Research Update Richard Niehaus, DBA, Editor

/.^ review eontiniies the practice of

using guest editors for the Research
Update column o/Human Resource
Planning. Similar reviews either of a
comprehensive nature as provided here
or on a focused topic are requested
and encouraged. Richard J. Niehaus.
Research Update Editor.

Workforce Forecasting
D.M. Atwater, Ph.D.*
School of Business & Management
Pepperdine University

W
orkforce forecasting can be
defined in simple temis. It
focuse.s on predictions about
the size and mix of a pool of workers in
the future. Yet, many managers seem to
believe that it has become more complex
than it was ten or twenty years ago. The
complexity is the result of a common
problem that is becoming a trademark of
the mid-1990s. Namely, human resource
managers are burdened with "past"
human resource information stockpiles,
are being told that the future will be
different and new for the organization/
business but there are no specifics, and
have to choose analytical tools from a
larger, more sophisticated tool-set of
forecasting and planning models. The
research reponed in this article indicates
that options are expanding, but that
guidelines can be identified to simplify
workforce forecasting choices. Using the
guidelines can actually make workforce
forecasting iess complex than ever before.
Three workforce planning paths are
emerging. It should be no surprise that
the three paths are tied to different HRIS
systems and business strategies. Today,
workforce forecasting adds human resource
information to the business planning
process. It also requires information (data)
from HRIS systems to be activated.
Each of the planning paths is being used.
Research is ongoing to improve the
performance and effectiveness ofthe
decision-making information it supports.
The three paths are entitled transaction,
event- and process-driven workforce
forecasting. Each is examined and
described in this update.
Past publications, such as lhe HRPS-
sponsored volume Human Resource
Forecasting and Modeling, edited by
Ward. Bechet. and Tripp (1994). provide
a rich source for concepts, major model-
ing approaches, and techniques. As noted
in this book, the concepts of "supply"
and "demand" modeling have been in
place since the 1970s. Practical, value-
added techniques have evolved over the
years to focus on organizational efficiency
and effectiveness issues. Headcount
modeling and diversity modeling are
explained and distingui.shed. Headcount
modeling addressed how many employees
of what type are needed and when.
Diversity modeling extends this concept
in seeking to find the right mix of
employees to fill the jobs.
This update focuses on two additional
issues: {I) figuring out the HR implica-
tions in terms of what's changing the
organization (i.e., the business change
drivers) and (2) determining how clean
and u.scful HR information needs to be
to effect the needed decisions. As this
review sbows. what workforce planning
toois, techniques, and models are best for
an organization depends on the answers
to tbese issues. No one path fits ali orga-
nizations. Changes continue to occur as
HRIS capabiiities and business strategies
are modified. The three planning paths

50 HUMAN RESOURCE PLANNING

Jescribed as follows address major
workforce planning options based on
these issues.
Transaction-Based Forecasting
Workforce forecasting of this type begin.s
with information. It tracks movements of
human resources through organizations
over time. HRIS support is typically tied
to "legacy" systems on mainframe com-
puters. Management is interested in the
flow of resources through their organiza-
tion under one or more views ot the future
that are driven by choices under the
control of the organization (i.e., internal
demand-driven business strategies). The
human resource intonnation is typically
organization-specific. Change parameters
are driven by multiple business objectives.
Restructuring, downsizing, and expansion
based on cost-competitiveness objectives
are typically addressed by demand-driven
workforce forecasting.
The analytical tools used in transac-
tion forecasting are divided into two
groups. A bottom-up view, which reflects
the view of the organization from
managers in department or sub-depart-
ment units, uses simple summation
techniques. This "line manager" view
of the forecasting period is from the
perspective of their units. The changes
are "modeled" by management and
recorded in their unit's numbers. An
enterprise-wide consolidation of the
workforce forecasts is prepared and
circulated to management. An example
of such an approach was presented by
Daniel Bulla and Peter Scott (1985).
