Everything you need to know about the factors affecting human resource planning. Human resource plans are affected by internal and external environmental changes.
Hence the plans should be flexible so as to adapt easily with the changing circumstances. Human resource plans may be short term or long term depending upon the different environmental factors within which the organisation is operating.
The factors affecting human resource planning can be studied under the following heads:-
1. Macro Environmental Factors 2. Micro Environmental Factors 3. Company Specific Factors 4. External Factors 5. Internal Factors.
Some of the factors affecting human resource planning are:-
i. Economy ii. Labour Market iii. Demographic Factors iv. Regulatory Framework v. Industry Growth vi. Industry Attractiveness vii. Technology viii. Competition Climate ix. Strategy x. Human Resource Inventory
xi. Human Resource Mobility xii. Type of Organization xiii. Approach of Organization towards Planning xiv. Organizational Growth Cycle xv. Level of Environmental Uncertainty xvi. Time Horizon xvii. Type and Quality of Information xviii. Nature of Human Resource Market xix. Outsourcing HRM Functions and a Few Others.
Factors Affecting Human Resource Planning of an Organisation
Factors Affecting Human Resource Planning – Macro Environmental Factors, Micro Environmental Factors and Company Specific Factors
Multiple factors affect Human resource planning of a company.
Broadly these factors can be grouped under three heads:
1. The macro environmental factors,
2. The micro environmental (industry specific) factors, and
3. Company specific factors.
1. The Macro Environmental Factors:
The Macro environmental factors could have impact in the way a company does its human resource planning.
a. Economy:
The prevailing economic conditions have an influence over human resource planning. An economy (like India) with high GDP growth rate, a huge growing market shall mean more jobs (demand). While presently troubled economies like US (very recently lost its AAA credit rating), Greece with high debt load, very low GDP growth facing double dip recession may mean lesser jobs (demand) and more separation programs.
b. Labour Market:
The availability of labor, labor participation rate into the workforce, skill levels and skill availability of the labor, all have direct or indirect impact on human resource planning.
c. Demographic Factors:
The demographic factors like average age of the working population, gender-mix etc. have an impact for example India and Japan face two different challenges, when it comes to their demographics. India will soon have the largest youngest population of the world, in the age group of 18-35 years. This means more and more Gen Y in the workforce.
Companies would need to incorporate their development and ready-employability at all levels. Whereas in japan most of the working population is ageing and with not too many young hands as replacements (traditionally japan has been a low birthrate country by choice) keeping their ageing workforce updated on latest technology etc. and delaying their retirement continues to a challenge.
d. Regulatory Framework:
The regulatory-framework shall have an influence on the HRP. There are countries that are highly regulated by the government like India whereas there are economies that have low governmental interference like US. Recently with most of the BPO jobs relinquishing the US-shores, the government attempted to take these jobs back to US.
2. The Micro (Industry Specific) Factors:
The Micro (Industry specific) factors affecting human resource planning of a company could be identified as primarily four:
a. Industry growth
b. Industry attractiveness
c. Technology
d. Competitive climate
a. Industry Growth:
In the Indian context, most of the industries have shown a very healthy growth over the past decade or so, driven largely by the strong consumer demand in the domestic market. This has in turn fuelled the demand for human capital in majority of the sectors.
b. Industry Attractiveness:
Some industries like IT, Retail have been able to attract more talent because they have become relatively more attractive because of their growth prospective, their practices, and their offerings, etc. There have been others who are strong string to attract manpower.
c. Technology:
Technology has today pervaded virtually into every industry. We live in a knowledge economy and almost everything is driven by technology. This has in turn necessitated development and replenishment of new skill-sets in people.
Employability has become a factor, only because today almost every industry looks at the readiness of the people entering their companies in terms of technology. This has impacted the demand of human resource making it more ‘type’ dependent rather than being number-driven, as in the past.
d. Competition Climate:
The phenomenal growth that most of the industries have seen in India has meant a cut-throat competition in most of the industries of market-share and market-leadership. Today most of the companies are trying to see that as much as their bottom-line grows, their top-line grows as well.
