HANDOUT- 7 TECHNIQUES FOR FORECASTING SUPPLY OF HUMAN RESOURCES

1. SUCCESSION/REPLACEMENT ANALYSIS…………………………………………………………………...

A replacement chart is used to estimate vacancies in higher-level jobs and identify how potential HR
supply can fill these vacancies via internal movements from lower levels jobs. A comprehensive
replacement chart will include information regarding possible replacements for vertical or horizontal
movement. Generally, a replacement chart includes information about employees’ present performance
and readiness to fill the position.
While replacement charts provide identification of potential replacements for vacancies within an
organization, succession planning focuses on identifying, developing, and retaining talent for key
positions in line with current and projected business objectives. It is a proactive approach that ensures
continuing leadership by cultivating talent from within the organization through planned development
activities.
There are several reasons why succession planning is critical for organization:
• Succession planning enables an organization to respond appropriately and stay on track when
inevitable and unpredictable changes occur.
• It provides for continuity and future direction even in the turmoil of change.
• It helps develop people as they prepare for new experiences and jobs, and this development can also
help improve their performance in current positions.
• When succession planning takes into account employee’s performance and promotes them for it,
employees are positively motivated.
• It supports new organizational structures and flexibility by explicitly providing backups to various
positions, thereby reducing organizational dependency on any one employee.
• It saves time and money by having plans already in place to enable smooth internal employee
movement and continuity, and therefore external hiring is an exception to the process.

SAMPLE SUCCESSION/REPLACEMENT CHART

PRESIDENT/CEO
Possible Replacements
L. Moffat E/2
J. Bennett S/2
R. Ellis E/3
M. Manoy S/1

VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT

HUMAN RESOURCES SALES & MARKETING FINANCE PRODUCTION
L. Moffat T. Bennett R. Ellis M. Manoy
Possible Replacements Possible Replacements Possible Replacements Possible Replacements
K. Nagra S/1 M. Sanghera E/3 L. Anderson S/2 S. Mayer E/3
J. Lee S/2 T. Mitchell N/1 M. Harding N/1 L. Bonett E/2
T. Cox E/1 F. Hewer S/2 R. Allen S/2 N. Fernandez N/2

Key:
Present Performance: E =Excellent; S =Satisfactory; and N =Needs Improvement

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Readiness: 1 =Ready Now; 2 =Training Required; and 3 =Questionable
2. MARKOV ANALYSIS……………………………………………………………………………………………...
A Markov analysis is the most popular technique used for tracking the pattern of employee movements
through various jobs. It helps predict internal employee movement from one year to another by identifying
percentages of employees who remain in their jobs, get promoted or demoted, transfer, and exit out of the
organization. By tracking and predicting employment movement within an organization, the Markov
analysis allows for the development of a transition matrix to forecast internal labour supply.
HYPOTHETICAL MARKOV ANALYSIS FOR A RETAIL COMPANY

3. MOVEMENT ANALYSIS…………………………………………………………………………………………..

Movement Analysis is a technique used to analyze HR supply, specifically the chain or ripple effect that
promotions or job losses have on the movements of other personnel in an organization. Specifically, we
are able to identify the total number of vacant or open positions in the organization or department, as well
as the total number of personnel movements that are caused by replacing and filling these vacant
positions. The total number of personnel movements is always greater than or equal to the number of
vacant positions to be filled.

If we rely solely on external personnel, the number of vacant positions to be filled exactly equal to the
number of new hires obtained by the organization, as there are no internal promotions of current
employees to replace the losses. Conversely, if we rely heavily on current employees (i.e., internal
supply) to fill position openings, the total number of personnel movements will be greatly in excess of the
number of open positions because any one opening (e.g., due to a promotion or termination) will result in
a whole chain of subordinates sequentially moving up one authority level to fill the gaps. Movement
analysis enables the HR planner to select the desired mix or percentage of internal and external supply
for those positions requiring replacements, ranging from a promote-from-within policy to the other extreme
of replacing losses entirely through hiring personnel from outside the organization.

