NAME : DHINGIA POOJA KISHORKUMAR

COURSE : MBA (HR) THIRD SEMESTER

ROLL NO : 510911272

SUBJECT : MUOOO1 (MANPOWER PLANNING AND RESOURCING)

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 Assignment Set- 1

Question.1 Elaborate on the Human Resource cost accounting method along with its

merits and limitations [10]

Answer 1:

Historical Cost Approach

This approach was developed by Brummet, Flamholtz and Pyle. According to this approach, the actual
cost incurred on recruiting, selecting, training, placing and developing the human resources of an
enterprise are capitalized and written off over the expected useful life of human resources. The
procedure followed for human resource asset is the same as that of other physical assets. Any amount
spent on training and developing human resource increases its efficiency, hence capitalized. The
amortization of human resource assets is also done in the same way as that of other physical assets. The
asset is written off over its useful life. If the asset is liquidated prematurely, then it is underwritten and
the amount is charged to revenue account. On the other hand, if it has a longer life than expected, its
amortization is rescheduled.

Merits

This method has the following merits:

This method is simple to understand and easy to work out.

The traditional accounting concept of matching cost with revenue is followed in this method.

It can help a firm in finding out a return n human resource investment.

Limitations:

This method has the following limitations:

It is very difficult to estimate the number of years an employee will be with the firm.

It is difficult to determine the number of years over which the effect of investment on employees will be
realized. The extent to which the employee will utilize knowledge acquired is also subjectively
estimated.

It is also difficult to fix a rate of amortization. A number of methods have been derived to write off
depreciation on fixed assets but in the case of human asset, it will generally be on a constant basis.

The value of an asset decreases with amortization. In case of human resources, the situation is just the
reverse. With the acquisition of experience and training in the course of time, the utility of employees
increases rather than decreasing.

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It is easy to find out the total of human factor but it is difficult to see the contribution of each person.
Had there been one person in the organization, then his contribution to the enterprise could be
measured. But this is not the case. There are large numbers of people working in different positions and
their contribution cannot be measured separately. No solution to this problem has been found so far.

Replacement Cost Approach

This approach was developed by Rensis Likert & Eric G. Flamholtz. The cost of replacing employees is
used as the measure of company’s human resources. The human resources of a company are to be
valued on the assumption as to what it will cost the concern if existing human resources are required to
be replaced with other persons of equivalent experience and talent. This approach corresponds to the
historical cost approach mentioned earlier except that it allows for changes in the cost of acquiring and
developing employees in place of taking their historical cost.

In replacement cost approach, the costs of recruiting, selecting, training, developing, etc. of new
employees to reach the level of competence of the existing employees are measured. Likert has
suggested determination of value of total human organization on the basis of assumption that a similar
organization is to be created from scratch.

Merits

This method has the following merits:

This approach has the advantage of adjusting the human value of price trends in the economy and
thereby provides more realistic value in inflationary times.

It has the advantage of being present-oriented.

Limitations

This method has the following limitations:

It may not always be possible to obtain such a measure for a particular employee.

It is not always possible to find out the exact replacement of an employee.

This method does not reflect the knowledge, competence and loyalties concerning an organization that
an individual can build over time.

It is difficult to find out the cost of replacing human resources and different persons may arrive at
different estimates.

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Question 2: Discuss the steps in Manpower Planning. [10]

Answer 2:

Process of Manpower Planning

The process of human resource planning is one of the most crucial, complex and continuing managerial
functions which, according to the Tata Electrical Locomotive Company ³embraces organization
development, management development, career planning and succession planning.´ The process has
gained importance in India with the increase in the size of business enterprises, complex production
technology and the adoption of professional management technique. It may be rightly regarded as a
multi-step process, including various issues, such as:

a) Deciding goals or objectives

b) Estimating future organizational structure and manpower requirements

c) Auditing human resources

d) Planning job requirement and job descriptions and

e) Developing a human resource plan.

a) Deciding goals or objectives:

Human resource planning fulfils individual, organizational and national goals; but, according to Sikula,
“The ultimate mission or purpose is to relate future human resource to future enterprise needs so as to
maximize the future return on investment in human resources.” In effect, the main purpose is one of
matching or fitting employee abilities to enterprise requirements, with an emphasis on the future
instead of present arrangements. The objectives may be laid down for a short-term (i,e, for one year).
For example, the short-term objective may be to hire 25 persons from schedule tribes or backward class
for the purposes of training. The long- term objective may be to start a new industry, to expand the
market, to produce a new product, to develop its own sales force rather than depend on distributors, or
to have minority group members eventually in position of middle and upper management cadres.

b) Estimating the future organizational structure or forecasting the manpower Requirements:

The management must estimate the structure of the organization at a given point in time. For this
estimate the number and type of employees needed must be determined. Many environment factors
affect this determination. They include business forecasts expansion and growth, design and structural
changes, management philosophy, government policy, product and human skills mix and
competition.Forecasting provides the basic premises on which the manpower planning is built.

Forecasting is necessary for various reasons which have been stated below:

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(a) The eventualities and contingencies of general economic business cycle (such as inflation, wages,
prices, costs and raw materials supplies) have an influence on the short- range and long-run plans of all
organizations.

(b) An expansion following enlargement and growth in business involves the use of additional
machinery and personnel, and a re-allocation of facilities, all of which call for advance planning of
human resources.