Such competition has translated in to a similar competiveness for attracting and acquiring human resources. Talent is the barometer of any company’s success today and ability to attract them in large numbers and to do that continuously determines the edge.
3. The Company Specific Factors:
The company-specific factors affecting the Human Resource Planning of a Company include:
C. Human Resource Mobility
a. Strategy:
The strategy of any firm plays an important role in designing its human resource planning programs. Way back in 2005, when Bharti-Airtel decided to outsource activities like IT, software etc. and focus on marketing as its core, it changed the HRP of the company forever. The focus then was to build an excellent marketing team and garner the maximum market-share.
And, the company was pretty much successful in such efforts. Companies like Titan that are growing and expanding have also been forced to enlarge their HRP programs. A company which has grown from profits of 10 crores to about 1000 crores in less than 10 years, with total revenues touching the 9000 crore mark, the company has required large number of people of various skill-sets, at a rapid pace.
b. Human Resource Inventory:
The current human resource inventory of a company has an impact on the HRP programs. Every company tries to ensure diversity in terms of skill-sets, gender-mix etc. The current set of employees is used as the reference set for a company’s new demand for human resource.
c. Human Resource Mobility:
The human resource mobility both within and outside the firm has an impact on its HRP programs. The internal mobility is primarily due to growth whereas the external mobility is due to attrition. High mobility rates shall mean the need to replenish the human resource loss rapid-pace. This mobility or rather the cause of mobility differs from industry to industry.
Factors Affecting Human Resource Planning – 9 Important Factors: Type of Organization, Approach of Organization towards Planning, Time Horizon and a Few Others
There are various factors, both internal and external, which affect HR planning.
These factors are as follows:
Factor # 1. Type of Organization:
Type of organization affects HR planning. Type of organization may be identified on two base- nature of business and pattern of ownership. Nature of business of the organization determines its production/operations process which affects ratio of operatives and supervisory and managerial personnel.
For example, this ratio tends to be different in a manufacturing organization as compared to a service organization. On the basis of pattern of ownership, organizations may be put into two categories- organizations which make decisions on their own and organizations whose decision making is affected by other entities.
Organizations which make decisions on their own enjoy considerable freedom in HR planning. Organizations whose decision making is influenced by other entities have considerable restriction in HR planning because these entities provide guidelines about how HR planning should be undertake, for example, public sector organizations, subsidiaries of multinationals, etc.
Factor # 2. Approach of Organization towards Planning:
Approach towards HR planning in an organization depends on its approach towards overall organizational planning. Different organizations adopt different approaches towards overall planning. These approaches may be analyzed in two forms- proactive or reactive approach and formal or informal approach. In proactive approach, an organization anticipates future environment and makes strategic decisions based on this anticipation.
In reactive approach, strategic decisions are in the form of reactions to environmental changes. Since an organization collects information for undertaking planning process and relevant part of this information is also used in HR planning process, HR planning may be either proactive or reactive.
Similarly, if an organization undertakes overall planning on formal basis which is quite comprehensive, HR planning tends to be comprehensive. As against this, if an organization undertakes overall planning on informal basis which is fragmented, HR planning also tends to be fragmented and only a few HR issues are considered in HR planning.
Factor # 3. Strategy of Organization:
Strategy of an organization considerably affects HR planning because an HR plan is derived from strategy of the organization. An organization has different strategic option- stability, growth, and retrenchment. In stability strategy, the focus is on incremental growth by making the existing facilities more productive. In this case, emphasis in HR planning is more on developing existing personnel and making few adjustments of personnel.
In growth strategy, the emphasis is on making additional investments which requires additional personnel. Therefore, the organization needs comprehensive HR plans. In retrenchment strategy, the focus is on reducing business volume by reducing scale of business operations or divesting some businesses. Therefore, HR planning puts emphasis on reducing number of personnel.
