There is no such thing as a One Man Show in business. A company is made up of its workforce and hiring the perfect fit for the job is a science in itself. As the saying goes:
Right people bring the right attitude, skills, and expertise to the organization, creating a work-friendly environment where harmony and prosperity lead the company along the road to success
Picture the situation in reverse: a wrong hire can bring work-politics, conflicts, and disasters which negatively impact sales and revenues; these wrong heads halt your business growth too.
The biggest challenge for a Small and Medium-Sized Enterprise (SME) in human capital management is an imbalanced workforce; recruiting, training, and nurturing your employees by giving them opportunities within the company is where the right balance exists.
The bad news is, even with high unemployment rates, sometimes companies fail to hire people with the right sets of skills. As per a recent report by Bersin & Associates, 51% of companies struggle to hire the right talent despite high unemployment.
Balancing the workforce is about forecasting the current and future demands concerning business objectives and goals. Later, it is essential to address more important matters like the supply of labor. For example, are there candidates with the right skills available in the market that you require for the job? The last stage is to balance the demand and supply of the labor so that you have the right number of employees with appropriate skills and expertise, thus ensuring that your company is not over or understaffed.
In this article, we will explain the methodology involved in forecasting the demand for labor and how to fulfill the demand with the right fit at the right time.
How to Forecast Labor Demand?
Labor demand forecasting is the soul of a balanced workforce. As a business, it can be detrimental to have a surplus of employees who are improperly deployed. Equally precarious to your business are gaps in its workforce, which negatively affect productivity, performance, and profitability.
So, if a company is over-employed, it means the salary expense will be higher than the expected budget, thus declining profits. Moreover, if a business is under-employed, the overall performance will impact the quality of work, which again results in declining sales and profits.
Either situation is unacceptable. Since labor forecasting is so essential to a business, especially in its initial stages, it is advisable that management forecast labor force requirements even before starting the operations.
While projecting the current and future staffing needs, a business owner should ask these questions to make labor-forecasting easier:
Where are we heading as a business? What is our 3-5 year (or longer) growth plan as an organization?
At what rate and how large are we planning to grow our business or product line or services?
What innovations will we bring to the organization? What technological advancement we are going to implement in the company, and how it will impact our staffing needs at different levels?
What are the expected absenteeism and turnover rates?
Do we have sufficient resources to execute our business plan, or are we running at a deficit?
Will we find similar skill sets in the market easily if any employee left the company for any reason?
Can we distribute responsibility and decentralize the talent pool through empowerment of our team to at once provide our people with greater job satisfaction and mitigate our risk from employee churn?
Although SMEs lack HR expertise because of not having a proper HR department, every business, no matter the size, should implement a proper human resource strategic plan, and these strategies should align with business objectives.
The labor demand can be forecasted with:
1. Quantitative Approach
2. Qualitative Approach
Quantitative Approach – This foretelling approach is done by using various statistical and mathematical approaches like indexation or trend analysis. Indexation is a method which uses one or more fixed organizational indices to forecast labor force, whereas Trend Analysis is a concept to forecast labor demand in relation to the study of past human resource growth. This approach is quite expensive and mostly used in larger organizations (as a benchmark, think 250+ employees).
Qualitative Approach – This is a calculation based approach, often conducted by the experts - HR manager, department manager, and/or the proprietor - within the organization. Techniques used in this approach are Delphi Technique, Nominal Group Technique, Managerial Judgement, etc. SMEs often prefer to rely on this approach to save expenses, thanks to third-party consultants who manage human resource for dozens of businesses at once.
The qualitative approach tends to be more beneficial than the former, especially with SMEs. First, because all of the people involved in planning and execution are the direct stakeholders of the business. Secondly, it is easier to change the course of strategy at any given time. However, there is also a drawback should you utilize in-house resources or hire experts within the firm. It will not only increase the cost of operations but also requires equal time from employees, managers, and owners.
Considering the cost of hiring an HR consultant, SMEs should consult third party HR consultants to help achieve effective forecasting of future employee needs. It also saves hours, days and even weeks that can be spent in the recruitment process.
Once you know what number of employees you will be needing in a given period of time, it is then timely to see whether the desired demand can be fulfilled with the given supply.
Let’s have a look!
How to Analyze Labor Supply
The main points to address at this stage are:
The supply can be matched within the organization or can be hired from outside. The first step is to determine and analyze the skill set within the organization. This will not only bring diversity in the company but also motivate employees by providing them with opportunities to learn and flourish at the same time. If skills are not available within the company, then they need to be sought from outside.
When you start looking at the market for hiring employees, the availability of skills will be a significant consideration.
Once you know your demand of labor force and the availability of the respective supply, here comes the question: can you balance your workforce?
No, it is not a challenge, just a question, as many entrepreneurs fail to act prudently in this last stage.
Don’t worry!
You will not be counted in those ‘many.’
How to Balance Labor Demand and Supply?
Knowing the number of employees' required skill sets and when to hire them is not the end of the story. More considerations, like job descriptions/design, career development, perks, benefits, flexible work options, remunerations, and reward programs, are also key players in the human management strategy.
In cases where a business has more employees than required, then get ready to address matters like retirements, redundancies, and layoffs in your strategy.
Balancing a workforce is what leads to a business' growth. So, try to avoid a situation where your organization has too many or too few employees or the wrong skill sets.
Forecasting the number of employees with desired expertise and experience alongside revenue and sales projections can help business owners to stay on track toward the achievement of their strategic business objectives. Obviously, if you maintain the right number of the qualified employees serving their skills effectively, you have the best shot at accomplishing your respective growth projections.
Are you new to business? Do you lack human management resources? Is your company struggling with an imbalanced workforce? Are you still unable to balance your workforce? Don’t hesitate. Hire us to meet your human resources objectives.