CHAPTER 2

Human Resource Planning

1. Human resource planning and strategic HRM 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 organisations 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.

2. 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 organisations overall business strategy, and concentrate on the organisations 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.

What role does the HR manager have in the HR planning process?

3. Environmental factors and human resource planning

Because organisations do not operate in a vacuum they are continually affected by changes in the external
business environment. Many of these changes will require a modification of business strategy,
management or marketing approach, etc; which require adjustments to human resources in some way. To
allow such changes to be made quickly and efficiently human resource planning monitors and considers
many aspects of the internal and external environment when making plans. Of particular importance are
trends and issues associated with economic, social, demographic, and technological factors. Increased
globalisation, the growing role of women in the workforce and the declining academic standards are
recent trends that HRP would need to take into consideration.

4. Other environmental influences

More specific trends and issues that will affect HRP include:

Demographic factors
Casualisation of the workforce
Employee literacy levels
Skill shortages
Acquisitions, mergers, divestures
Deregulation
Pay levels
Flexible work schedules
Telecommuting
Outsourcing
Quality of work life expectations
Pollution
Government regulations
Income tax levels
Union attitudes
HRP has been viewed as a strategic activity because it considers trends and
developments that occur in the organisations external environment.

Select from the environmental trends and issues listed above and discuss how
these might impact upon HRP and decisions made in relation to HRM activities.

5. Approaches to human resource planning

To forecast the organisations 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 within the organisation

a forecast of the supply of external human resources
a forecast of the supply of human resources available within the organisation (see figure 2.6)

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 organisations 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.

6. 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.

Through monitoring the external labour market HRP can identify

any areas of skill shortages that might impact upon the
organisation.

Discuss what action can be taken to minimize or overcome a

problem once a skill shortage has been identified.

7. 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 organisations strategic business plan
there is a balance between the quantitative and qualitative approaches to HR planning.

HR planning is an important part of an organisations 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 utilisation of an organisations
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 organisations
strategic business objectives.

Review Questions
Questions in bold print are recommended as exam questions.

1. What impact is globalisation having on labour demand and supply?

Globalisation has resulted in a significant increase in the movement of skilled labour around the world.
Many countries are experiencing a brain drain as large numbers of highly qualified, skilled people move
permanently to other countries in search of better compensation, flexibility, opportunities, and better
futures. This results in serious shortages of skills in some countries, and increases the competition
between organisations. To attract and retain these skilled personnel organisations must offer them better
packages compensation, career opportunities, promotion, etc.
2. What is outsourcing? Why is it so controversial?
Outsourcing involves subcontracting work to an outside company that specialises in and is more efficient
at doing that kind of work. The most commonly outsourced activities are maintenance and clerical
activities. An increasing number of organisations are also outsourcing many of their basic HR activities,
such as recruitment, benefits plan design, retirement services, and HR record-keeping.
While this move has been seen as necessary for many organisations it has and continues to face
opposition from unions, the public sector and political sources. The main criticisms are centred on the
perceived reduction in service, poor quality of consultants, worsening industrial relations, production
delays, the loss of essential personnel and excessive costs. Many outsourcing jobs are now fulfilled by
foreign workers who work for low wages, in poor working conditions; which raises many ethical issues.
3. Describe the HR planning process.
HR planning considers both the internal and external environmental influences on an organisation. HR
planning involves being able to forecast the organisations requirements and determine from where the
necessary people will be obtained. To do this effectively three types of forecast are required:

a forecast of the demand for human resources within the organisation

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

These forecasts attempt to predict changes in the organisations needs for human resources and ensure
that these needs are met.
4. What is the point of undertaking HR planning when there is so much change and uncertainty in the
business world?
The focus of HRP is on the demand and supply of labour, and the process of identifying what must be
done to ensure the availability of human resources required by an organisation to meet its strategic
objectives. A significant element of human resource planning the process of environmental scanning,
which collects information about aspects of the business environment that have the potential to impact
upon the organisations ability to achieve its objectives. Having this information then allows the
organisation to develop ways to respond to the various changes; make contingency plans, develop
alternative courses of action, and anticipate the actions of competitors. Whilst there is a great deal of
change and uncertainty in the business world HRP helps the organisation to moderate its negative
impacts.

5. Which environmental factors will have the greatest impact on HR planning in the next five years?
There are several basic categories of environmental factors that students might discuss; the most common
being economic, social, demographic and technological. More specific areas are:
Labour market qualifications, global movement of people, skill shortages, aging workforce,
casualisation of the workforce, increasing women in the workforce, teleworking, flexible work processes,
declining academic standards.
Technology pace of change, changing skill requirements, skill shortages in some high tech areas,
provision of increased training for employees.

6. How can HR planning help an organisation to achieve its strategic business objectives?
The role of HRP is to ensure that the right number of people with the right skills are available when the
organisation needs them. Through the process of HRP the organisation can also anticipate how changes to
its business strategy and business environment will affect its employee requirements. For example they
can anticipate labour shortages that might make it difficult for them to attract people with specific skills in
the next few years, and then look at what alternatives they can use to overcome this problem; such as
providing student scholarships, providing specialist training for existing employees, headhunting, etc. All
HRP activities are focused on ways to facilitate the efficient attraction and retention of quality employees
the key for any organisations attempts to achieve its business objectives.

7. What is succession planning? Why is it important for an organisation to use 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 organisations 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
managers 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 managers role is to ensure that succession planning provides the organisations
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 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 organisations 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, teleworking, 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. Do you agree that downsizing is the result of poor HR planning? Explain your answer.
Downsizing has been defined by Casio (1998) as the planned elimination of positions or jobs in an
organisation. Many would argue that large scale downsizing was the result of poor HRP. However, some
downsizing might be necessary due to changes in a business strategy or totally unexpected changes in the
business environment. For this reason it would be necessary to look at each case of downsizing separately
to determine why it was undertaken, and if it could have been avoided by better HRP