(c) Changes in management philosophies and leadership styles.

(d) The use of mechanical technology (such as the introduction of automatic controls, or the
mechanization of materials handling functions) necessitate changes in the skills of workers, as well as a
change in the number of employees needed.

(e) Very often, changes in the quantity or quality of products or services require changes in the
organization structure. Plans have to be made for this purpose as well.

After estimating what the future organization structure should be, the next step is to draw up the
requirements of human resources, both for the existing department and for new vacancies. For this
purpose, a forecast of labour force is needed, and requisition should be obtained from different
departments, i,e., forecast has to be made in returns of functional category; the members needed; and
the levels at which they are required. Vacancies, occurring in any department, should be notified in
writing by different department heads to the personnel department, stating clearly the number of
vacancies to be filled, job or category-wise types of personnel needed, their technical qualification and
experience and the reasons for acquisition (I.e., whether for replacement or addition); a statement of
duties, type of jobs pay scales, age, and previous experience should also be made. Requisitions should
be based on accurate job specifications by first line supervisor. They should, as for as possible, state the
exact demands of a job.

In determining the requirements of human resources, the expected losses which are likely to occur
through labour turnover- quits, retirements, death, transfers, promotions, demotions, dismissals,
disability, resignations, lay-off and other separations- should be taken into account.

Changes in the human quality resulting from the experience gained in the jobs during the period and the
training achieved also need to be considered. The addition of new lines of production and new projects
also influence the demand estimates of human resources. The basic fact to remember is that the human
resource in an organization constantly changes in terms of its present and future size.

Additional human resources are gained through new employment of personnel, promotions, through
transfers and demotions; but personnel is lost through voluntary quits, death dismissals, termination
and retirements.

After making adjustments for wastage, anticipated and expected losses and separations, the real
shortage or surplus may be found out. If a shortage is there, efforts are made to meet it either by new
recruitments or promotion from within, or by developing the existing staff. If there is a surplus, it is to be

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decided how it will be dealt with, i.e., whether there should be transfers, lay-offs, retrenchment or
reduction in the hours of work of all.

Underestimation of the quality and number of the employees required would lead to shortfalls in
performance, while overestimation would result in avoidable cost to the organization. According to Dr.
Ram Tarneja, ³Management can ensure control of labour costs by avoiding both shortages and surpluses
of manpower through proper manpower planning.´

It may be noted that for purposes of manpower planning, the main dimensions to be taken into
consideration are:

(i) The total number of personnel available: This could be obtained from the pay-rolls and other
personnel records, such as the applications for employment. The total number has to be classified on
some basis, such as manual workers (i.e., daily-rated, weekly-rated or monthly-rated); clerical
employees, ministerial staff, managers and other executives; specialists and skilled and unskilled
workers; sex-wise distribution, etc.

(ii) The job-family: A detailed job-description for each position such as stenographers who may belong to
various departments, e.g. finance, marketing, personnel, public relation, general administration, etc.

(iii) Age distribution of the employees, available in the present departments, say in the age-group 20-29
years; 30-45 years, 46 years and above.

(iv) Qualification and experience desire, such as a person with 5 years or 10 years experience in a
particular branch/ job; and whether under-graduate, post- graduate or MBAs or gradates in Science,
Commerce, Arts, Engineering, Professional Diploma- holders, etc; or with specialized knowledge in the
field of marketing, finance, computer programming or engineering work.

(v) The salary range etc

c) Auditing Human Resources:

Once the future human resource needs are estimated, the next step is to determine the present supply
of manpower resources. This is done through what is called “Skills inventory.” A skills inventory contains
data about each employee’s skill abilities, work preference and other items of information which
indicate his overall value to the company. A sample skill inventory proforma is been below:

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 Skill Inventory Performa

Personnel factors

Name ………………………………….. Birth Place …………………………………………………….

Age …………………………………….. Occupation of parents …………………………………………………

Sex ………………………………….. Present address ………………………………………………………………….

Dependants …………………………………… Permanent address …………………………………………………

Marital status ……………………………. Telephone number (if any) …………………………………………..

Education and Training

School …………………………………………………………………………………………………………………

Degrees/Diplomas obtained ………………………………………………………………………………

Training undergone ……………………………………………………………………………………………..

Experience and Skills

Job areas …………………………………………………………………………………………………………………..

Special skill (such as ability to speak write foreign languages) ………………………………………

Job titles ………………………………….. Reasons for leaving ……………………………………………………

Supervisory responsibility …………………………………………………………………………………….

Job dates ………………………………………………………………………………………………………………………

Additional Information

Salary ………………………………………. Test results ………………………………………………………………….

Grade ……………………………………….. Performance ratings …………………………………………………….

Absenteeism record ………………………… Location of relatives …………………………………………

Disciplinary record ………………………………….. Appraisal data ………………………………………………

Career plans ……………………………………………….. Any other information ………………………………….

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The above facts are usably recorded by an employee in some forms from which the information is fed
into a computer. Other data pertaining to his performance ratings and his superiors¶ evaluation of his
potential for promotion may also be fed into the computer. The result may either be kept in a file (on
tape or otherwise stored) containing information as to the number of employees in the organization,
and other data about each employee, and an indication of his fitness for promotion. A specimen
employee information card is given below:

Employee Information Card

Employee No ……………………………. Address ………………………. Town ……………………………………

Dept. …………………… ` Code. ……………………………………………….

