Speaker 1: In this lecture, we'll focus on workforce planning and forecasting. Workforce planning and forecasting is useful for anticipating and planning for headcount in different units, departments, teams, and the organization as a whole, as well as more generally to consider how talent flows into, through, and out of an organization. So workforce planning refers to the process of determining what work needs to be done in the short and the long term and coming up with a strategy regarding how to fill positions to complete the necessary work. Now workforce planning is used to manage the talent flow into, through, and out of the organization with the goals of hiring, developing, managing the succession of, retaining talented individuals who have good fit within the organization. Now we can think of talent flow like this. We have our company or our organization represented here by this empty box. Now we're often interested in recruitment and selection to ultimately hire people into the organization that are going to help meet our labor demands that we currently have within the company. And so this is when talent starts flowing into our organization. Now within the organization, we're going to have hopefully upward mobility and upward movement of talent within our organization. And so this comes through promotions, employee development opportunities, as well as career development opportunities, as well as effective succession planning. And then ultimately we do want to try to keep those people within our organization who we consider talented and who fit the organization in terms of their personality, their values, and so forth. And part of our goal is to motivate, train, develop, and manage the potential of those people within our company and to hopefully keep them within the organization by providing them with growth opportunities, opportunities for advancement, and as well as appropriate compensation and benefits too. Now to look at an organization and understand the talent flow, we often do what's called a talent analysis, which just simply refers to actively gathering data to determine the potential talent gaps or the difference between an organization's talent demand and its available talent supply. And so again, this talent gap is really this distance, if there is any, between our talent demand and our talent supply. And so we can think of talent demand as being either our current labor needs or maybe our future labor needs that we're expecting, and supply being our current internal labor as well as potentially the future external labor or the current external labor as well. And so we're trying to figure out how do we get the supply of talented individuals to meet the demand of the work that needs to be done in the positions we have within our organization. So again, that talent gap just simply refers to the difference between talent demand and talent supply. So one way to plan in terms of workforce planning is through forecasting. And forecasting refers to attempts to determine the supply of and demand for various types of human resources to predict areas within the organization where there will be future labor shortages or surpluses. Now this type of analysis is based on understanding of the internal talent supply and demand as well as external talent supply and demand, labor market conditions, labor costs, company growth rates, as well as revenue and profits and so forth. Now it's also important to remember too that forecasting, while commonly done as a quantitative analysis, can also be done using expert judgment as well as using benchmarking and examining the business environment in general. Now while quantitative modeling and analysis is usually a very effective way to engage in forecasting, we can't always anticipate and predict with accuracy things that are going to happen in the future, especially when these are low base rate occurrences or things that haven't happened before in the past. This is why it's always good with any type of analysis to have some expert judgment and decision making available to you as well. People who understand both the internal and the external labor markets as well as understand what are some of the key drivers and things that might be occurring that could affect the potential internal supply and demand as well as the external supply and demand as well. And so we should think about pairing our expert judgment with our quantitative analysis and we can also look to other companies too in terms of benchmarking. Now benchmarking should be done with caution because just because another company is doing something doesn't necessarily mean it's going to fit what our company needs to do, especially considering most likely our organization, even if it's within the same industry and perhaps is a competitor to that organization that we're comparing ourselves to. Even if we do have similar goals, we often have a different strategy and we are of course unique organizations with different types of human resources or human capital at the collective level. So further, when we're thinking about forecasting, we can really think about two different areas of forecasting. Demand forecasting, which is really projecting how much labor will we need in the future, and supply forecasting, which refers to how much labor will we have to meet that demand hopefully. Now, if you remember some basic economics terms, surplus and shortage, when we're talking about surplus and shortage, what we're talking about is this. When the supply is greater than demand, we're talking about a surplus. When the supply is less than demand, we're talking about a shortage. And there's different things we can do within a company in order to address a surplus and a shortage. If we have a surplus of labor, it might mean that we have to consider slowing down the rate at which we're bringing people into the company. And so through natural methods like this, as people naturally retire or leave the organization, that can hopefully address this surplus. Now some organizations