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Movement analyses can be performed for the organization as a whole, although analysts normally find it
more useful to conduct separate analyses for each department, division, or functional area.

The normal planning time horizon is one year, and we start by identifying the number of personnel in each
authority or compensation band level at the start of the forecasting period. Next, we consider changes in
the level of staffing for the department-that is, whether we are going to increase the number of jobs in
some or all authority levels or downsize to reduce the total number of employees in the department.
Having increased or decreased the personnel requirement from that which was forecast at the start of the
period, we now turn to calculating the losses (e.g., because of promotions, transfers out of the
department, voluntary turnover, termination) requiring replacement for each authority level of the
department. At this stage, having determined the total number of positions to be filled, the actual number
of personnel movements can be widely, depending on our organization or department’s desired policy
concerning the supply mix of internal and external replacements.

MOVEMENT ANALYSIS EXERCISE

As HR forecasting manager of Keele Kontainers ltd, your focus of interest is the organization’s finance
department. You wish to determine (a) the total number of positions requiring replacements over the next
one-year period, and, equally important, (b) the impact these openings will have on the current
employees’ movements throughout the department.
Keele Kontainers has a policy of “promote from within” for all authority levels above the basic entry level
(level 9), which obviously must be filled externally with new recruits. The finance department does not
have any personnel in authority levels 1 to 3 inclusive (i.e., president, senior vice-president,
vice-president); the senior appointment is a level 4 (senior manager) position. Based on historical trends
and information provided by the strategic planning cell, you know the following:
1. A 5% staffing (position) increase for each of authority levels 6 to 9 inclusive will be required to meet
additional financial processing activity in the department; one additional senior manager (level 4) will
be required, as management wants one senior manager to handle financial forecasting while one
senior manager is responsible for financial claims (i.e., current operations); six additional managers
(level 5) will be required to supervise the financial analysts and clerks (i.e., the increases in levels 6 to
9 mentioned above) added over the course of the year.

2. Historical annual loss rates include the following:

a. Retirements (requiring replacements): two positions for level 5, 15% of current positions for levels
6 to 9 inclusive
b. Turnover = resignations (voluntary) + terminations (involuntary):
Levels 5 and 6 = 10% of positions at start of period
Levels 7 = 15% of positions at start of period
Levels 8 = 20% of positions at start of period
Levels 9 = 25% of positions at start of period
Note: The loss can be grouped into one column or broken into individual components (i.e., terminations, retirements).

3. The number of personnel/positions at the start of the year are as follows:

Level 4 (Senior Manager) = 1

Level 5 (Manager) = 6
Level 6 (Senior Analyst) = 20
Level 7 (Analyst) = 32

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 Level 8 (Clerk) = 40
Level 9 (Clerical Assistant) = 50

SOLUTION:
In calculating our movement analysis, we construct two separate tables: the first determines the total
number of positions to be filled, while the second identifies the internal and external personnel
movements required to fill the open positions identified. When conducting a movement analysis, there are
two basic rules to follow:
1. Work from the top down: Start at the highest authority or hierarchy level in the organization, since
normal personnel movement in organizations is upward as people are promoted to replace higher
level losses.
2. Calculate the movement figures for one authority level at a time.

Let’s construct a movement analysis table, shown in Table-1, and use historical information to calculate
position replacement requirements or positions to be filled.
Table-1: Number of positions to be filled
Authority Number of Positions Staffing Changes Personnel Positions
Level at Start of Period Losses to Be Filled
4 1 1 + 0 = 1
5 6 6 3 9
6 20 1 5 6
7 32 2 10 12
8 40 2 14 16
9 50 3 21 24
149 15 53 68
By using historical information, we are able to determine that the finance department, with 149 positions
at the start of the year, requires 68 positions to be filled over the year. These positions are needed
because of a planned staffing increase of 15 positions and because 53 individuals are required to replace
personnel losses.
The calculations to arrive at these numbers are straightforward. For example:
● The increased staffing requirement for level 7 is determined by multiplying the original number of
positions at that level by the percentage increase (i.e., 32 x 0.05 = 1.6 positions), and since we don’t
normally hire fractions of people, the requirement is for two new positions!
● Similarly, total personnel losses for level 8 consist of fourteen positions, which is the sum of six
retirements (i.e., 40 starting positions times 15%) plus eight turnover losses (i.e., 40 starting positions
times 20%).
Starting with the “Positions to Be Filled” column from Table-1, we construct a second table, Table-2, that
reveals the employee movement at all levels of the finance department caused by promotions to fill the
identified vacancies.
Table-2: Personnel Movement
Positions to Total Ripple Personnel Movement
Be Filled Or Chain Movement
1 - - - - - 1
9 + 1 - - - - = 10
6 + 1 + 9 - - - = 16
12 + 1 + 9 + 6 - - = 28