Bottom-up transaction forecasts
arc useful when incremental growth or
improvements in the organization are
predicted. Top-down strategic organization
changes are often needed to forecast
declining workforce scenarios. These
organization changes are consistent with
reductions in workforce. The movements
of human resources in these strategic
resizing situations are most often estimated
using How models. In these cases, trans-
action-based forecasting is consistent
with transition-based modeling.
"Flow models" come in a variety
of formats which haven't dramatically
changed since Richard Niehaus (1988)
presented a framework for evaluating
analytical supply-demand models.
Transition rate data, manpower require-
ments, and an "inventory"* starting point
are identified as the building blocks for
these flow models. The main modeling
options for HR workforce forecasting
include goal programming and flexible
goal programming tools originally devel-
oped by Chames, Cooper, and Niehaus
(1972). The latter include a series of
driver relationships, such as promotion
planning, which affect movement rates.
What has changed about flow models
is where they are run. ln the 198()s, flow
models were mainframe-based because
they were processing-intensive. Today,
they are running on work stations and
personal computers. This means field
management can use flow models to
address specific "business unit" problems.
For example, the CotTiputer Assisted
Manpower Analysis System (CAMAS)
used by the U.S. Navy has evolved
into the MCAMAS (Microcomputer
Computer Assisted Manpower Assisted
System). An example of their use in the
public shipyard community is provided
by Niehaus (1995).
Event-Based Forecasting
Event-based forecasting recognizes that
many of tbe major change drivers are
outside the control of the organization.
Specifically, changes can be driven by
"external events" in the labor market.
These events can be government or labor
market supply side related. Examples
of government programs are minimum
wage legislation, regulatory requirements
such as ADA, EEO/AA, and pension/
benefit regulations that affect the costs
of human resources. Labor market supply
events emphasize differences in how
workers are attracted to work opportunities
and the "values" of different compensa-
tion and benefit options to workers and
the organization. Forecasts of labor
market changes can support or go against
proposed internal business strategies.
Reductions in a company workforce is
a simple example. Knowing how many
workers are likely to leave voluntarily
in the next year can soften the burden
lor company-mandated layoff forecasts
and affect the implementation of the
business strategy.
Unlike the transaction-based organi-
zation change models, the analytical
tools for external event forecasts are
moving targets. Econometric modeling
techniques, sucb as regression estimation,
are being expanded as psychologists,
sociologists, and other social scientists
seek to explain changing workforce
events and tbeir effects on organizations.
A cross-section of the research in event-
based modeling illustrates the range of
research going on in this area. In Tim
Barmby"s (1994) article, the household's
preferences for labor supply are distin-
guished from the preferences of the
members. The welfare maximization
function of one individual household is
shown to be different than that for two
individual households. Changing work-
force preferences are linked to the cost
and effectiveness of work restructuring
alternatives for organizations.
Non-workers are the focus of many
external event forecasts. In an article by
Richard Blundell, Costas Meghir and
Pedro Neves (1993), the importance of
recognizing the presence of non-workers
in seeking the best cost solution for firms
(employers) when uncertainty is present
HUMAN RESOURCE PLANNING 51
 in labor markets is quantified. Their
modeling emphasizes one way to incor-
porate comer solutions and uncertainty in
workforce forecasting of extemal events.
These phenomena allow the market's
past and future to be unconnected, a
feature that many decision-makers want
their intemal forecasts to possess.
Changes in social values have been
shown to affect how workers make
decisions to remain in their jobs. Chris
de Neubourg and Maraten Vendrik
(1994) explore how violations of social
constraints are related to reputation loss
and loss of work productivity. Male and
female labor supply were estimated using
a quadratic utility function for selected
social norms.
Recognition of social norms as
constraints can affect the movements of
workers and well as their performance.
Ten predictions about tomorrow's
workforce are provided by Rick Fisher
(1995). One ofthe most compelling fore-
casts made in this article is the importance
of considering changes in work itself
and the nature of work on the future.
Specifically, workforce forecasting
reminds business strategists that clear
relationships exist between the work
options offered by organizations and the
signals they send to tabor markets.