do more drastic measures such as downsizing and things like that, but typically you want to engage in the approach that's going to be most effective in terms of addressing the surplus, while also considering other things like employee morale and reactions to how you're addressing that surplus. Now in terms of a shortage, there's different things we can do. We can of course hire more people into our company, assuming that we have people in the labor market that can help fill those positions that meet the minimum qualifications, or hopefully our preferred qualifications as well. However, there are some other ways that we can go about doing this too in terms of a labor shortage, which is that we might seek out other people within the company that we can move from one position to another. Perhaps there's an area where we have a surplus of workers that we can retrain, retool in order to fill a shortage in another area of the organization. So when it comes to forecasting, there's different factors we can consider, and so these are some examples of both external and internal factors that we can consider when engaging in forecasting for workforce planning purposes. So when we look to the external environment, we can consider factors like changes in technology, changes in laws, unemployment rates, shifts in the population, as well as shifts in urban, suburban, and rural areas as well in terms of where people are living, as well as the types of KSOs or talent that might be available in those different areas. We can also look to competition or other organizations that we see as direct competitors to ourselves. Now in addition, we can look internally within our organization to factors such as budget constraints we might have, as well as expected employee separations or people that we expect to leave the organization, perhaps due to retirement and things like that. So this is one of the reasons we might monitor the average age of our employees to understand and anticipate who's likely to leave and when. We can also look to internal factors such as our internal production levels, our sales increases or decreases, as well as if we have any type of expansion plans, either domestically or globally. One way that we can help understand and describe how people are moving within our organization, into our organization, and out of our organization is using what's called a transition matrix. This is sometimes called a Markov chain matrix as well. So it shows the proportion or the raw number of employees in different types of job categories at different times. So let's look at an example of a transition matrix and how we would interpret it. It's a pretty effective way to describe, in terms of using descriptive analytics, how people have moved through the company. And this can hopefully help us also project how people might move in the future if these patterns hold into the future. So let's look at this particular transition matrix. You can see it's displayed as a data table here. We have the year 2017 and the year 2018. And so you'll also notice that there are four different job categories or jobs here. We have the floor manager, sales associate, cashier, and product runner. Now in addition, we have a category called not in the organization. Now if we look to the left hand of this transition matrix, you'll see that we have our floor manager, sales associate, cashier, product runner, as well as the not in the organization category for 2017. And then you look to the columns for 2018 and you see those exact same job categories as well as the not in the organization category as well. The way we read this table is as it follows. So let's look at 2017 for the floor manager. And so what we can see is that there's a proportion of .90 or 90%. And what this shows at the top left corner is that 90% of the people who are floor managers in 2017 remain floor managers in 2018. So that's the amount of retention we've seen there. And so in parentheses, you'll see the raw number of people in those positions. So in that case, it's nine people were in that position. Now what happened to the other 10% of people, which is specifically one person? Well that person actually left the organization. So if you look all the way over to the top right, you'll see .10 or 10%. And so we'll see that that person left the organization, perhaps due to voluntary turnover. It could have been involuntary turnover as well. But nonetheless, they're no longer in the organization. Now let's look at the example of those people who were sales associates in 2017 and how many of them were still sales associates in 2018. Well if you look at the cell that says .80, it means that 80% of the people who were sales associates in 2017 remain sales associates in 2018. In other words, there was 32 people. Now we can also see here that 3% of the people, .03, actually moved from sales associate in 2017 to floor manager in 2018. So perhaps this was an upward movement or a promotion that these people experienced here. So we can imagine the talent flowing upward in this context. And we do see that 18% or .18 of people, in terms of the proportion, were not in the organization in 2018, who were in the organization as sales associates in 2017. So as you go through this, you can begin to understand how people move into the organization and through the organization and out of the organization. So if we look at the bottom row, we can really get a feel for who actually moved into the organization between 2017 and 2018 and how many people. And so you'll see that in terms of people who weren't in the organization in 2017, 22% of the people that came into the organization by 2018 ended up in the sales associate position, whereas 39% who came into the organization by 2018 ended up in the cashier position, and 39% ended up in the product runner position. So again, this is a useful way of understanding that flow of people into, through, and out of organization for workforce planning purposes. So this wraps up the lecture on workforce planning and forecasting.