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 16 + 1 + 9 + 6 + 12 - = 44
24 + 1 + 9 + 6 + 12 + 16 = 68
68 5 36 18 24 16 = 167

What does this all mean? Overall, to fill the 68 positions that require replacements over the next year, a
total of 167 movements will occur in the finance department due to the ripple or chain effect on
promotions.

● In Table-1, note that for level 5, although we start off with having to find replacements for nine open
positions, we also have to promote one individual from level 5 to fill the requirement for an
additional senior manager at level 4. Therefore, the total number of individual movements at level 5
is ten, although only nine open positions had to be filled at that level.

● Similarly, at level 6, in addition to having to fill six open positions, we also have to promote nine
individuals to fill the openings one level higher at level 5, and one individual must be promoted to
replace the level 5 individual who was promoted to level 4.

● Although there were only six open positions at level 6, the ripple or chain effect of sequential
movement means that 16 individuals had to move to fill the organizational job openings.

● Furthermore, our assumption that we promote from within means that all 68 new hires originate
from outside (i.e., from an external supply) at the entry level of clerical assistant (level 9). All other
vacancies are filled by upward movement of current employees.

● Additionally, 99 promotions occur for current employees (i.e., internal supply) as is reflected in the
ripple or chain effect matrix (i.e., 99 promotions = 5+36+18+24+16).

In other words, the movement analysis has allowed us to identify that for this year’s need to fill 68
positions vacancies, a total of 167 individual moves will be required because of extensive promotion
within. If we were to balance external and internal supply, the only adjustment would be that fewer
individuals would be promoted from within the organization. This would lead to a decrease in the
individual moves to a number closer to the number of open positions to be filled.

4. VACANCY MODEL………………………………………………………………………………………………...
The vacancy model sometimes referred to as a renewal or sequencing model, analyzes flows of
personnel throughout the organization by examining inputs and outputs at each hierarchical level.
Vacancy models have been found to have more predictive capacity than Markov models over short and
long -term periods although the common time frame for this model is one year into the future.
It is important that we always calculate our personnel supply requirements one level at a time in a “top –
down” fashion, beginning at the highest relevant authority level, because the normal direction of
personnel movement in the organization is from the bottom to the top. In other words, vacancies at the
top are often filled by promoting individuals from lower organizational levels. The underlying rationale
behind the vacancy model is simple. Our need for personnel must be met either by external recruiting or
by internal promotions of current employees or by some combination of the two. More specifically, the
supply needs of each level are determined by staffing changes – the number of personnel who are
promoted away from the level – and personnel losses (e.g., retirements, resignations, terminations).

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Organizational policy will determine the extent to which these openings will be filled by internal and
external supply. Personnel losses are normally based on historical trends with respect to the percentage
of personnel at each level who normally exit from that level annually, while growth estimates are based on
the normal business forecasting process.
Overall, vacancies in the organization lead to a sequence of internal promotions from lower levels as the
open positions are filled by the replacement personnel. The model identifies the specific number of
external and internal personnel required at each level and for the organization as a whole.
VACANCY MODEL EXERCISE
Steeles Sinsational Snacks Ltd. offers high-quality, low-cost snacks and meals to budget-conscious
students at Northern University. Based on the following information, calculate the company’s vacancy
model for next year’s HR supply forecast.
1. Staffing changes: None (i.e., stable size)

