Workforce Planning Processes: 8 Steps Quick Guide | HCMI (2024)

Human Resources (HR) professionals often find themselves frustrated as they try to keep pace with the rapid changes in their industries. To overcome that frustration, they must adopt a modern data-driven approach to workforce planning.

In this article, we'll give an overview of the concept and benefits as well as outline a process for conducting workforce planning activities. These activities include identifying needs or gaps in your organization's current talent pool, establishing goals and priorities, and developing strategies to address those challenges. We'll also discuss ways that you can leverage workforce planning as a tool not only for HR but also for the entire organization.

Furthermore, this article will explain how workforce planning is more than just a reactive exercise; it's an essential proactive strategy to help identify and address talent gaps before they create issues that impact productivity in other areas of your business. It will also show how our revolutionary data-driven tool can help simplify and speed up the workforce planning process for HR teams.

Table of Contents

What Exactly Is Workforce Planning?

Workforce planning or staff planning is a systematic process for identifying and addressing headcount and skill gaps between existing human capital needs and the overall business strategy. The goal is to ensure the organization achieve the 5 R’s of talent management - having the right talent in the right roles, at the right time, right place, and at the right cost.

Workforce planning is also about future-proofing your organization. In today’s rapidly changing business environment, it’s critical that HR is on the lookout for gaps in the workforce and mitigate them before they become a threat. Thanks to the proliferation of HR data systems, it's now a much more quantitative process than in the past.

Today, modern data-driven workforce planning practices allow HR professionals to integrate HR with other data sources to accomplish the following:

Workforce Planning vs. Employee Scheduling

Management often gets workforce planning confused with employee scheduling. Employee scheduling focuses more on the process of creating and maintaining a staffing schedule while workforce planning examines the needs of the organization, its historical trends, growth, and long-term business strategy to create a comprehensive plan.

For example, when a manufacturer plans on who needs which shift, this is employee scheduling. When this manufacturer estimates the number of employees and which skill set they need to open an extra line of production next year, this would be considered workforce planning.

What Are the Benefits of Workforce Planning?

The benefits of workforce planning are numerous, but below are the most tangible ones:

Example Workforce Planning Use Cases

Example 1: Answer the Build vs. Buy vs. Borrow Question

Workforce planning is a valuable tool to help you find the answer to whether or not it makes sense for your company to hire someone internally, contract an outside vendor, or outsource work. Talent concentration, labor costs, and quality of applicants are some of the considerations often used in this analysis. In other words, it helps you answer the question of build vs. buy vs. borrow talent.

Below are the main differences between these options:

Suppose you are a firm with a strong product development team that has occasional needs for paid marketing. In this case, it might make more sense for you to contract with an outside vendor or outsource work rather than hiring an experienced full-time digital marketing manager.

HR professionals who plan well will be more prepared when the time comes to execute workforce planning, such as during periods of rapid expansion or changeups that require new skill sets. They can have access to the skills they need at hand, be better prepared for when attrition occurs due to retirement, or even identify potential new revenue streams.

Example 2: Optimize Labor Size, Cost, and Performance

Workforce planning can help you understand your staffing needs and create a better workforce strategy that is well-aligned with your business objectives. The best teams combine payroll data with finance and operations data to maximize performance and output while minimizing labor costs and keeping the headcount in control. Doing so also allows them to measure the impact of human capital decisions on business results.

Also, workforce productivity metrics like Total Cost of Workforce and Human Capital ROI Ratio are key business metrics that allow you to measure and compare the performance of different groups, departments, locations, or business units.

Example 3: Align Workforce Strategy with Business Results

When you're using workforce planning as a tool to align your strategy with business results, you'll be able to ensure that all the resources in your organization are being utilized efficiently and effectively.

For example, suppose you have a business strategy based on aggressive growth. In that case, workforce planning can help you know what skills and competencies you need to address, what training resources are required, how many people will be needed, and where they should be placed in the organization or across multiple locations.

