is necessary for success. It allows the HR
manager to anticipate and influence the future HR requirements of the organisation. Effective HR planning
ensures a more effective and efficient use of human resources; more satisfied and better developed
employees; more effective equal employment opportunity (EEO) and affirmative action (AA) planning; and
reduced financial and legal costs.

Strategic human resource management and human resource planning

Effective HR planning considers both the internal and external environmental influences of an organisation,
its objectives, culture, structure and HRM. This is because HR planning must reflect the environmental
trends and issues that affect an organisation’s management of its human resources. This includes
consideration of globalisation, growth of Internet use, the economy, women in the work force, demographic
changes, the casualisation of the work force, employee literacy, skill shortages, acquisitions, mergers and
divestures, deregulation, flexible work schedules, telecommuting, outsourcing, quality of life expectations,
pollution, income tax levels and union attitudes.

Approaches to human resource planning

To forecast the organisation’s future HR requirements and determine from where they will be obtained.
Three sets of forecasts are required:

• a forecast of the demand for human resources

• a forecast of the supply of external human resources
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• a forecast of the supply of human resources available within the organisation

Two approaches used in forecasting the demand for human resources are — quantitative and qualitative.

The quantitative approach: The quantitative approach to HR planning uses statistical and mathematical
techniques. The focus of this approach is on forecasting HR shortages, surpluses and career blockages; its
aim is to reconcile the supply and demand for human resources given the organisation’s objectives.
Quantitative forecasting includes trend projection, econometric modelling and multiple predictive
techniques.

The qualitative approach: The qualitative approach to HR planning uses expert opinion (usually a line
manager) to predict the future (for example, the marketing manager will be asked to estimate the future
personnel requirements for the marketing department). The focus is on evaluations of employee performance
and promotability as well as management and career development. Qualitative forecasting includes Delphi
Technique and Nominal Group technique.

Forecasting human resource availability

The next step in human resource planning involves forecasting human resource availability. This involves an
examination of the internal and external labour supply. Present employees who can be promoted, transferred,
demoted or developed make up the internal supply. The external supply consists of people who do not
currently work for the organisation.

Forecasting the supply of internal human resources: Techniques for forecasting the internal supply of
personnel include turnover analysis, skill inventories, replacement charts, Markov analysis and succession
planning.

Factors affecting the external supply of human resources: Not all vacancies can be filled from within the
organisation. Consequently, the organisation must tap into the external labour market (local, regional,
interstate or international). Thus, the HR manager needs to be alert to demographic changes. Changes
occurring in the external labour market are the aging of the workforce, the increases in female participation
rates, increases in school retention rates, changes in the rate of immigration, casualisation of the work force,
outsourcing, and international employees.

Requirements for effective HR planning

Given that the success of an organisation ultimately depends on how well its human resources are managed,
HR planning will continue to grow in importance.
Successful HR planning requires the HR manager to ensure that:

• HR personnel understand the HR planning process

• top management is supportive
• the organisation does not start with an overly complex system
• the communications between HR personnel and line management are healthy
• the HR plan is integrated with the organisation’s strategic business plan
• there is a balance between the quantitative and qualitative approaches to HR planning.

Chapter Summary
HR planning is an important part of an organisation’s HR information system. This is because a HR plan
affects all HR activities and acts as the strategic link between organisational and HRM objectives. An
effective planning process is essential to optimising the organisation’s human resources. The alternative is
reactive decision making in a climate of increased risk and uncertainty, with the HR department contributing
less to the achievement of the organisation’s strategic business objectives. An effective HR planning system
is essential for an organisation to be proactive, because such information allows managers to make strategic
decisions that ensure optimum performance. Lansbury claims that ‘As organisations become more
technically complex and capital intensive, the greater is their dependence upon having the right kinds of
human resources.’ However, the HR manager should never forget that a HR plan ‘that only generates data is
useless’. The true measure of the effectiveness of the HR function ‘is whether the right human resources of
the organisation have been in place and properly deployed to do what is necessary to implement the
corporate strategy.’ This can only be achieved when HR planning is fully integrated into the organisation’s
strategic business plan, but studies consistently show that little integration has occurred. Charles Sturt
University’s Alan Fish comments, ‘Given that human resource planning is the cornerstone of all HRM
activity, it is astounding how many organisations still perceive the activity as little more than counting ‘bums
on seats’’. This suggests that HR managers still have to successfully demonstrate that HR planning is
relevant to the needs of line managers.

Terms to identify
ageing population qualitative HR planning
contingent worker quantitative HR planning
human resource planning replacement chart
labour market skills inventory
Markov analysis succession planning
outsourcing turnover analysis
participation rates

REVIEW QUESTIONS

1. What is HR planning? How does it relate to other HRM activities?

The purpose of human resource planning 'is to assure that a certain desired number of persons with the
correct skills are available at the specified time in the future'. Human resource planning thus identifies what
must be done to ensure the availability of the human resources needed by an organisation to meet its
objectives. The other HRM activities are then enacted to achieve the human resource plan that has been
developed.