Factor # 4. Organizational Growth Cycle:
Organizations have a definite pattern of growth cycle- birth and infancy, adulthood, maturity, and old age. At each stage of growth cycle, there are specific organizational objectives and strategic focus, consequently, HR planning. At birth and infancy, organizational objectives are survival and growth to some extent; strategic focus is on mobilizing resources (including human resources too) and defining products and markets; and focus of HR planning is on mobilizing human resources.
At adulthood, organizational objectives are quantitative growth of business volume and qualitative growth through product differentiation and creating niche; strategic focus is on increasing market share, product innovation, and reaping rewards of previous and present efforts; focus of HR planning is on developing individual, group, and organizational competency.
At maturity, organizational objectives are stabilization of business and contribution to social cause; strategic focus is on maintaining organizational position with stability; focus of HR planning is just to continue the pattern of previous stage. At old age, organizational objective is survival; strategic focus is on retrenching products/businesses that are not rewarding; focus of HR planning is on pruning size of workforce.
This is a general pattern of organizational growth cycle. There is no fixed time frame for completion of each stage. This depends how an organization is managed. For example, Tata Steel, formed in 1907, is still going strong while many organizations formed during this period have become extinct long back.
Factor # 5. Level of Environmental Uncertainty:
Environment is dynamic and changes continuously. Rate of this change determines level of environmental uncertainty. If rate of change is high, level of environmental uncertainty is high and the HR planning premises on the basis of which an HR plan is formulated may not work.
Therefore, there is a need for formulating contingency HR plans. This ensures that if one HR plan is not suitable in the changed situation, other HR plans are available. If the level of environmental uncertainty is low, only one HR plan is sufficient.
Factor # 6. Time Horizon:
Time horizon of HR plans affects HR planning. Longer the time horizon higher is the uncertainty in HR formulation. This is so because it is very difficult, sometimes even impossible if the environment changes on irregular pattern, to forecast future environment precisely.
Therefore, HR plans for remote future become meaningless. Because of this limitation, most of the organizations prepare HR plans for five years along with short- terms HR plans every year. In this case, short-term HR plans are based on long-term HR plan. In order to make long-term HR plan flexible, many organizations prepare yearly HR plan and recast long-term HR plan every year.
Factor # 7. Type and Quality of Information:
Quality of HR planning is based on the type and quality of information because formulation of HR plan is based on information. If required type of information with high quality is available at right time, HR planning becomes effective. In the alternative case, it tends to be ineffective.
Factor # 8. Nature of Human Resource Market:
Human resource market consists of people with skills and abilities from where an organization may fill its positions. Nature of human resource market affects availability of people with requisite skills and abilities. In India, there is a paradox so for availability of human resources is concerned.
On the one hand, there is abundant supply of people so far as their educational qualifications are concerned. On the other hand, only a very small percentages of such people is employable because of poor quality of majority of educational institutions. Therefore, while assessing supply of human resources, this fact must be kept in mind.
Factor # 9. Outsourcing HRM Functions:
Some HRM functions which are of administrative nature may be outsourced instead of performing these functions internally. To the extent HRM functions are outsourced, HR planning workload gets reduced. If an organization adopts practice of outsourcing HRM functions, it may concentrate on core HR issues in HR planning.
Factors Affecting Human Resource Planning
HRP is influenced by several factors, out of which the most important include:
1. Type and strategy of organization
2. Organizational growth cycles and planning
3. Emergence of new technologies
4. Uncertainties in the environment
5. Time horizons
6. Type and quality of forecasting information
7. Labour market
The type of organization is an important consideration because it determines the production processes involved, number and type of staff needed, and the supervisory and managerial personnel required. Manufacturing organizations are more complex in this respect than those that render services.
An organization operates in a dwindling business environment. It grows at some rate. Depending on the growth and the growth cycle, the human resource is determined. With advancement of science, organizations are discarding conventional systems and adopting new technology. Uncertainties in the environment have led to changing human resources.
Time horizon emphasizes that a plan cannot go on for too long on a time horizon as the operating environment itself may undergo changes. On one hand, there are short-term plans spanning six months to one year, whereas on the other hand, there are long-term plans which are spread over three or more years. The exact time span depends on the degree of uncertainty prevailing in an organization’s environment.
