MANPOWER PLANNING & RESOURCING

SET-I

ANS: 1

MANPOWER PLAN COMPONENTS:

The manpower plan can be broken down into three components:
(i) Forecasting-estimating future needs and stock taking of available resources in the organization;
(ii)Recruitment plan- to meet the gap between the internal resource and estimated need by external
recruitment;
(iii)Training and development plan to utilize fully the human resources of the organization and to develop the
potential resources.

In practice, it has been found that short-term (less than 2 years) and medium-range plans (2 to 5 years) are
easier to formulate with greater degree of certainty.
The following table summarizes the factors related to two major forms of human resource planning.

THREE RANGES OF MANPOWER FORECASTING:

Short Range Intermediate Range Long Range

(0 to 2 years) (2 to 5 years) (Beyond 5 years)
Geographical capacity; size
of the organization and
system; product lines;
Demand services offered; load
for Labor Operating needs from budget or plans. anticipated.
Authorized expression
Expansion or contraction or Changes in environment and
Technological changes new
adjustments technology essentially
legislation ; employee turnover;
judgmental.
lay offs, restriction
Labor-saving equipment,
efficiencies, productivity,
Departmental, divisional rosters;
Supply of Merger or acquisition plans; etc.
promotions. Expected losses;
labor- managerial and supervisory Management expectations of
quits, death.
internal development programmers. changing characteristics of
Labor market projection business employees and future
Area employment levels;
Supply of development plans, general available manpower.
number of employees needed.
labor- institutional plans to hire.
external
Management expectations of
future conditions affecting
immediate decisions.

Short- Range Analysis

1
 MANPOWER PLANNING & RESOURCING
SET-I

It usually grows out of normal budgetary processes. The parameters of short range forecasting are fairly well-
defined. They are handled in the normal course of budget preparation and require simple arithmetic
calculations.

Long Range Analysis

The parameters of short-range forecasting usually are fairly well-defined. They are handled in the normal course
of budget preparation and require simple arithmetic calculations. Long -range planning is more complex and is
dependent upon mathematical and statistical models, as knowledge of demand variables and appropriate
measurement techniques.
Two general kinds of forecasting techniques are used: indirect and direct methods. Indirect methods involve the
forecasting of general rules – production figures, for example –that must be translated into specific requirements
or measures. Direct techniques involve the use of methods of estimate (directly) labor hours, number of
supervisors or particular occupational needs.
Aggregate models are based on several key variables that are known to directly affect the organization’s overall
human resources needs. Every organization has special characteristics or problems, and a planner can use an
aggregate model to get the big picture. These models may apply to a geographic region or to the overall system.
Estimates techniques models are used for situations where circumstances make it difficult to use mathematical
or statistical approaches. Here expert opinion and experience are used. The volume of future activity of business
conditions, including legislation, change, innovation, or competition-situations that are almost impossible to
qualify – can provide workable answers to problems.
At the end, it may be noted that all organizations-those that have a high labor turnover – must systematically
plan their short-term, medium-term and long-term manpower needs. These requirements need periodical
reviews and adjustments to meet changing conditions.

ANS: 2

Human Resource Value Accounting (HRVA)

Another important approach to the evaluation of human resource assets is to calculate their economic values.
This concept is based on the view that difference in present and future earnings of two similar firms is due to
the difference in their human organization. The economic value of the firm can be determined by obtaining the
present value of future earnings.
A number of valuation models have been developed for determining the present value of future earnings. Some
of the important models have been discussed below:

The LEV And Schwartz Model

Lev and Schwartz developed an economic model in 1971 for determining the value of human resources in a
firm. According to them, the value of human capital embodies in a person of age ‘t’ is the present value of his
remaining future earnings from employment in the form of salaries, wages, etc. The value of human capital of a
person ‘t’ years old is given symbolically in the model as:

Where,

2
 MANPOWER PLANNING & RESOURCING
SET-I

Vt = The value of human capital of a person ‘t’ years old.

I(t) = The annual earnings of the person up to retirement.
x = The discount rate of the cost of capital.
T = The age of retirement.

Lev and Schwartz have taken a hypothetical example to show the computation of value of human capital of
firm. The hypothetical example taken relates to the persons of different age groups and degrees of skill and
average annul earnings for each age group and skill group have been ascertained. The present values of future
earnings for each group have been determined and the total of such present values has been shown as the firm’s
values of human resources.
However, the Lev and Schwrtz model has the following limitations:
The model does not consider the possibility of leaving a firm by an employee.
The model ignores the possibilities of promotion of employees.
It does not consider the contribution of the firm in developing the value of human capital.
In spite of the above limitations, the Lev and Schwartz model is the most popular economic model for
determining the value of human resources of a firm.