In transaction-based workforce
forecasting, the trend is to focus on the in-
house workforce and move the analytical
tools down to managers with responsibility
of organization change. The trend in
extemal events forecasting is to provide
better access to extemal information and
forecasting results. Few attempts have
been identified to bring such forecasting
capabilities in-house to personal comput-
ers. For the foreseeable future, the costs
of extemal event workforce forecasting
are expected to exceed the value of
developing and implementing such
modeis in-house. The Intemet and
S2 HUMAN RESOURCE PLANNING
World Wide Web offer cheap and acces-
sible routes to external event model
infomialion, but users will typically find
parameter setting and model execution
to be difficult. If friendly user front-end
interfaces can be developed, remote
access to extemal event forecasting
will be much more viable. Until then,
information on external events will
be processed by social scientists and
information delivered to interested
decision-makers.
Process-Based Forecasting
Process-based forecasting starts with
forecasting models. Process models
address forecasting changes from multiple
perspectives. For example, both supply
and demand movements can be accounted
for. Process models generally emphasize
shifting between both supply and demand
curves. Models of this type have more
stringent information requirements than
transaction and event based models.
Because of limited HRIS capabilities,
they are Just emerging as an option.
Typically, business processes and
work flow paths must be mapped and
quantifiable human resource skills and
competencies stored within a ''data
warehousing" HRIS environment. Data
warehousing provides unified access
to business, financial, human resource,
and capital asset information.
Process forecasting models address
changes in the work flows and human
resources based on movements in busi-
ness activities. For example, a merger/
acquisition scenario that changes desired
worker skill mixes and force composition
to meet company financial objectives
is an ideal process*based problem. A
"nursery" for development of process-
based human resource forecasting
techniques has been technology change.
Technology change was recognized as
a complex forecasting issue by George
Kozmetsky (1981) in his keynote address
to the NATO Conference on "Work,
Organization and Technological Change"
when he said: "Technology is knowledge.
Knowledge is wealth and power. Whoever
controls technology controls other
resources. Hence, technology is a "master"
resource." Under such an umbrella,
workforce movements are a refiection
of technological change.
The linkage of technology and human
resources opened the door to a broad
range of modeling options. These
include combinations of the fiow model
(demand-driven) and econometric
modeling (supply side). But the early
models tended to be more iterative than
interactive. Interactive modeling options
are emerging that are rule-based, use
expert data to glue together movements
from the demand and supply sides and
qualitative forecasting. Robert and
Elizabeth Gatewood (1983) cite ways
to use expert data and qualitative fore-
casting to augment regression analyses.
Efficiency frontiers and data enve-
lope analysis have provided an integrating
approach to process modeling. As
organizations strive to achieve optimal
business objectives (i.e., be more efficient)
they change human and technological
resource "recipes." Comparison groups
across organizations are used to measure
differences in outputs as the mix of
inputs change. Optimal solutions to
achieve the best possible results are iden-
tified and used to guide changes in the
mix of resources. This approach, originally
developed by Charnes, Cooper, and
Rhodes (1978), is described by Golany
and Tamir (1995). The data requirements
for data envelopment analysis and
conceptual "black boxes" that managers
must accept to use efficiency envelopes
are an ongoing challenge to its wide-
spread use.
 Regardless of the resource perspec-
tive an organization embraces, the most
frequently cited process forecasting
opportunity comes from the reengineering
of work functions. In Arthur Yeung and
Wayne Brockbank (1995). information
technology is identified as a change driver
for reengineering HR work functions.
Ca.se studies show that unless changes in
infotTTiation technology are recognized
and planned for. reengineering work
functions will not be successful, ln many
organizations it may still be too early
to assess the results of reengineering
functions.
It is certain, however, that workforce
forecasting cannot be a contributing part
of the process unless information about
changes can be collected and translated
into skill and competency movements.
A process-based HRIS data warehouse
appears to be a fonnidable requirement
(constraint) to the development of work-
force forecasts on this path. Within the
next two years, there are signs that
process-based, data warehousing HRiS
information sources will be provided.