Information is collected from multiple sources. Manpower needs depend on type, quality, and accuracy of forecasting information. Accordingly, organizations finalize their strategy, organizational structure, budgets, production schedules, and so forth.
Getting people with requisite knowledge and skill might emerge as a problem. The demographic variables are also of utmost importance.
Factors Affecting Human Resource Planning – External Factors and Internal Factors that Affect HRP
The factors that affect HRP can be classified into external factors and internal factors as under:
1. External Factors:
As it is evident from their name the external factors which affect the human resource planning externally.
These include following:
(i) Level of Economic Development:
Level of economic development determines the level of human resource development in the country and thereby the supply of human resources in the future in the country.
(ii) International Factors:
International factors like the demand and supply of human resources in various countries also affect human resource planning.
(iii) Business Environment:
Business environment means the internal and external factors that influence the business. Business environmental factors influence the volume of mix of production and thereby the supply of human resources in the future in the country.
(iv) Government Policies:
Various policies of the government like labour policy, industrial policy, policy towards reserving certain jobs for different communities and sons-of-the-soil, etc., affect human resource planning.
(v) Level of Technology:
Technology can be interpreted as the application of knowledge to practical tasks which lead to new inventions and discoveries. The invention of the latest technology determines the kind of human resources required.
Information technology has brought amazing shifts in the way the business operates. These shifts include the following business process re-engineering, enterprise resource planning and supply chain management. These changes brought radial reduction in human resource and increase in software specialists. To illustrate, Computer Aided Design (CAD) and Computer Aided Technology (CAT) also reduced the existing requirement of human resource.
2. Internal Factors:
These factors include following aspects:
(i) Company Policies and Strategies:
The organisation’s policies and strategies are related to expansion, diversification, etc., determines the human resource demand in terms of quantity and quality.
(ii) Human Resource Policies:
Human resource policies of the company are about the quality of human resources, compensation level, quality of working conditions, etc., influence human resource planning.
(iii) Company’s Production and Operational Policy:
Company’s policies regarding how much to produce and how much to purchase from outside for manufacturing the final product influences the number and kind of people required.
(iv) Trade Unions:
In case it is declared by the unions that they will not work for more than 8 hours in a day, it affects the human resource planning. Therefore, influence of trade unions regarding the number of working hours per week, recruitment sources, etc., affect human resource planning and is to be kept under consideration.
(v) Organisational Growth Cycles:
At the starting stage, the organisation is small as such it is but natural that need of employees is usually smaller, however by the passage of time as the organisation enters the growth phase more young people need to be hired. Likewise, in the declining/recession/downturn phase human resource planning is done to retrench the employees.
(vi) Job Analysis:
Job analysis means detailed study of the job involving the skills needed for a particular job. Human resource planning is based on job analysis which determines the kind of employees to be procured.
(vii) Time Horizon:
Company’s planning differs according to the competitive environment, i.e., companies with stable competitive environment can plan for the long-run whereas firms without a stable environment can only plan for short-term. As such short-term planning is adopted in the following cases.
There are many competitors entering business/when there is swift change in social and economic conditions of business/if there is constant change in demand patterns/when there exists poor management practice, otherwise long term planning is adopted.
(viii) Type and Quality of Information:
Every planning process is in need of qualitative and accurate information about the following organisational structure, capital budget, functional area objectives, level of technology being used, job analysis, recruitment sources, retirement plans, compensation levels of employees, etc. Hence, human resource planning is determined on the basis of the type and quality of information.
Factors Affecting Human Resource Planning – Environmental Factors, Organisational Strategy, Time Span, Information and Offloading the Work
HRP is not quite independent. HR manager has to plan carefully after considering numerous factors. HRP may misfire if the influencing factors are not considered.