2. What are the differences between the quantitative and the qualitative approaches to HR
planning?

The quantitative approach to human resource planning uses statistical and mathematical techniques and is
primarily used by theoreticians and professional human resource planners in larger organisations. The
qualitative approach to human resource planning uses expert opinion to predict the future. The focus is on
evaluations of employee performance and promotability as well as management and career development.
Although not as sophisticated as the quantitative approaches, estimates based on expert opinion are popular
among smaller firms because of their simplicity and speed.

3. What action can an organisation take to overcome skill shortages?

The Skills Inventory will identify the skill, abilities, qualifications, etc. of employee within the organisation.
If the HR manager identifies a skill shortage within the organisation they may choose one of two main
options to rectify this problem or potential problem. (1) provide further training and development to existing
employees to upgrade their skills and qualifications to meet new organisational needs, (2) undertake
external recruitment targeting the specific needs of the organisation.

4. How can HR planning help an organisation achieve its EEO and AA goals?
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The Affirmative Action goals set by an organisation must be input to the human resource demand and supply
requirements for that organisation. Affirmative Action goals probably are considered as numbers and skills
as part of the requirements and inventory of human resources.

The necessity for Affirmative Action goals is a reflection of some of the environmental influences on
organisations. As part of the total planning process, human resource planning must consider the
environmental influences on the organisation, its objectives, culture, structure and human resource
management.

This is because human resource planning must reflect the environmental trends and issues that impact on the
organisation's management of its human resources. Government regulations relating to occupational health
and safety, equal opportunity, affirmative action and superannuation, for example, must be integrated with
the organisation's human resource management objectives and activities.

Similarly, changes in the demographic composition of the population can affect the type and availability of
labour. This in turn can have an impact on the organisation's Equal Employment Opportunity
(EEO)/Affirmative Action (AA) objectives. The growing role of women in the workforce for example, is
dependent on improved child-care facilities, availability of part-time work, job security after an absence for
child-bearing, maternity leave and special parental leave.

5. What is the role of the HR manager in the HR planning process?

The human resource manager needs to be able to forecast what the organisation's future human resource
requirements will be and from where they will be obtained. Quantitative and qualitative approaches are
used. To do this, three sets of forecasts are required:

* a forecast of the demand for human resources

* a forecast of the supply of external human resources
* a forecast of the supply of human resources available within the organisation.

Once the human resource manager has estimated the personnel needs of the organisation, the next challenge
is to fill the projected vacancies. Present employees who can be promoted, transferred, demoted or
developed make up the internal supply. The external supply in contrast consists of personnel who do not
currently work for the organisation. Techniques for forecasting the internal supply of personnel include
turnover analysis, skill inventories, replacement charts and Markov analysis.

For HR planning to be a success, the HR manager must ensure that:

* human resource personnel understand the HR planning process
* top management is supportive
* the organisation does not start with an overly complex system
* the communications between HR personnel and line management are good
* the HR plan is integrated with the corporate plan
* there is a balance between the quantitative and qualitative approaches to HR planning.

6. What is the relationship between HR planning and strategic management?

As part of the strategic planning process, HR planning must consider the environmental influences on an
organisation, its objectives, culture, structure and HRM. This is because HR planning must reflect the
environmental trends and issues that affect an organisation’s management of its human resources.
Government regulations relating to conditions of employment, EEO, industrial relations and occupational
health and safety, for example, must be integrated with an organisation’s HRM strategies. Similarly,
changes in social values and in the demographic composition of the population can affect the type and
availability of labour. This, in turn, can have an impact on an organisation’s EEO and AA objectives.
7. What is succession planning? What are its benefits? What are the characteristics of effective
succession planning?

Succession planning is concerned with the filling of management vacancies. It stresses the development of
high potential employees and takes a long-term view of the organisation's human resource needs.
Succession planning makes use of replacement charts but generally expands on these to include additional
information on current performance, promotability, developmental needs and long-term growth potential.

Traditionally, managers have developed their own replacements, but this approach is often found wanting
because of its ad hoc and subjective nature. Effective development requires a systematic analysis of the
manager's training and development needs; the identification of appropriate learning experiences via job
assignments; special projects, and formal training programs. As a result, organisations increasingly use
assessment centres in conjunction with line management input to identify future senior managers and assess
their development needs.

The human resource manager's role is to ensure that succession planning provides the organisation's future
managers with the necessary preparation to successfully fill potential vacancies. This means having an
effective performance appraisal system, needs-oriented training and development programs, and a corporate
culture that fosters individual growth and promotion from within. Otherwise succession planning will
become an academic exercise producing only static charts and unnecessary paperwork.