Flamholtz Model (1971)

According to this model, an individual’s value to an organization is determined by the services he is expected to
render to the organization during the period he is likely to remain with the organization in various position or
service states. The present value of human resources may be derived by discounting the realizable value of
expected future service at a specified rate. This model involves the following steps:
Estimation of period for which an individual is expected to render service to the organization.
Identification of various positions or services states that the employee might hold during his service with the
organization.
Estimation of probable period for which he is expected to hold each possible position or service state.
Calculation of expected service to be derived from the individual by:

Where Si represents the quantity of services expected to be derived in each state and p (Si) is the probability
that the same will be obtained.
Determination of the monetary equivalent value of the expected future services by multiplying the quantity of
services with price and calculation of the income expected to be derived from their use.
Calculation of present value of expected future services at a pre-determined rate.
The Flamholtz model is an improvement over the Lev and schawartz model in the sense that it takes into
consideration the possibility of an employee leaving the service as well as the possibilities of promotion of
employees. However, the major drawback of this model is that it is very difficult to estimate the likely service
states of each employee. The model also suffers from the fact that individuals working in a group have higher
value for the organization as compared to the sum of their individual values.

Giles And Robinson’s Human Asset Multiplier Method

In 1972, the institute of Cost and Management accountants and the Institute of Personnel Management
sponsored Giles and Robinson to produce a report on human asset accounting. They suggested a human asset
measurement method known as human asset multiplier. According to this method, the valuation of human
resources should be made in the same way as other business assets on a going concern basis.

3
 MANPOWER PLANNING & RESOURCING
SET-I

The calculation of human asset value, under this method is based on the notion that an individual’s
remuneration, or the remuneration of group persons in the same grade, may be multiplied by a factor
determined on the basis of his contribution to the success of the business. The total value of human assets
employed in the business can be calculated by simply adding together all the individual values so calculated.

Hermanson’s Unpurchased Goodwill and Adjusted Discounted Future Wage Model

Roger H. Hermanson has suggested two models for the measurement of human resources. According to
unpurchased goodwill model, the value of human resources of an organization may be calculated by capitalizing
earnings in excess of normal earnings for the industry or the group of companies of which the firm is a part
The adjusted discounted future wage model uses compensation as a surrogate measure of a person’s value to the
firm. Compensation means the present value of future stream of wages and salaries to employees of the firm.
The discounted future wages stream is adjusted by an ‘efficiency ratio’ which is the weighted average of the
ratio of return on investment of the given firm to all the firms in the economy for a specified period, usually five
years. The weight are assigned in the reverse order, i.e., 5 to the current year and 1 to the proceeding 4th year.

Hermonson has used the following formula for calculating efficiency ratio:

Efficiency ratio =

Where, RF is the rate of accounting income on owned assets for the firm for a period of 5 years. And, RE is the
rate of accounting income on owned assets for all the firms in an economy for the same period.
The efficiency ratio has been criticized as being subjective because of arbitrary weights and restricting period of
5 years.

Jaggi And Lau Model

This model suggests valuation of human assets on a group basis rather than on individual basis. Group, in this
model, means a homogeneous group of employees who may not be necessarily working in the same department.
It might be difficult to predict an individual’s future period, stay and chances of promotion, but on a group
basis, it is easier to ascertain the future period of service, chances of promotion and those who are likely to
leave the firm during each of the forthcoming period. It has been assumed in this model that the pattern of
movement is likely to remain constant overtime and the probabilities determined for one period can be extended
to future periods. The computation of human resources of an organization is done below:

TV= (N) rn (T) n (V)

Where, TV represents the current value of all employees in each rank.

N represents the number of employees in each rank.
n represents the time period.
R is the discount rate.
T represents the probability,
V represents the economic value of an employee.
This model tries to simplify the measurement of the value of human resources by taking group of employees as
the base.

4
 MANPOWER PLANNING & RESOURCING
SET-I

Morse Net Benefit Model (1973)

According to this model, the value of human capital is determined on the basis of the present value of net
benefits derived by the organization from the expected future services of its employees. It involves the
following steps:
Determination of the gross value of future services to be rendered by employees in their individual capacities as
well as operating in groups.
Determination of the Cost, i.e. the total future payment to be made to the employees.
Calculation of ‘net benefit’ to the organization on account of human resources by subtracting (i) from (ii).
Calculation of the present value of the net benefits by discounting at pre-determined rate of discount.