Position ………………………………………………………………………….

Exp. Date ………………………………………………………….

Employee status : Regular/ Part-time/Co-operative

Shift : 1/2/3

Marital status : Married/Single/Widowed/ Separated/Divorced

No. of dependent children : 1/2/3/4/5

Relatives in company : Yes/No. If yes, who?

Union membership : (which one)

Experience of skill : Clerical/mechanical/sales/supervisory/ others

Special training : Departmental/on-the /vestibule

Accidents : Loss time

Hospitalization : Yes/No

Member of the credit union : Yes/No

Absenteeism Days …………………………………….

Date …………………………………………..

Operator …………………………………….

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Some organizations do not compile a skills inventory but prepare organization charts to determine how
many people, at what level, in what position and what kind of experience and training would be
required to meet the objectives. These charts show a person’s age, the number of years he has been in a
particular position, and his fitness for promotion. These charts or skill inventories help in determining
and evaluating the quantity and quality of the present human resources of an organization. They tell us
what exist in stock and what is needed to be added to that stock, taking into account the capability
qualification, experience a Manning table which into account the employees. Some companies maintain
a manning table which lists all the jobs in the unit and the number of workers holding each job. Other
companies also use Replacement charts, which show the present performance of each position holder
and the promotional potential of possible replacements.

d) Planning job requirement and job descriptions

Once the present manpower resources are determined, the personnel department can estimate what
changes will occur in the present labour force in the next few years, say 5 years.

Job Analysis: After having decided how many persons would be needed, it is necessary to prepare a job
analysis, which records details of training, skills, qualification, abilities, experience and responsibility,
etc. which are needed for a job. Job analysis includes the preparation of job descriptions and job
specifications.

e) Developing a Human Resource Plan:

This step refers to the development and implementation of the human resource plan which consists in
finding out the sources of labour supply with a view to making an effective use of these sources. The first
thing, therefore, to decide on the policy is- whether the personnel should be hired from within through
promotional channels or should it be obtained from an outside source. The best policy which is followed
by most organizations is to fill up higher vacancies by promotion and lower level position by recruitment
from the labour market. The labour market is a geographic area from which employers recruit their
work force and labour seeks employment. Here the force of demand and supply interact. A labour
market generally has the following characteristics:

(a) It highly unstructured and unorganized, for a majority of workers are illiterate and ignorant and do
not have any information about available job opportunities.

(b) The procedures by which companies recruit workers and the methods by which workers go about
getting jobs are highly variable.

(c) A great range of wage rates for the same occupation exits in the labour market depending upon the
attitude of the management towards wage levels, the employer’s ability to pay and the productivity of
labour.

(d) Labour is mostly not mobile either because it has incomplete or inaccurate knowledge of job
opportunities and available wages or because of lack of job security.

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(e) The supply of labour fluctuates and is influenced by the population in the labour market the
attractiveness of job (benefits, service wage, rates, and the reputation of a company), the extent of
unemployment and the particular skills that are in demand.

(f) Manual labour for unskilled jobs has been replaced by activities that require skills, scientific
knowledge, technical acumen and professional training.

Various external factors influence the outflow and inflow of manpower resources. A few such factors
that operate at local level are:

(i) Population density at various distances from the factory or work place:

(ii) Local unemployment level, particularly of the categories which are relevant for the operation of the
organizations

(iii) Availability of part time labour

(iv) Current competition for similar categories of manpower from other organizations:

(v) Output from the educational system (general as well as technical);

(vi) Pattern of in-migration and out-migration within the area and between it and

(vii) Transport facilities and communication pattern.

At the corporate level, other factors operate, viz.,

(i) Trends in the growth of the working population;

(ii) Government training schemes and system of technical, vocational, professional, and general
education, and their out-turn;

(iii) Impact of social security measures on manpower supply;

(iv)Mobility of the products of the technical, professional and vocational institutions;

(v) Cultural factors and customs, social norms, affecting school leaving age, labour force participation of
women, children and young persons.

The personnel manager should have a thorough knowledge of the labour market. Which particular
source in the labour market will be tapped depends upon the policy of a firm, the position of labour
supply, the arrangement with labour unions, and Government regulations. However, it is always safe for
the personnel manager to be in close liaison with these different sources and use them as and when the
need arises.

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Question: 3 Healwell Pharma Company has been functioning for the last 15 years. The company
decided to computerize the office 7 years ago. Now it has decided to use the application of information
system in HRM.

Suggest how and in what activities they could use the information system.

Answer 3:

Information System Applications in Human Resource Management A unified data model provides a
single, accurate view of HR activities ranging from recruitment, employment, training, performance
management, compensation management and real time management. Oracle human resource leverage
workflow and internet-based processes optimize various HRM activities. The system maintains global HR
data in case of Trans-national companies and total organizational human resource data in case of
national companies in a single location for accurate and easy availability.

The system of applications of Information Technology (IT) in HRM is referred to as Human Resource
Module. HRIS merges some of HRM functions with the IT field, wherein the planning and programming
of data processing systems have evolved into standardized routines and packages of Enterprise
Resource Planning (ERP) software. ERP integrates the human resource module with finance, production,
and sales and administration modules.

