Workforce Planning

The quality of a firm’s workforce planning decisions directly affects the performance of a manager’s staff. If, as a manager, you do not have the right number of employees with the right skill sets, you will find your unit unable to take advantage of potential business opportunities. Alternatively, operating in excess of your staffing requirements or employing people who are not adding a sufficient amount of value to the activities they do is an inefficient use of your firm’s financial capital.

A surplus of employees translates into bloated payroll levels, benefits, and other employee-related expenses. The greater your labor costs, the lower your profitability is likely to be. Finally, the effectiveness of the people you manage is likely to be directly affected by the quality of your workforce planning decisions. If your staff members operate short-handed for any length of time or lack the skills they need, they are likely to feel overworked and experience burnout. This, in turn, can lead to higher turnover and diminished performance on their part.

The best-designed jobs in the world add no value if people are not in a position to perform them, however. Workforce planning is the process of making sure that individuals with the right skills are where they need to be, at the right time, to meet a firm’s current and future need. In many ways, workforce planning is an ongoing balancing act. Companies must balance the demand for labor with the available supply of labor.

A firm’s labor demand refers to the number and types of employees the company needs to meet its current and future strategic objectives. The labor supply refers to the availability of current or potential employees to perform a company’s jobs. In other words, managers have to look at both the labor supply and the labor demand within their companies (internal considerations), and they also need to anticipate and plan for factors outside their companies (external considerations).

Understanding the supply and demand for labor is only half of the equation, though. Managers must also take action to address labor shortages and surpluses. A labor shortage exists when the demand for labor exceeds the available supply of it. In contrast, a labor surplus exists when the supply of labor is greater than the demand for it. At any point in time, some parts of a company may be facing shortages of employee talent, whereas others may have surpluses.