ANS: 3

Individual knowledge Conversion Process

Individual knowledge conversion takes place between tactic knowledge and explicit knowledge. According to
Nonaka and Takeuchi (1995), knowledge conversion is based on four modes:

1. Socialization: Knowledge is converted from tactic to tactic through sharing and exchanging experiences and
technical skills.

2. Externalization: Tactic knowledge is converted into explicit concept like analogies, models generalization
etc.

3. Combination: Knowledge is converted from explicit to explicit by reconfiguration of existing information

by infusing modifications, additions, deletions, sorting combinations and categorization. This effort results on
the creation of new or improved knowledge.

4. Internalization: Knowledge is converted from explicit to tactic. This is related to learning by reading,
listening and doing. This stage helps the individual to conceptualize the knowledge from his own perspective
through the interaction of his own cognition. Thus, the individual internalizes the explicit knowledge and
converts it into tactic knowledge.

Organizational Knowledge Creation Process

Organizational knowledge creation involves four phases. These four phases include:

1. Sharing tactic knowledge: Interaction among individual employees in the form of meetings, discussions and
conflict over ideas, provides for exchange and sharing of tactic knowledge. Thus, tactic knowledge held by
most of the employees becomes the organizational knowledge.

2. Creating concepts: The cognitive process of each employee crystallizes the shared tactic knowledge into
models, concepts and words.

3. Justifying concepts: The new concepts generated by individual need to be tested in practice and justified for
further validity and practical implementation. This stage justifies whether the new concepts/ideas are
worthwhile for the organization and the society.
4. Building an Arch type: The tested concepts are converted into tangible or concrete (arch type) or prototype
operating mechanism.

5
 MANPOWER PLANNING & RESOURCING
SET-I

ANS: 1

DEMAND FORECASTING
Effective workforce planning for specific enterprises involves determining which actions are needed to achieve
business objectives, identifying the types and quantities of skills that are necessary to accomplish those actions,
determining how those skills may vary from the skills that are currently available, and developing strategies for
closing the gaps between today's workforce and the workforce needed to accomplish the business objectives.
Most professional HR departments have well-established practices to handle the identification, acquisition,
development, and retention of their workforce. Recent reviews of workforce planning practices reveal, however,
that many companies are dissatisfied with their ability to translate business strategies into the specific numbers
of employees who would be needed to achieve business objectives. Demand forecasting, the process of
determining how many people will actually be needed, was typically reported as the weakest link in addressing
workforce requirements.
In theory or in practice, demand forecasting techniques can be grouped into six major categories: Direct
Managerial Input, Best Guess, Historical Ratios, Process Analysis, Other Statistical Methods, and Scenario
Analysis. This article provides a quick overview of those six techniques.

1. Direct Managerial Input is the most commonly used approach for determining future workforce requirements.
This is typically done via an edict that headcount or workforce costs will be a specific number. Today this
number is most often expressed as a percentage reduction. There is little analysis of the work effort
necessary to meet business objectives. The primary drivers are the desired cash flow and/or adjustments to
the company's return ratios such as rate of return, return on capital employed, and discounted cash flow
return on investment. This type of approach is easy to calculate and works adequately when a company is
substantially overstaffed. The negative is that it is not linked to actual workload requirements and does not
distinguish between critical and non-critical skills.

2. A few companies have evolved a Best Guess formalized managerial judgment process. For example, a
company formally collects data from each manager and rolls it together for an overall projection. In this
process, each manager prepares a forecast of the demand for full-time equivalent employees for the skill
groups or job families in their area. The forecast includes (a) the current headcount requirements, (b) a best-
guess estimate of the impact of anticipated productivity and technology changes, and (c) the manager's best
guess of headcount changes due to anticipated business changes. Summing the current head-count and the
anticipated positive and negative changes yields the future estimate.
The strength of this approach is that it provides maximum flexibility to the manager. The major weakness of
the best guess approach is that it assumes all managers are willing to spend the time necessary and have the
ability to forecast their future work-force needs intuitively.