Generally, traditional HRM functions are common to all organizations. They consist of tracking data
regarding personal histories, family details, skills, capabilities, experiences, pay, benefits and grievances.
Performance of these functions are increasingly complex, must be performed at the lowest possible cost
and also at a fast rate, which pose increased challenges for HR professionals. Organizations have started
to automate these functions by introducing HRIS technology.

Development of client -server HRIS enables HR executives to assume responsibility and ownership of
their systems compared to client-server architecture, which came largely in the form of mainframe
computers and necessitated heavy capital investment to purchase program proprietary software. HRIS is
developed around six main areas of human resource management viz., e-recruitment/applicant tracking,
e-training, e- payroll, e-benefits, e-self service and e-time and labour management.

E-recruitment / Applicant Tracking

E-recruitment manages job descriptions and job vacancies, search for candidates and the interview
process. It is also referred to as an applicant-tracking system; this is a web-based application that
enables the electronic handling of organizational employment needs.

These activities include posting job advertisement on web sites to stimulate and attract candidates,
known as job boards. Job boards allow candidates to apply on-line and the candidates¶ data are stored
on a database that allows searching, screening and filtering of applications. The application tracking
system shortlists the candidates and arranges for interview and recruitment-related activities.

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E-recruitment maintains profiles, searches for and refers jobs to colleagues and follows the recruitment
process. It integrates resume extraction capabilities using the Magnaware / Mohomine extraction
engine to search for potential candidates. It uses event-driven applicant tracking and manages positions
on multiple external websites. E-recruitment/applicant tracking system reduce administrative tasks, cost
and time required to perform recruitment activities.

E-training

E-training provides a complete, scalable and open infrastructure that allows organizations to manage,
deliver, and track employee training participation in on-line or classroom-based environments. Trainees
interact with content and/or trainers at their own pace. Managers set the business flow from order
processing to delivery and performance management to training output automatically. E-training
systems deploy content to global learners; make use of mixed media and multiple discrete sites on a
single instance of the application, define competencies attained by trainees, and update the trainees’
competency profiles. It aims to ensure that HRM provides the right resources, competent and
experienced trainers, and consolidate training initiatives on a scalable and cost effective basis. In
addition, it aims to measure training effectiveness.

E-training, provides learning opportunities not only to employees, but to customer and all other
stakeholders by providing one-stop administration, automated catalogue distribution and enrollment
and collaborative sites with other strategic partners.

E-payroll

E-payroll models automatically collect data regarding employee attendance and work record for the
purpose of evaluating work performance, they calculate various deductions including tax, and generate
periodic pay cheques and tax reports. Payroll modules in turn send data and accounting information to
the general ledger for posting and subsequent operations and they frequently integrate e-payroll with e-
finance management.

Payroll systems can define standard rules for automatically assigning and changing employee salary by
using simple formulae. They are able to control processing rules and calculations using fast formula and
use logic for complex cases. They can manage global compensation with one application by
implementing a core payroll engine and installing local extensions to add the necessary functionality,
reporting and process for individual countries.

E-payroll is able to process from data, simultaneously, fully reconciled results and multiple employee
groups. By preparing paperless online pay slips, the system is able to reduce administrative costs and
time for the total operations. Employees too can view their exclusive data and get personalized reports.

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E-benefits

E-benefits administration models enable HR professionals to track and administer diverse and complex
benefit plans, employee benefit programs which may involve transpiration medical and health care,
insurance, pension, profit-sharing, and stock option benefits. Such modules, through internet-based
automation, can enable HR to improve benefits support and analysis whilst reducing time and costs
involved in the administration, while increasing the consistency decisions on compliance issues at
various levels across the organization.

E-self service human resource

E-self service HR modules collect process and manage all other kinds of data and information. For
example, employees’ demography profiles and addresses recruitment, selection training, development,
promotions, capabilities, skill mapping and compensation planning. Such a module would allow
individual employees to update and use employee-specific information, personalized to an individual’s
role, experience, work content, language and information needs. Thus, individual employee and
managers are empowered to update information in order to streamline business processes, reduce
costs and errors, increase speed, and enhance service.

This module helps employees in managing everything from profiles including skills, resumes, contact
details, self-appraisal data, bank data, learning, benefits and payroll. It empowers managers to operate
transfers, employee training enrollment, performance appraisals, competency mapping, career planning
and development and terminations.

E-time and labour

E-time and labour automates entire time and attendance records keeping process and operations
through an automatically generated virtual time card. It provides an intuitive, web-based interface. The
time and labour management module, by interacting with information technology, collects and
evaluates time and work information. This module provides broad flexibility in data collection methods,
human resource distribution capabilities and data analysis, and helps in establishing organizational cost
accounting capabilities. This module allows entering time via web browser, mobile device and time card.
It defines rotation plans based on shifts and work plans and employee mobility among departments or
units. It supports policies for holidays, over-time, and rounding. It improves reporting, extracting, and
processing with a single database of employee time-related information. This module is integrated
automatically with other modules of human resource management like payroll and benefits.

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 Assignment Set- 2

Question.1 What is scenario planning? Explain [10]

Answer.1

Scenario Planning

Scenario planning is sometimes described as a formal strategic planning technique, but it can also be
regarded as an informal approach to thinking about the future in broad terms, based upon an analysis of
likely changes in the internal and external environment.

