EMPLOYMENT FORECASTING

Employment forecasting



Employment forecasting

A)

Introduction

For economic policy decision making (monetary and fiscal), predicting a turning point (peak and trough) in a business cycle is very important. A main objective of economic policy is to create a stable economy that grows at a desirable rate with high employment and low inflation. Policy actions designed to bring stability in the economy are business cycle dependent. For example, to prevent an economy from overheating during an expansion period, which may result in rapid price hikes for goods and services and a high inflation rate, policy actions such as tightening the money supply and raising interest rates will cut the demand for goods and capital and cool the economy down. An example of policy action for preventing a slowing economy from entering a recession is a combination of fiscal stimulus, such as a tax cut, and easy money, such as lower interest rates, to encourage customer and business spending (Hamilton, 2009).

Demand-Supply Analysis

An HR forecast is a guess or estimate and can be based on simple assumptions of what the future may hold or on complex computer statistical models. On the simple end, a forecast may be based on asking all supervisors or managers how many employees they expect to hire in the next year or so. This is called a managerial estimate. Another method is the Delphi technique, in which each member of a group of experts, without ever having met in person, individually provides forecasts until all members of the group agree on one model forecast. A similar method is known as the nominal group technique, but in this situation, the group of experts meets face-to-face to recommend the best forecast. There are several statistical or mathematical methods of forecasting. Statistical forecasting is completed through either regression analysis or simulation. Simulations are “what if” scenarios allowing the organization to speculate on the future. On the complex end, a forecast may be based on statistical regression analysis. Regression analysis is used to project future needs on a comparison of employment level and one or more variables related to employment, such as gross sales.

An HR forecast should cover three time periods: short-term, intermediate, and long-term. A short-term forecast would cover a period of less than or up to one year. An intermediate forecast would cover one to five years, and a long-term forecast would cover beyond five years. Forecasting, however, is not strategic planning. Forecasting is a way to predict, by reviewing current and past business trends (such as sales), what the future trends will be. Strategic planning is much more—it is a plan to prepare an organization for the future. Part of strategic planning, however, is HR planning.

Forecasting staffing needs is a four-step process: demand analysis, supply analysis, reconciliation of the budget, and strategic analysis.

Demand analysis consists of obtaining or creating a forecast for the organization's demand for future employees. This can be accomplished simply by requesting future staff estimates from managers within the organization. For this type of forecasting to be effective, an ...