This area is worth watching and revisiting
as HRIS capabilities improve.
Conclusion
Workforce forecasting is most likely to
be successful when business change
drivers are recognized and agreed to by
managetnent, appropriate data is available
from the HRIS to do the forecasting, and
modeling tools are focused on workforce
movements affected by the business
change drivers. Complexities arise when
these simple rules are not followed and
"creativity" is used to fill in the gaps.
References
Bannby, Tim. "Household Labor Supply:
Some Notes on Estimating a Model with
Pareto Optimal Outcomes." Journal of
Human Resources. Vol. 29, 1994.
Blundell, Richard, Costas Meghir, and Pedro
Neves, "Labor Supply and Intertemporal
Substitution." Journal i>f Econometrics. Vol.
59, 1993.
Bulla, Daniel and Peter Scott. "Manpower
Requirements Forecasting: A Ca.se Example"
(of Houston Lighting & Power), in Niehaus,
Ed. Strategic Human Resource Planning
Applications. New York: Plenum Press, 1987.
Chames, A., W.W. Cooper, and R.J. Niehaus,
Studies in Manpower Planning. Washington,
DC: U. S. Navy Office ol Civilian Manpower
Management, 1972, NTIS No. AD055952.
Chames, A., W.W. Cooper, and E. Rhodes.
"Measuring the Efficiency of Decision Making
Units," European Journal of Operational
Research 2. No. 6, I97K, pp. 429-444.
Fisher, Rick, "Tomorrow's Workforce -
Predictions, Projections and Implications,"
Puhlic Relations Quarterly. Vol. 40, 1995.
Gatewood, Robert and Elizabeth Gatewood,
"The Use of Expert Data in Human Resource
Planning; Guidelines from Strategic
Consulting," Human Resource Planning.
V0I6.2, 1983.
Golany, Boaz and Eram Tamir, "Evaluating
Efficiency-Effectiveness Equality Trade Offs:
A Data Envelopment Analysis Approach,"
Management Science. Vol. 41, 1995.
Kozmetsky, George, in G. Mensch and R.
Niehaus, Eds. "Perspectives on the Human
Potential in Technological Change," Work,
Organizations and Technological Change,
New York: Plenum Publishing, 1992.
de Neubourg, Chris, and Maraten Vendrik,
"An Extended Rationality Model of Social
Norms in Labor Supply," Journal of
Economic Psychology, Wo\. 15, 1994.
Niehaus, R.J.. "Models for Human Resource
Decisions," Human Resource Planning. Vol.
IV. 1988.
Niehaus. R.J., "Evolution of the Strategy and
Structure of a Human Resource Planning DSS
Application." Decision Support Systems. 14
(1995) ]87-2()4.
Ward, Dan, Thomas P. Bechet, and Robert
Trip, Human Resource Forecasting and
Modeling. New York: Human Resource
Planning Society, 1984.
Yeung, Arthur and Wyane Brockbank.
"Reengineering HR Through Intomiation
Technology," Htiman Resource Planning,
Vol. 18.2, 1995.
*Dr. Donald Aiwaicr is atso lhe Senior Consultant
at DMA Inc. in Los Anjietes, Catifornia. tie has
been actively involved in workforce planning and
torecasling for over Iwenly years. DMA Inc. spe-
cializes in Ihe integration of strategic business plan-
ning, design and use of administrative applications/
information system.s, and forecasting tools.
Readers are encouraged to provide sliort summaries
of iheir work or ihal ol oltiers that relate to the
slate-ot-the-praclice or state-ot-the-art. The abstracts
should be on one page with subject or title, names
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summary of approximately 100 words, and phone
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If further review is needed 10 appreciate the work
fully, copies oi lhe published anicle or working
paper should be provided. For submission of the
abstracts, research reviews or the need for further
direction, please contact Richard J. Niehuus,
Chief of Naval Operations, Code N16B. RM 2832
Arlington Anne\. Washington, DC 20370 (phone
number: (703) 614-1350, fax: (703) 614-2609),
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HUMAN RESOURCE PLANNING 53