A scenario can be defined as ‘an imagined sequence of future events’ (Oxford English Dictionary).
Scenario planning is a simple, more or less formalized process for establishing a view about any changes
that can be foreseen to the scale and type of activities in the organization and to its structure, and for
identifying any external environment changes that are likely to affect it. The aim is to obtain a better
understanding of the possible situations that may have to be dealt with in the future. It is described by
Reilly (1999) as follows: “Scenario planning tries to open minds to a range of possibilities that
organizations may have to confront. These possibilities are then ordered to produce a series of internally
consistent postures of alternative futures… it is an intellectual process that seeks to identify issues and
examine the possible consequences of events.”

The creation of a scenario involves making broad assessments of likely internal developments in the
direction in which the organization is going and the implications this has on people requirements. The
assessments may have to be made in the absence of any articulated business plan, and thus involve
questioning top management and key line managers on how they see the future, and asking them to
interpret what this means in terms of their human resource needs. Assessments also have to be made
on likely changes in the external environment as it may affect the labour market.

Estimating Future Human Resource Requirements

Scenario planning is in some situations as far as it is possible to go in estimating future people

requirements, but where it is feasible and appropriate, attempts can be made to produce demand and
supply forecasts, and to determine what action needs to be taken if the forecasts indicate the possibility
of a human resource deficit or surplus.

Demand forecasting

Demand forecasting is the process of estimating the future numbers of people required and the likely
skills and competences they will need. The ideal basis of the forecast is an annual budget and longer
term business plan, translated into activity levels for each function and department, or decisions on
downsizing’. In a manufacturing company the sales budget would be translated into a manufacturing
plan giving the numbers and types of products to be made in each period. From this information the
number of hours to be worked by each skill category to make the quota for each period would be
computed.

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Details are required of any plans or projects that would result in demands for additional employees or
different skills: For example, setting up a new regional organization creating a new sales department,
carrying out a major project or developing new products or services. As far as possible, plans should also
be reviewed that could result in rationalization, and possibly downsizing, as a result of a cost reduction
drive, a business process re-engineering exercise, new technology leading to increased productivity , or
merger or acquisition.

The demand forecasting techniques that can be used to produce quantitative estimates of future
requirements are described below.

Managerial or expert judgment

This is the most typical method of forecasting and may be linked to some form of scenario planning. It
simply requires managers or specialists to sit down, think about future workloads, and decide how many
people are needed. This can be no more than guesswork unless there is reliable evidence available of
forecast increases in activity levels or new demands for skills.

Ratio trend analysis

This is carried out by studying past ratios between, say, the number of direct (production) workers and
indirect (support) workers in a manufacturing plant, and forecasting future ratios, having made some
allowance for changes in organization or methods. Activity level forecasts are then used to determine (in
this example) direct labour requirements, and the forecasts ratio of indirect to direct would be used to
calculate the number of indirect workers needed.

Work study techniques

Work study techniques can be used when it is possible to apply work measurement to calculate how
long operations should take and the number of people required. Work study techniques for direct
workers can be combined with ratio trend analysis to calculate the number of indirect workers needed.

Forecasting skill and competence requirements

Forecasting skill requirements is largely a matter of managerial judgment. This judgment should,
however, be exercised on the basis of a careful analysis of the impact of projected product market
development and the introduction of new technology either information technology or computerized
manufacturing.

Supply forecasting

Supply forecasting measures the number of people likely to be available from within and outside the
organization having allowed for attrition (labour wastages and retirements) absenteeism, internal
movements and promotions, and changes in hours and other conditions of work. The forecast will be
based on:

An analysis of existing human resource in terms of numbers in each occupation, skills and potential;
Forecast losses to existing resource through attrition; Forecasts changing to existing resources through

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internal promotions; Effect of changing conditions of work and absenteeism; Sources of supply from
within the organization; Sources of supply from outside the organization in the national and local labour
markets.

Mathematical modeling techniques aided by computers can help in the preparation of supply forecasts
in situations where comprehensive and reliable data on stocks can be provided. As this is rarely the case,
they are seldom used.

Analyzing demand and supply forecasts:

The demand and supply forecasts can then be analyzed to determine whether there are any deficits or
surpluses. This provides the basis for recruitment, retention, and if unavoidable, downsizing plans.
Computerized planning models can be used for this purpose. It is, however, not essential to rely on
software planning package. The basic forecasting calculations can be carried out on a spreadsheet that
sets out and calculates the number required for each occupation where plans need to be made, as in the
following example:

Number currently employed     70

Annual wastage rate based on past records    10 per cent

Expected losses during the year    7

Balance at the end of the year    63

Number required at the end of the year    75

Number to be obtained during the year(5-4)    12

Labour Turnover

The analysis of the number of people leaving the organization (labour turnover or wastage) provides
data for use in supply forecasting, so that calculations can be made on the number of people lost who
may to be replaced. More importantly, however, the analysis of the number of leavers and the reasons
why they leave provides information that will indicate whether any action is required to improve
retention rates. It can prompt further investigations to establish underlying causes and identify
remedies.