The following factors will influence HRP:
(a) Environmental Factors:
Environment means the atmosphere where the firm is operating. This atmosphere is created by social, cultural, political, economic, legal, technological, etc., factors. HR manager may not have stable and predictable environment. So HR manager has to plan very carefully regarding recruitment, selection, training, etc. Balancing of manpower is done through promotion, retirement, layoff, retrenchment, VRS, etc.
(b) Organisational Strategy:
Every organisation has been established with certain objectives and to achieve these objectives strategy has to be formulated. The corporate strategy will affect HR strategy. A strategy for internal development refers to the recruitment of additional employees. In case of acquisitions, amalgamation or mergers, adjustment will be made in respect of the manpower. This will have quite a good impact on HRP.
(c) Time Span:
If the operations of the organisation are performed in unstable and unpredictable environment, the organisation can have short-term planning. But if the organisation has a fairly stable environment, the HRP can be for a long period. Thus HRP is different for short-term and long-term to meet organisational needs.
(d) Information:
Information provides the basis for decision making. HR needs and supply information affects HRP. Right information regarding jobs, job specification, job description and objective would support the management to take timely decision.
(e) Offloading the Work:
Sometimes, a part of the work is offloaded by some enterprise to outside firms either by sub-contracting or outsourcing such a need arises, as many enterprises have excess labour force. In such cases, they do not wish to recruit more workers, in order to maintain good industrial relations.
Factors Affecting Human Resource Planning – Type and Strategy of Organization, Environmental Uncertainties, Time Horizons, Outsourcing and a Few Others
Human Resource Planning is influenced by several considerations.
The more important of them are:
1. Type and strategy of organization.
2. Environmental uncertainties.
3. Time horizons.
4. Type and quality of forecasting information.
5. Sufficient Lead time to recruit.
6. Outsourcing.
7. Manpower Planning methods.
Factor # 1. Types and Strategy of Organization:
The type of organization is an important consideration because it determines the production processes involved, number and type of staff needed and the supervisory and managerial personnel required. Manufacturing organizations are more complex than those that render services in this respect.
The strategic plan of the organization defines the organization’s human resource needs. For example, a strategy of internal growth means that additional employees must be hired. Acquisitions or layoffs, since mergers tend to create duplicate or overlapping positions that can be handled more efficiently with fewer employees.
Factor # 2. Environmental Uncertainties:
Human resource managers rarely have the privilege of operating in a stable and predictable environment. Political, social and economic changes affect all organizations. Personnel and human resource planners deal with environmental uncertainties by carefully formulating recruitment, selection, training and development policies and programmes.
Balancing mechanisms are built into the human resource management programme through succession planning, promotion channels, layoff, flexi time, job sharing, retirement and other personnel related issues.
Factor # 3. Time Horizons:
Yet another major factor affecting human resource planning is the time horizon. On one hand there are short-term plans spanning six months to one year. On other hand, there are long-term plans spread over three to twenty years. The exact time span, however, depends on the degree of uncertainty prevailing in an organization’s environment.
For companies operating in an unstable environment, plans must be for a short period. For others where environment is fairly stable, plan may be longer. In general, the greater the uncertainty, the shorter the plan’s time horizon and vice versa.
Factor # 4. Type and Quality of Forecasting Information:
The information used to forecast personnel needs originates from a multitude of sources. A major issue in Human Resource Planning is the type of information, which should be used in making forecasts.
Closely related to the type of information is the quality of data used. The quality and accuracy of information depend upon the clarity with which the organizational decision-makers have defined their strategy, organization structure, budgets, production schedules and so forth. In addition, the human resource department must maintain well-developed job-analysis information and human resource information systems that provide accurate and timely data.
Generally speaking, organizations operating in stable environments are in a better position to obtain higher-quality (comprehensive, timely and accurate) information because of longer planning horizons, clearer definition of strategy and objectives, and fewer disruptions.
Factor # 5. Sufficient Lead Time to Recruit:
Human resource planners must consider the nature of jobs being filled in the organization. Job vacancies arise because of severances, promotions and expansion strategies.