8. What major demographic changes are likely to affect organisations in the near future? How
are these changes likely to affect organisations? How can HR planning help organisations
successfully deal with these changes?

Changes in social values and in the demographic composition of the population can affect the type and
availability of labour. This, in turn, can have an impact on an organisation’s EEO and AA objectives.

The growing role of women in the work force, for example, depends on improved child-care facilities,
availability of part-time work, job security after an absence for child bearing, maternity leave and special
parental leave. The workforces of Australia, Hong Kong, Japan, Singapore, South Korea, Taiwan and the
USA, for example, are all ageing. The ageing of the work force combined with a global shortage of skilled
personnel will force employers to employ larger numbers of older workers. Fortunately, the use of
technology will make work less physically demanding, permitting older people to work longer. ‘An ageing
work force,’ says one expert, ‘will compel companies to rethink virtually every aspect of how they organise
business in order to tap into the knowledge and experience of their older workers while keeping promotion
opportunities open for younger employees.’

In response to these types of changes organisations might choose to introduce different work practices such
as flexible work hours, job sharing, outsourcing, increased use of part-time and casual workers, tele-
working, working from home. All of which will have an impact on a range of HR practices.

9. What can an organisation do when it is faced with (a) a surplus of human resources? (b) a shortage of
human resources?

(a) If a surplus of human resources exists an organisation can use one (or more) of the following options:
stop recruiting, reduce casual and part-time employment, start early retirements, start retrenching or
reduce work hours.
(b) If a shortage of human resources exists an organisation can use one (or more) of the following options:
increase overtime, increase casual and part-time employment, postpone retirements, start recruiting,
accelerate training and development, and use outsourcing.

10. What can organisations do to better utilise older, unskilled workers?

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To make better use of older workers organisations could use a variety of different work practices including
job sharing, and working from home. Mentoring would also be a valuable approach to ensure the transfer of
knowledge or experience to younger employees. Better use can also be made of unskilled employees by
introducing further training and development, multi-skilling, or mentoring.

DIAGNOSTIC MODEL

1. Identify and discuss the factors from the diagnostic model (figure 1.11) that have significance for HR
planning.

Internal and External Influences will affect both the supply of and demand for human resources over time.
Organisation purpose, objectives, strategy, structure, and culture will affect the internal supply and demand
for human resources over time. HR Planning objectives are part of the HRM objectives of the organisation.
HRM Strategy and Activities will affect the demand for human resources over time. HRM Outcomes will
contribute to any surplus or shortage of human resources. For example, employee commitment can be
considered as a `skill'. A HRM Audit will assess the extent to which HR Plans have been achieved. In short,
all aspects of the diagnostic model have significance for human resource planning.

2. Examine the impact of HR planning on the acquisition, development, reward, maintenance and
departure of an organisation’s human resources.

Acquisition, development, reward, motivation, maintenance and departure are Human Resource Activities.
They are the activities implemented if the planning process finds that there is a surplus or shortage of
vacancies in the organisation. Acquisition can consist of some more specific HRM activities such as job
analysis and design, recruitment, selection, training, development, career development, and motivation. The
implementation of these activities is an outcome of the HR planning process.

3. Discuss the impact that HR planning may have on commitment, competence, cost-effectiveness,
congruence, adaptability, performance, job satisfaction and employee motivation.

To be successful, an organisation needs employees. Its effectiveness and ultimate survival depends on
having the right people in the right jobs at the right times. Consequently, to successfully meet its future
labour requirements, the organisation requires a HR plan focused on future employee needs and developed
from the organisation’s strategic business plan.

The purpose of HR planning is to ensure that a predetermined number of persons with the correct skills are
available at a specified time in the future. Thus, HR planning systematically identifies what must be done to
guarantee the availability of the human resources needed by an organisation to meet its strategic business
objectives. HR planning cannot be undertaken in isolation. It must be linked to the organisation’s overall
business strategy. To be of value, HR planning must be an integrated part of the organisation’s strategic
planning process. It should be noted that strategic planning which reviews the organisation’s external and
internal environment precedes HR planning (see chapter 1).

A common mistake is for the HR manager to concentrate on short-term replacement needs rather than on the
organisation’s long-range human resource requirements. Such a non-strategic approach produces surprises in
employee availability, quantity and quality, and forces the HR manager to deal with a series of short-term
crises. This approach is clearly inefficient: it is reactive and represents a management-by-crisis approach. If
the right number of qualified and skilled employees is not available, an organisation may not be able to meet
its strategic business objectives. High technology firms such as IBM and Motorola, for example, often have
strategies for developing new products or entering new markets that depend on the availability of
appropriately qualified and skilled human resources. Similarly, Foster’s move into China, with the
establishment of breweries in Tianjin, Shanghai and Guangdong, and its acquisition of winemakers Mildara
Blass Ltd and Rothbury Wines Ltd have created demand for personnel with new skills and different
experiences. The top management of Foster’s China, for example, now all speak Mandarin. Pacific
Dunlop’s strategic decision to exit the food and medical technology industries, in contrast, meant that it no
longer needed food and medical technology-related skills.