In this section, consideration is given to the following aspects of labour turnover:

Its significance; Methods of measurement: The reasons for turnover; What it costs; Its incidence; How to
benchmark rates of turnover. The significance of labour turnover

The point was made by IRS (2000) that rates of labour turnover provide a graphic illustration of the
turbulence within an organization. High rates of attrition can destabilize a business and demotivate
those who attempt to maintain levels of service and output against a background of vacant posts,
inexperienced staff and general discontent. Obviously, recruitment induction and training costs all raise

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with an increase in labour turnover. As the CIPD (2000) has commented, ‘ ‘turnover may be a function of
negative job attitudes, low job satisfaction, combined with an ability to secure employment elsewhere,
i.e. the state of the labour market. On the other hand, turnover is a normal part of organization
functioning. While excessively high turnover may be dysfunctional, a certain level of turnover is to be
expected and can be beneficial to an organization’.

Methods of Measurement

There are a number of ways of measuring labour turnover, as described below:

The Labour Turnover Index

The labour turnover index (sometimes referred to as the employee or labour wastage index) is the
traditional formula for measuring wastage. It has been described by the CIPD (2000) as the ‘crude
wastage method’. It is calculated as follows:

This method is commonly used because it is easy to calculate and to understand. For human resource
planning purposes, it is a simple matter to work out. If a company wants to increase its workforce by 50
people from 150 to 200, and the labour turnover rate is 20 per cent (leading to a loss of 30 people), then
if this trend continues, the company would have to recruit 90 employees during the following year in
order to increase and to hold the workforce at 200 in that year (50 extra employees, plus 40 to replace
the 20 per cent wastage of the average 200 employees employed). It can also be used to make
comparisons with other organizations which will typically adopt this method.

This wastage formula may be simple to use but it can be misleading. The main objection to the
measurement of turnover in terms of the proportion of those who leave in a given period is that the
figure may be inflated by the high turnover of a relatively small proportion of the workforce, especially
in times of heavy recruitment. Thus, a company employing 150 people might have had an annual
wastage rate of 20 per cent, meaning that 30 jobs had become vacant during the year, but this could
have been spread through the company, covering all occupations and long as well as short service
employees. Alternatively, it could have been restricted to a small sector of the workforce – only 20 jobs
might have been affected, although each of these had to be filled 10 times during the year. These are
totally different situations and unless they are understood, inaccurate forecasts would be made of
future requirements and inappropriate actions would be taken to deal with the problem. The turnover
index is also suspect if the average number of employees upon which the percentage is based is
unrepresentative of recent trends because of considerable increases or decreases during the period in
the numbers employed. When assembling and analysis labour turnover figures, it is important to obtain
information on the incidence for different categories of employee, especially those who are most
difficult to attract and retain, such as knowledge or highly skilled workers.  

Survival rate

Method of analyzing turnover that is particularly useful for human resource planners is the survival rate:
the proportion of employees engaged within a certain period who remain with the organization after so

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many months or years of service. Thus, an analysis of trainees who have completed their training might
show that after two years, 10 of the original cohort of 20 trainees are still with the company- a survival
rate of 50 per cent.

The distribution of losses for each entry group, or cohort, can be plotted in the form of a survival curve.
The basic shape of this curve has been found to be similar in many situations, although it has been
observed that the peaks of the curve may occur further along the time scale and /or may be lower when
it relates to more highly skilled or trained entry cohorts. Thus to ensure 50 trained staff in five years’
time, 100 people would have to be engaged this year. Start figures like this can permit action, especially
when the costs of recruitment and induction are taken into account.

Half-life index

A simpler concept derived from survival rate analysis is the half-life index which is defined as the time
taken for a group or cohort of starters to reduce to half its original size through wastage (five years in
the above example). Comparisons can then be made for successive entry years or between different
groups of employees in order to show where action may have to be taken to counter undesirable
wastage trends.

Stability index

The stability index is considered by many to be an improvement on the turnover index. The formula is:

Number with 1 year service or more x100

Number employed 1 year ago

This index provides an indication of the tendency for longer service employees to remain with the
company and therefore shows the degree to which there is continuity of employment. But this too can
be misleading because the index will not reveal vastly different situations that exist in a company or
department with high proportion of long serving employees in comparison with one where the majority
of employees are rendering short service.

Length of service analysis

This disadvantage of the stability index can be partly overcome if an analysis is also made of the average
length of service of people who leave. This analysis is still fairly crude, because it deals only with those
who leave- a more refined analysis that compares, for each service category, the numbers leaving with
the numbers employed.

Choice of measurement

It is difficult to avoid using the conventional employee (labour) turnover index as the easiest and most
familiar of all methods of measurement, but it needs to be supplemented with some measure of
stability. An analysis of turnover or wastage as part of human resource planning exercise requires
detailed information on the length of service of leavers, to identify problem areas and to provide a
foundation for supply forecasts.

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Reasons for Turnover

An analysis of the reasons for leaving derived from exit interviews will provide useful information on
which to base retention plans. Exit interviews aim to establish why people are leaving and why they
cannot be persuaded to stay back. The reasons for leaving can be classified under the following
headings:

More pay; Better prospects (career move); More security; More opportunity to develop skills; Better
working conditions; Poor relationship with manager /team leader; Poor relationship with colleagues;
Bullying or harassment ; Personal-pregnancy, illness moving away from area etc.