A strategic workforce plan is also an excellent resource for leadership when it comes time to make decisions about your company's growth—such as if or when it makes sense to open new offices or business units—and can even be used as a benchmark for your organization's culture.

What Are the Different Steps of Workforce Planning?

A completed workforce plan involves several smaller analyses to help identify existing gaps in skills and/or headcounts and determine how to future-proof the organization. The modern data-driven workforce planning practice is a systematic process that contains eight critical steps.

Step 1: Workforce Questions

The first and arguably the most important part of the workforce planning process is to come up with the workforce questions that your team needs to address as a part of the new business strategy. This could also be burning talent management issues that your team need to address or mitigate.

Step 2: Scenario Design and Future Vision State

The goal is to identify specific pain issues needed to be addressed, establish the end goals, and come up with scenario(s) that describe your core workforce strategy.

Step 3: Demand Forecast Macro (Top-down Planning)

Demand forecast macro refers to the top-down approach to workforce planning where HR gets inputs from management interviews and focus groups on the additional human resources they would need. This step focuses on forecasting headcount, labor cost, productivity, financial goals, and other HR key performance indicators (i.e., span of control, tenure).

Step 4: Demand Forecast Micro (Bottom-up Planning)

Demand forecast micro concentrates on getting talent demand inputs at the department and business line level from line managers through surveys, focus groups, and other interview methods. This step also extends beyond the topics covered in top-down planning to include classification of critical roles, core vs. noncore job groups, and basic career pathing.

Step 5: Internal Supply Modeling

Internal supply modeling is supposed to quantify the internal movement of the workforce. This includes but is not limited to internal hiring activities, terminations, promotions, and transfers. The results of this analysis will enable HR teams to answer more complex questions like whether or not the organization should build vs. buy vs. borrow talent.

Step 6: External Supply Modeling

External supply modeling emphasizes measuring the future supply of critical and core talent roles by geography or market. Key questions to answer here include:

Step 7: Demand and Supply Gap Analysis

This step utilizes the results of the previous talent demand and supply analyses to identify any existing headcount and skills gaps. The best teams use the “what-if” scenario modeling technique to add a predictive aspect to this analysis. Our data-driven framework further helps users measure the impact of these scenarios on the organization’s financial performance.

Step 8: Workforce Action Plan

The last step in the workforce planning process involves using scenarios created previously to show the roadmap for talent to drive the business. HR professionals must emphasize the strategy via storytelling, data, and visualizations to manage necessary changes at the organization, business line, and department level.

Keys to Workforce Planning Successes

Workforce planning is a journey filled with many pitfalls that could potentially derail the entire initiative. To succeed at workforce planning, you'll need to achieve the following.

1. Answer Key Management Questions About Workforce

Every organization may have different workforce planning questions, but the Human Capital Management Institute (HCMI) has compiled a list of the top 25 questions most often asked by HR and business leaders. Below are the most common questions handpicked by our experts:

2. Demonstrate How Workforce Planning Can Create Impact or ROI

You must show how workforce planning can help your organization achieve its goals, which might include increasing profitability or productivity. Going back to the build, buy, or borrow example, HR professionals would need to demonstrate the Return on Investment (ROI) for each option and then assist management in deciding which one makes the most sense.

3. Automation to Scale Your Workforce Planning

Traditionally, workforce planning required a team to gather and analyze data from various sources, including human capital metrics (such as attrition rates) or financial reports. But with the advent of data-driven workforce planning software, this is now easier to execute at both small- and large-scale levels for HR professionals. SOLVE™, for example, is a data-driven workforce planning software that allows users to create customized reports and graphs based on their unique needs. More specifically, it:

Make Data-Driven Workforce Planning part of Your Talent Management Process

The traditional approach to workforce planning leaves a lot of room for error while requiring significant investments in tools and people. An out-of-the-box solution like SOLVE™ can help companies significantly cut down the time spent on finding the optimal workforce size and cost. This allows HR teams to focus more on implementing the chosen workforce action plan.