Monday, 24 March 2008

The OR in HR; Manpower planning

There are many challenges that will make the HR manager use a more quantitative approach to HR. In this blog-entry I will focus on one of them, aging. In future entries I will present more. Human resource management is seen as a “soft” discipline and is often not treated with the respect that is deserves from other managerial disciplines. Many times the HR manager is seen as obstructive, creating obstacles that hamper the other managers of the company. Also personnel are not an explicit subject discussed in the board, other than in terms of costs. On average, personnel amounts 60% to 70% of the total capital expenditure of a company. But investments in human capital are hardly measured. The CFO/CEO takes care of these decisions because the HR manager is often not accustomed to using figures or models. It is something that will be changing rapidly in the next years. Techniques from the field of Operations Research can support the HR manager and will ensure that attention for HR subjects, other than the cost involved, will increase in the board.

Many companies are or will be facing the consequences of aging and diminishing population growth. These trends will lower the available workforce over the next years; even with stable workforce requirements it will become harder and harder to keep the available workforce at the required level.

As can be seen from the above figure, the available workforce within the company will diminish over time because of aging, increasing the gap between the required and available workforce. This means that every year, even when the company stays at the same size, more people need to be recruited to fulfil the workforce demand, putting the recruitment department under a lot of pressure. This pressure even increases because the available group of people to recruit from will decrease, because of diminishing population growth. This situation will even worsen more because companies don’t tend to be stable in terms size, also service offerings will change leading to a different set of required capabilities. How can the HR manager address all this?

Manpower planning
OR can assist the HR manager to identify the current and future effect of aging and diminishing population growth. Changes in company strategy can be analysed as well, enabling the HR manager to set its recruitment strategy in support of the company goals. As in any other OR project, the first step is to analyse the current situation, identify what the current age distribution is, what are the company goals in terms of size and capabilities of the required workforce. This will give insight in the current impact of aging. Using scenario analysis, company growth scenario’s can be identified together with the management of the company. This will give insight in the size and capabilities of the required future workforce.

Using Markov theory the current and future development of the workforce of the company can be modelled. When incorporating age, insight is created into the positions for which either aging will become a problem or for which the supply of manpower will diminish. These manpower planning models are characterized by transition probabilities that either pull employees to the next step in their carrier or push them when promotions are based on years experience or personnel motivation. In practice a combination of Push and Pull models are used. The transition probabilities for these models need to be estimated from the past.

When both the development of the required and available workforce is modelled, strategies to align the available and required workforce can be formulated and evaluated. Internal measures, the area of the HR manager, can be modelled as changes to the transition probabilities representing for example additional training, changes in remuneration or extending the time people work (over 65). External measures, the area of the other board members, like using new technologies can be modelled as changes in the future workforce demand. Using this approach the HR manager will be able to identify, together with the other managers in the board, the best strategy to ensure that the right amount and quality of people will be available at all times.

The above approach is not new, it is much used in the military, this because of the strict order of promotion. But it is not restricted to it. For example airlines use it to make sure that enough people start training to eventually become a pilot of a Boeing 747, as you can imagine an airline cannot afford to have no pilot available to fly it. More companies should use it, to make sure that they know what they will be facing in the near future. Already many companies face difficulties is attracting enough qualified people. It is time to start up Excel, build the model and start the analysis.

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