Exit interviews should aim to opinions on any specific reasons for dissatisfaction under any of the above
non-personal headings. Some leavers will be forthcoming, others will not. It is up to the interviewer to
probe skillfully and sensitively to establish reasons for dissatisfaction or unhappiness; so that where
those feelings are justified, something can be done about them. Judgment is required to sort out
genuine complaints from unjustified or exaggerated ones. An analysis of reasons should take place and
trends be noted. General issues can be addressed by reviewing employment and reward policies and
practices. Issues affecting particular managers should also be tackled. This may be difficult if tie is a
behavioral matter, such as bullying. However, the problem cannot be ignored.

Exit interviews are not completely reliable, and it is desirable to gain a more comprehensive picture of
the views of existing employees through attitude surveys.

The Cost of Labour Turnover

Labour turnover can be costly. The following factors should be considered:

Leaving costs –payroll costs and personnel administration of leaver: Direct cost of recruiting
replacements (advertising, interviewing, testing etc); Opportunity cost of time spent by HR and line
managers in recruitment; Direct cost of introducing replacements (induction course, cost of induction
manuals etc); Opportunity cost of time spent by HR and managers in introducing new starters; Direct
cost of training replacements in the necessary skills; Opportunity cost of time spent by line managers
and other staff in providing training; Loss of the input from those leaving before they are replaced in
terms of contribution output, sales, customer satisfaction and support etc; Loss arising from reduced
input from new starters until they are fully trained.

The incidence of labour turnover:

The labour turnover rate for all employees as revealed by the CIPD 2005 UK survey was 15.7 per cent.
The turnovers of different categories of employees were: staff 31.1 per cent, manual workers 16.7 per
cent, secretarial and administrative staff 16.7 per cent and professional staff and managers 9.1 per cent.

Benchmarking labour turnover:

Labour turnover rates provide a valuable means of benchmarking the effectiveness of HR policies and
practices in an organization. They do not tell the whole story, but if turnover is significantly higher in

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comparable organizations, this should stimulate action to investigate why this is the case and something
must be done about it.

Benchmarking can be carried out by networking with other organizations possibly forming a club to
exchange information regularly. There are also a number of benchmarking agencies as listed by the IRS
(2000), and the European Foundation for Quality Management (EFQM ) survey which uses the internet.
National sources of data include the government’s labour force and learning and training at work
surveys, and the annual survey of labour turnover conducted by the CIPD.

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Question.2 Discuss the different elements of Talent Management [10]

Answer.2

Definition of Talent Management

Talent management is the use of an integrated set of activities to ensure that the organization attracts,
retains, motivates and develops the talented people it needs now and in the future. The aim is to secure
the flow of talent, bearing in mind that talent is a major corporate resource.

It is sometimes assumed that talent management is only concerned with key people –the high flyers. For
example, Smilansky (2005) stated that it is aimed at improving the caliber, availability and flexible
utilization of exceptionally capable (high potential) employees who can have a disproportionate impact
on business performance. But everyone in an organization has talent, even if some have more talent
than others. Talent management process should not be limited to the favoured few. This point was
made by Delong and Vijayaraghavan (2003) when they suggested that the unsung heroes of corporate
performance are the capable, steady performers.

The Elements of Talent Management:

Talent management starts with the business strategy and what it signifies in terms of the talented
people required by the organization. Ultimately, its aim is to develop and maintain a talent pool
consisting of a skilled, engaged and committed workforce. Its elements are described below:

The resourcing strategy:

The business plan provides the basis for human resource planning, which defines human capital
requirements and leads to attraction and retention policies and programmes for internal resourcing
(identifying talent within the organization and developing and promoting it).

Attraction and retention policies and programmes:

These policies and programs describe the approach to ensure that the organization both gets and keeps
the talent it needs. Attraction policies lead to programmes for external resourcing (recruitment and
selection of people from outside the organization). Retention policies are designed to ensure that
people remain as committed members of the organization. The outcome of these policies is a talent flow
that creates and maintains the talent pool.

Talent audit:

A talent audit identifies those with potential and provides the basis for career planning and
development, ensuring that talented people have the sequence of experience supplemented by
coaching and learning programmes that will fit them to carry out more demanding roles in the future.
Talent audits can also be used to indicate the possible dangers of talented people leaving (risk analysis)
and what action may need to be taken to retain them.

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Role development:

Talent management is concerned with the roles people carry out. This involves role development-
ensuring that roles provide the responsibility, challenge an autonomy required to create role
engagement and motivation. It also involves taking steps to ensure that people have the opportunity
and are given the encouragement to learn and develop in their roles. Talent management policies also
focus on role flexibility- giving people the chance to develop their roles by making better and extended
use of their talents.

Talent relationship management:

Talent relationship management is the process of building effective relationships with people in their
roles. It is concerned generally with creating a great place to work but giving them a voice and providing
opportunities for growth. The aim is to achieve talent engagement ensuring that people are committed
to their work and the organization. As Sears (2003) points out, “It is better to build an existing
relationship rather than try to create a new one when someone leaves.”

Performance management:

Performance management processes provide a means of building relationships with people, identifying
talent and potential, planning, learning and development activities and making the most of the talent
possessed by the organization. Line managers can be asked to carry out separate ‘risk analysis’ for any
key staff to assess the likely hood of their leaving. Properly carried out performance management is a
means of increasing the engagement and motivation of people by providing positive feedback and
recognition. This is part of a total reward system.