Cooperation between the HR function and line management is necessary for success. Such a partnership
links HR planning with corporate strategic planning and ensures that HRM is proactive. It allows the HR
manager to anticipate and influence the future HR requirements of the organisation. Thus, HR planning can
be seen as a systematic process linking the management of human resources to the achievement of the
organisation’s strategic business objectives. Effective HR planning ensures a more effective and efficient use
of human resources; more satisfied and better developed employees; more effective equal employment
opportunity (EEO) and affirmative action (AA) planning; and reduced financial and legal costs.

As part of the strategic planning process, HR planning must consider the environmental influences on an
organisation, its objectives, culture, structure and HRM. This is because HR planning must reflect the
environmental trends and issues that affect an organisation’s management of its human resources.
Government regulations relating to conditions of employment, EEO, industrial relations and occupational
health and safety, for example, must be integrated with an organisation’s HRM strategies. Similarly,
changes in social values and in the demographic composition of the population can affect the type and
availability of labour. This, in turn, can have an impact on an organisation’s EEO and AA objectives.

Soapbox
There are seldom clear answers to these questions. The idea is to stimulate debate as much as to determine
an answer.

ETHICAL DILEMMA

A company sweatshop?

1. Who do you agree with — Maureen Butler or Kerry Kaufman? Why?

As always, both people have valid arguments. It is true that the alternate would be scavenging for scraps,
but there is an ethical and socially responsible obligation on all organisations to treat people as humans, and
not to patronise or degrade them. We won't solve it here, but students need to be aware of both arguments.

2. What ethical issues, if any, are raised in this case?

The ethical issues are pretty well stated in the answer to question 1.

CASE STUDY

East State University

1. To formulate a HR plan, what further information would you need to gather about (a) the existing
academic staff and student body? and (b) future students? What other information would you need to
gather about the East State University and its new School of Business?

Qualitative estimates from managers. A proper skills inventory. Skills inventories can be quite simple and
manually kept, or detailed and maintained as part of an integrated HR information system (HRIS).
Ultimately, turnover rates are needed. Certainly, current information. Out-of-date information quickly
makes a nonsense of any skills inventory system. Given the time and cost involved in updating, only
essential data should be collected. Information overload can make a system unworkable because it can
encourage managers to specify too many factors, with the result that many qualified employees are not
considered because of out-of-date records.
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2. How would you estimate the internal supply of academic staff in each department?

Present employees who can be promoted, transferred, demoted or developed make up the internal supply.
Techniques for forecasting the internal supply of personnel include turnover analysis, skill inventories,
replacement charts and Markov analysis. The skills inventory is another method used to evaluate the
internal supply of labour. This consolidates basic information on all employees within the organisation and
permits the HR manager to:
• identify qualified employees for different jobs
• determine which skills are present or lacking in the organisation
• assess longer term recruitment, selection and training and development requirements.

Information that can be listed in a skills inventory includes:

• personal data — age, sex, marital status
• qualifications — education, job experience, training
• special qualifications — membership in professional associations, special achievements, awards
• skills — languages, computer programs
• salary and job history — present and past salary, dates of raises, various jobs held
• company data — benefit plan data, retirement information, seniority
• capacity of individual — scores on psychological and other tests, health information
• special preferences of individual — geographic location, type of job.

3. How would you predict the number of academic staff that will be needed in each department?

The human resource manager needs to be able to forecast the organisation’s future HR requirements and
determine from where they will be obtained. Three sets of forecasts are required:
• a forecast of the demand for human resources
• a forecast of the supply of external human resources
• a forecast of the supply of human resources available within the organisation

These forecasts are an attempt to predict changes in the organisation’s needs for human resources.
Sophisticated techniques have been developed, but HR forecasting is not an exact science and organisations
use extremely varied forecasting techniques. Two approaches to HR planning can be identified —
quantitative and qualitative. Quantitative forecasting includes trend projection, econometric modelling and
multiple predictive techniques. Such techniques require specialised know-how, so the HR manager may
have to rely on staff experts or outside consultants. The qualitative approach to HR planning uses expert
opinion (usually a line manager) to predict the future (for example, the marketing manager will be asked to
estimate the future personnel requirements for the marketing department).

4. What HRM problems could be expected to arise in this merger? As HR consultant to East State
University, what would you recommend (and do) to prevent or overcome such problems?

Clashes of culture. Resistance to change from both sides. Uncertainty of change resulting in lowered
commitment. Possibly resulting in industrial dispute.