2. Personnel losses during the year:

100%
Level 1 (president) =
(compulsory retirement)

Level 2 (vice-president) = 15%

Level 3 (managers) = 17%

Level 4 (team leaders) = 20%

Level 5 (associates) = 25%

Level 6 (trainees) = 50%

3. Personnel replacement policy (% external supply : % internal supply)

% external supply % internal supply

Level 1 0 100

Level 2 10 90

Level 3 20 80

Level 4 30 70

Level 5 55 45

Level 6 100 0

4. The number of personnel/positions at the start of the year are as follows:

Level 1 (president) = 1

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 Level 2 (vice-president) = 6

Level 3 (managers) = 18

Level 4 (team leaders) = 45

Level 5 (associates) = 88

Level 6 (trainees) = 156

SOLUTION
Remember that the key to successful completion of the model is to start your calculations at the top of the
organization and work down one level at a time. So let’s start our analysis at level 1, the position of the
president.
No. of
Promotions to Level External
Level personnel at Annual losses
level outflows hiring
start of year
1 1 1 1 1 0
The president of Steeles will be retiring this year, so there will be an annual loss of one person. The
company’s personnel replacement policy states that for the president’s job (level 1), all (100% of) loss
replacements will come from internal promotions, in this case, from level 2 below. Therefore, there is one
promotion to level 1 (from level 2) with no external hires, and annual losses are exactly equal to outflow at
that level. Now consider the situation for level 2:
No. of
Promotions to Level External
Level personnel at Annual losses
level outflows hiring
start of year
1 1 1 1 1 0
2 6 1 2 2 0
Having completed level 1, we now calculate the personnel flows one level lower in the organization’s
authority system. For level 2, the annual losses are one, consisting of the number of personnel at the
level at the start of the year multiplied by the historical loss rate (i.e., 6 x 0.15 =0.9, rounded to one
person.
Next, it is crucial to note that the outflows from level 2 are not the same as losses because we must take
losses due to termination, retirement, and so on of one person and add to that the one individual who was
promoted to level 1 to replace the retiring president. Therefore, our total personnel outflows from level 2
are two people. Total outflows from any organizational level are equal to losses at that level plus
promotions to higher levels.
Now we refer to the company’s personnel replacement policy, which dictates that we are required to
replace the two personnel who left level 2 by 10% external hires and 90% internal promotions. Naturally
we do not deal in fractions of people, so 2 X 0.9 = 1.8, which is rounded to two persons. Both
replacements are promoted from level 3, and we do not hire any individuals externally for the level 2
losses. The analysis continues in a like manner until all organizational levels have been completed. The
finished vacancy model is as follows:
No. of personnel Annual Promotions Level External
Level
at start of year losses to level outflows hiring
1 1 1 1 1 0
2 6 1 2 2 0
3 18 3 4 5 1

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 4 45 9 9 13 4
5 88 22 14 31 17
6 156 78 0 92 92
314 114 30 144 114
In this instance, our vacancy model meets the specified requirement of a stable workforce size (i.e., no
growth) as annual personnel losses of 114 are exactly replaced by 114 new hires from outside the
organization. Furthermore, we know that in addition to the 114 annual losses there are 144 total
personnel movements, consisting of 114 new hires from external supply sources and 30 internal
promotions across all levels.
If instead of a no-growth scenario we predict a staffing increase or decrease, the above table is merely
revised with the growth percentages multiplied by the original number of personnel in each level to arrive
at a column containing the revised number of personnel. This adjusted number of personnel is then used
as the base point for calculating losses, promotions, and other flows from and to each authority level in
the organization.
Given the vacancy model information, it is possible to calculate the promotion rate (sometimes called the
“upward mobility rate”) for each authority level in the organization.
For example, the promotion rate for level 4 is 8.8%, which is obtained by dividing 4 (the four people who
were promoted to level 3) by 45 (the total number of personnel who are in level 4).
As we can see, the vacancy model is a very useful tool for ascertaining specific personnel supply
requirements for internal promotions of current employees, as well as for specifying the exact number of
external new hires required at each level of the organization.

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