It is easy to employ shop-floor workers but a lot of sourcing is necessary for hiring managerial personnel. It is, therefore, necessary for the human resource department to anticipate vacancies, as far in advance as possible, to provide sufficient lead time to ensure that suitable candidates are recruited.
Factor # 6. Outsourcing:
Several organizations outsource part of their work to outside parties either in the form of subcontracting or ancillarisation. Outsourcing is a regular feature both in the public sector as well as in the private sector. Most organizations have surplus labour and they do not want to worsen the problem by hiring more people. Hence, the need for off-loading. Some organizations are known to carry the concept of outsourcing to ridiculous lengths and in the process, the regular employees sit idle.
Factor # 7. Manpower Planning Methods:
The four methods generally used to determine the requirements of personnel are:
i. Annual estimate of vacancies.
ii. Long-range estimates of vacancies.
iii. Fixed minimum man-hour man specification requirements.
iv. Specific position estimations.
Factors Affecting Human Resource Planning – Nature of Organization, Organizational Structure, Growth and Expansion, Technological Changes, Legal Factors and a Few Others
Human resource plans are affected by internal and external environmental changes. Hence the plans should be flexible so as to adapt easily with the changing circumstances. Human resource plans may be short term or long term depending upon the different environmental factors within which the organisation is operating.
Human resource planning depends upon the following factors:
The type and size of organization influences HRP. The nature of organization, the production process involved, the machinery used, whether the company is labour or capital intensive, extent of automation and so on defines the planning for human resources.
The organisation structure defines the hierarchical arrangement of lines of authority, the rights, powers, duties, responsibilities of different positions and the way in which the tasks are assigned and coordinated and the modes of operation of the firm. HRP takes into account these organisational structure issues in the planning process.
Organization’s plan for growth, expansion and diversification has a bearing on human resource requirement. Growth, expansion and diversification plans require more manpower that may be acquired internally through development of existing work force or may be acquired from external sources. Hence human resource need forecast incorporates organization’s future plan of growth, expansion and diversification.
Technology changes at a rapid pace and incorporation of technological changes in the production process and in other organisational functioning is essential for growth and survival of the organisation. The organisations require workforce with the knowledge of new technology to cope up with the technological changes.
In such situation firms may provide training to existing employees to upgrade their technical knowledge or may opt to remove existing employees and appoint new ones. Technological advancement leading towards automation requires downsizing and layoff.
Demographic factors include age, population; composition of workforce has an impact HRP. A number of people retire every year and a new batch graduates ever year. HRP considers these demographic factors into their planning process.
Labour turnover refers to the rate at which the employees leave the employment. Some organisations may have high labour turnover or low labour turnover. Human resource plans must be changed constantly in case of firms having high labour turnover.
Economic and financial position of the organisation influences the organisation’s salary and employee compensation plans, training and development programme, recruitment policies. These factors are taken into consideration at the time of framing human resource plans.
8. Legal Factors:
Employment laws like age of retirement, minimum age for appointment, working hours, employee compensation rules etc., are taken into consideration in human resource plans.
Factors Affecting Human Resource Planning – 3 Main Factors that Affect Human Resource Planning: Existing Stock of Manpower, Wastage and Future Manpower Requirements
Three main factors which affect human resource planning are as follows:
1. Existing Stock of Manpower:
The starting point of all the planned processes and the base of manpower planning is taking the stock of existing manpower.
Following should be studied for this purpose:
(i) Total stock of manpower is divided into groups on the basis of function, qualification, level of skill, occupation, etc.
(ii) A group wise detailed statement is prepared regarding the number of workers in the group, their age, qualifications, date of retirement, etc.
2. Wastage:
Another factor affecting human resource planning is wastage. For effective human resource planning, the adjustment of wastage should be made in the existing manpower stock of the organisation.
3. Future Manpower Requirements:
After analysing the existing manpower stock and analysing the various reasons of wastage, one can easily assess the future requirements of manpower taking into account the following considerations –
(i) Future plans of the company
(ii) Government plans and programmes
(iii) Employment policy
(iv) Demand and supply of manpower in future
(v) Productivity of labour.