Total reward:

Total reward strategies provide for both financial and non-financial rewards, can contribute to the
engagement and commitment of talented people by demonstrating that they are devalued for their
contribution and by operating fairly and consistently. Paying competitive rates will affect the ability of
organizations to attract and retain people but there is a limit to the extent to which companies can
compete with the ‘pull of the market’ as Cappelin (2000) points out. Retention or loyalty bonuses
(golden handcuffs) are used by some companies but again, as stressed by Cappelin, there is limit to their
effectiveness as bribes. If talented people want to go they will go.

Learning and development policies and programmers are essential components in the process of
developing talent – ensuring that people acquire and enhance the skills and competencies they need.
Policies should be formulated by reference to employees’ success profiles which are described in terms
of competencies and define the qualities that need to be developed. Employee success profiles can be
incorporated in role profiles.

Learning and development activates are also important means of developing managers and gaining the
engagement and commitment of talented staff by giving them opportunities to grow in their present
roles and to progress to higher level roles.

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Career management:

Career management consists of the processes of career planning and management succession. Career
planning shapes the progression of individuals within an organization in accordance with assessments of
organization needs, defined employee success profiles and the performance, potential and preferences
of individual members of the enterprises.

Management succession planning takes place to ensure that, as far as possible, the organization has the
managers it requires to meet future business needs.

Creating Best Place to Work

Ensuring that the organization is perceived as being ‘a great place to work’ means that it becomes an
‘employer of choice’ i.e. one for whom people want to work. There is desire to join the organization and
once that is fulfilled, a desire to stay. Employees are committed to the organization and engaged in the
work they do. To acquire a national, even a local reputation as a good employer, it takes time. But it is
worth the effort.

On the basis of their longitudinal research in 12 companies, Purcell et al (2003) concluded that:

“What seems to be happening is that successful firms are able to meet people’s needs both for a good
job and to work in a great place. They create good work and a conducive working environment. In this
way, they become an employer of choice. People will want to work there because their individual needs
are met- for a good job with prospects linked to training appraisal, and working with a good boss who
listens and gives some autonomy but helps with coaching and guidance.

The criteria used by the Sunday Times in identifying the 100 Best Companies to work for in 2005 were:
Leadership at senior management level; My manager –local management on a day-to-day basis;
Personal growth –opportunities to learn, grow and be challenged; Well-being-balanced work-life issues;
My team –immediate colleagues; Giving something back –to society and the local community; My
company –the way it treats staff; Fair deal- pay and benefits. The factors used in the Financial Times
2005 Best Workplaces Report were: Have a range of management practices that helps staff to feel
valued, productive an listened to;

‘Support at home-step in’ when people are suffering from personal problems;

Maintenance of a balance between work and family.

Effective employee development program.

Staff trusted to do their jobs properly.

Creating a great place to work starts with developing the image of the organization so that it is
recognized as one that achieves results, delivers quality products and services, behaves ethically and
provides good conditions of employment. Organizations with a clear vision and a set of integrate and
enacted values are likely to project themselves as being well worth working for.

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 Question.3 Due to the recent recession, FinPlus Finance company has to downsize the current
employees. In this scenario what are the responsibility of an HR professional?. What kind of plan can
they prepare?. [10]

Answer:

The downsizing plan

If everything fails, it may be necessary to deal with unacceptable employment costs or surplus numbers
of employees by what has euphemistically come to be known as ‘downsizing’. The downsizing plan
should be based on the timing of reductions and forecasts of the extent to which these can be achieved
by natural wastage or voluntary redundancy. The plan should set out:

The total number of people who have to go, and when and where this needs to take place;

Arrangements for informing and consulting with employees and their trade unions;

A forecast of the number of losses that can be taken up by natural wastage;

Any financial or other inducements to encourage voluntary redundancy;

A forecast of the likely numbers who will wander to leave.

A forecast of the balance of employees, if any, who will have to be made redundant (the plan should of
course, aim to avoid this through natural wastage and voluntary redundancy);

The redundancy terms;

Any arrangements for retraining employees and finding them work elsewhere in the organization;

The steps to be taken to help redundant employees find new jobs by counseling, contacting other
employers or offering the services of outplacement consultants;

The arrangements for telling individual employees about the redundancies and how they are affected,
and for keeping the trade unions informed.

The Contribution of HR to Develop the Resource Capability

Human resource planning, in the broader meaning of the term, is one of the fundamental strategic roles
of the HR function. HR can make a major contribution to developing the resource capability of the firm
and therefore its strategic capability by systematically reviewing the firm’s strategic objectives and by
ensuring that plans are made that will ensure that the human resources are available to meet those
objectives. Thus HR is focusing on the acquisition and development of the human capability needed to :

Ensure that they are aware of the strategic plans of the business, and can provide advice on the human
resource implications of those plans;

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Point out to management the strengths and weaknesses of the human resource of the organization, and
the opportunities and threats they present so that these can be considered when developing business
plans;

Be capable of scenario planning in the sense that they can identify future issues concerning the
acquisition, retention and employment of people, and advise on methods of addressing those issues;

Understand the extent to which quantitative assessments of the future demands for and supply of
people may be feasible and useful, and know the methods that can be used to prepare such forecasts;

Be aware of the scope to deal with future requirements by introducing various forms of flexibility;

Be capable of preparing relevant and practical resourcing plans and strategies for retaining people,
based upon an understanding of the internal and external environment of the organization, and the
implications of analyses of labour turnover.

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