3. Historical Ratios are used by many companies. Overall headcounts can usually be strongly correlated with
other business factors, such as number of items manufactured, numbers of clients served, barrels of oil
refined. Some businesses use operating budgets as headcount predictors with high reliability. In terms of
total worker requirements, those factors usually provide a good forecast. However, as the mixture of regular
employees, temporary workers, and outsourced contractors changes, these historical ratios can change
dramatically. Reengineering, reorganization, and restructuring have a substantial impact on the accuracy of
these projections. Historical ratios should not be used without allowing for anticipated changes in
productivity and alternative staffing strategies.

6
 MANPOWER PLANNING & RESOURCING
SET-I

The major strength of this approach is that it is readily understood and easily developed with simple
methodologies such as Excel or Lotus spreadsheets. The major weakness is that it requires some "tinkering" to
adjust for a rapidly changing work environment and this tinkering may be beyond the skills of those charged
with developing the projections.

4. The widespread interest in reengineering activities has produced a hypothetical approach to workforce
demand forecasting based on Process Analysis. Some articles on the topic suggest businesses should
develop a detailed analysis of process components of work activities and that predictive ratios could then be
designed to forecast the associated workload for each unit level of process output.
The concept seems fundamentally sound, but the benchmarking efforts did not find a single case where this
concept had been translated into an operational model. In order for the process to-work as hypothesized, the
workload analysis should be incorporated within a reengineering study. It might fairly be questioned whether
this extensive level of analysis should become part of an annual planning cycle or should only be done in
conjunction with a major reengineering effort.
The data collection and analysis phase of a process analysis approach is similar to the traditional historical ratio
approach. Process steps are substituted for work activity steps, so that the analysis is done at an organizational
level rather than a work group. The benchmark analysis showed some reengineered companies have developed
the traditional historical ratio analysis described in section 3, and have then adjusted those ratios for their
assumed productivity gains to be achieved via process improvements. In theory, the positive and negative
aspects of this process would mirror those described for historical ratios.

5. Other Statistical Methods include regression, linear programming, goal programming, simulation, Markov
modeling, and demand flow/renewal models. The simplest version is a linear regression model in which time is
used as the independent variable and headcount is the dependent variable. These types of models are common
among companies that are either growing or shrinking steadily. This technique is often found in older articles
about "manpower planning" but is seldom used today.
A better variation is the use of regular multiple regression techniques in which variables used in the historical
ratio approach are used as independent variables. A major difference between a regression model and the
previously described historical ratio model is that regression models would incorporate a rate of change based
on the historical productivity improvement trends whereas this would require additional data manipulation for
the historical ratio approach. Both Lotus and Excel include regression modeling in their spreadsheet
applications.
There are more sophisticated modeling programs available, including commercial packages such as Journey,
Succession Plus, and the Interactive Flow Simulator. These models provide simulation capabilities that can be
used to project the future movement of employees within the organization. The full range of forecasting models
is reviewed in a book published by the Human Resource Planning Society, called Human Resource Forecasting
and Modeling, edited by Ward, Bechet, and Tripp, and published in 1994. Companies that are successfully
using the more sophisticated techniques have tended to use a variety of simple models to analyze the need for
specific critical skills as opposed to grand cyberspace reproductions of their entire workforce population.
The major negative associated with these models is that they typically involve a long learning curve to master
the technique fully. The major positive is that a well-defined model can provide organizational insight that no
other technique can provide and will usually be the most accurate way to project future requirements if the
model builder fully understands the organization.

7
 MANPOWER PLANNING & RESOURCING
SET-I

6. A new approach to workforce demand forecasting is Scenario Analysis. While Scenario Analysis itself is not
new, there is renewed interest in workforce analysis applications. The technique involves using workforce
environmental scanning data to develop alternative workforce scenarios. Scenarios are developed by having
brainstorming sessions with line managers and human resource managers, developing their view of the
workforce five years or more in the future, and then working backwards to identify key change points.
The most positive aspect of this approach is that it encourages out-of-the-box thinking. Scenario discussions can
surface considerations of the future that are frequently missed by other approaches. People also generally enjoy
taking a break from routine and enjoy participating in these wide-ranging discussions.
The most negative aspect is that the discussion groups typically conclude that the best strategy is to encourage
flexibility and adaptability by providing a heavy emphasis on training and personal development, and suggest
that one should not worry about specific details. While this may be true, the need for workforce flexibility is
usually known before the scenario discussions starts. Facts that can be gleaned about workforce needs over the
next few years should not be ignored merely because the long-range details may still be fuzzy.