Workforce management and planning is challenging, especially when you have to account for fluctuating customer demand, labor market conditions and employee turnover — just to name a few contributing factors. But labor forecasting can significantly change how you approach workforce planning.

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What This Article Covers:

• What Is Labor Forecasting?
• Methods
• Strategy Implementation
• Primary Benefits
• Next Steps

What Is Labor Forecasting?

Labor forecasting is a workforce management and planning process that involves analyzing your organization’s historical data, future market trends and your current operations to take a holistic approach to planning for your labor needs.

Also known as workforce forecasting, it accounts for internal and external factors to help you determine how much of what kind of labor you’ll need — and when you’ll need it. Such factors include, but aren’t limited to:

• Customer demand
• Employee satisfaction
• Employee turnover
• Historical market data
• Current labor market data
• Predicted market trends

Labor Forecasting Equation

The equation for labor forecasting is simple:

Demand forecasting + labor modeling = labor forecasting

You’ll need to perform demand forecasting , when it comes to determining market trends and customer buying patterns. Accurate demand forecasting will improve the accuracy of your labor forecasting.

After forecasting demand, it’s time to create a labor model, so you can evaluate the two for your labor forecasting. Labor modeling will help you identify your current workforce market access and the labor you anticipate needing.

Analyzing these factors can help you better understand and prepare for the labor you’ll need in the coming months or years. And workforce management software can make it a lot easier to analyze the data.

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Methods

There are various strategies you can use to predict labor demand effectively.

While each has its own merits, the best one for you will ultimately depend on your company’s individual needs. You may even find it beneficial to use various methods for your forecasting, so you get several perspectives.

Let’s take a look at the major labor forecasting methods:

Historical Analysis

Historical analysis involves evaluating your company’s labor data from previous years to predict what you’ll need moving forward. You’ll start by identifying customer and employee trends to make labor decisions.

Workforce management software is particularly helpful for historical analysis since this method relies on accurate data from previous years. Keeping that information stored in a system and generating reports on it makes gleaning insights far more feasible than combing through paper records to identify trends.

Consider the internal and external factors mentioned above as you begin to dive into historical data. Factors such as customer demand and employee turnover can provide a great deal of insight into the labor you may need in the future.

The downside to this method is when you’re just starting out or if you don’t have complete and organized records. It’s difficult to analyze historical data if you don’t have it!

Market Research

The market research method is just what its name implies. With this approach, you’ll extensively review overall workforce trends in your particular industry. It includes analyzing the same factors as the historical analysis method, just on a broader scale.

Looking at your competitors is a great place to start for this method. Try to get a sense of:

• Your competitors hiring patterns.
• How they adapt to the market.
• How their customer demand compares to yours.
• Where you fall within the overall market compared to the competitors you’re analyzing.
• Anything else about your industry peers that can help you better predict the market.

The main drawback to the market research approach, however, is trying to identify accurate trends from your competitors and the market at large. You may come across conflicting or questionable numbers.

With that in mind, historical analysis and market research work well together to provide you a more complete view of the market alongside your individual needs.

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Delphi Method

The Delphi method is a forecasting technique that works best for companies with various department heads, managers and decision-makers.
This approach involves asking these leaders to respond to questionnaires concerning future labor requirements in an anonymous manner.

After each round of questionnaires, you create a summary to share with everyone including the justifications and reasonings behind each anonymous prediction.

You’ll provide the summary to your decision makers and give them the opportunity to make any adjustments based on how their peers responded. Continue this way for several rounds until you and your decision-makers are satisfied with where you land.

This method gives decision-makers the chance to provide their input into what they believe their department may need. And, more importantly, the chance to get feedback and insight from peers in an anonymous environment, so they can revise accordingly.

One pitfall of the Delphi method can be getting decision-makers on the same page. It’s not always feasible to please everyone, especially when departments disagree on predictions.

Advanced Quantitative Techniques

Similarly to historical analysis, ‌advanced quantitative methods involve analyzing past data to predict labor needs. However, they differ from historical analysis in how you retrieve and analyze the data.

There are three advanced quantitative techniques you can use:

• Regression Analysis: You can use regression analysis to examine variables affecting your overall workforce, individual employee behaviors and hiring patterns. It involves using statistical equations to predict what factors may have an impact on your labor forecasting and which ones you can ignore.
• Linear Programming: Linear programming is a model used to find the optimum value, whether that’s the largest or smallest value, for a linear function based on certain constraints you set. In addition to helping you optimize your current labor needs, you can use it to uncover gaps in your workforce to optimize your forecasting.
• Data Mining: Rather than combing through historical data manually, data mining tools use automation to detect and compile trends. It’s basically the computerized version of historical analysis, saving you time and effort.

Advanced quantitative analysis techniques use automation and mathematics to ease the manual legwork of traditional historical analysis.

While equations, statistics and computer automations can improve accuracy, predicting customer demand can isn’t an exact science, especially in more volatile markets.

Managerial Assessments

Managerial assessments are basically a more straightforward approach to the Delphi mehtod. Like the Delphi method, you’ll reach out to your department heads, executives and managers — any and all of your major decision-makers — to get their perspectives.

You have these people working in their particular roles for a reason, and that’s usually because they know their departments and they’re qualified to lead them. Who better to help you predict the labor each department will need to demand forecasts?

The major difference here from the Delphi method is that it involves direct conversations — either one-on-one or in a group setting — with your decision-makers rather than anonymous, recurring questionnaires.

One potential drawback to this method, like the Delphi method, is getting managers on the same page. Especially when you have limited resources to dish out for increased labor needs.

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Strategy Implementation

In the end, your company’s unique needs will shape how you implement and execute your labor forecasting model. To get started evaluating your needs, consider the following:

1. Establish KPIs: You can’t forecast labor needs until you determine your company’s overall and employee-based KPIs, goals and objectives. Determine where you want to go before you decide how to get there.
2. Evaluate Current Labor: Examine your current employee data. This includes everything from the number of full- and part-time employees to their performance. From there, you can determine what’s working and what needs to change.
3. Start Forecasting: Now that you’ve defined your goals and examined your current labor status, you can choose a forecasting method. You may find yourself using multiple methods. Whether you choose one or multiple, start forecasting!
4. Analyze Data: Once you’ve started forecasting, you can analyze the data against your current workforce structure and processes. This is when you can start to determine where you need to fortify your labor.
5. Plan: Finally, once you’ve determined where your labor force is lacking based on your objectives, you can determine what you need to fill those gaps. From here, strategize on how to begin adjusting your workforce based on your labor forecasting decisions.

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Primary Benefits

Labor forecasting can provide plenty of benefits to your workforce management tasks, including employee scheduling, recruitment and talent management.

Lower Labor Costs

Labor forecasting can help you lower your labor costs in several ways. For starters, a detailed plan can help you reduce overstaffing. If it only takes five employees to complete a particular job, then you can avoid spending extra on a sixth set of hands.

On the flip side, preparing for increased demand by bringing in extra staff can help you reduce overtime wages. Scheduling an additional employee ahead of time to meet a deadline is cheaper than paying time and half to your regularly scheduled employees.

Hire Purposefully

Labor forecasting can help you reveal micro workforce gaps as well as macro ones. As far as macro needs, you can determine the employees you need to hire for the year across your entire organization.

On the other hand, for your micro gaps, you can pinpoint what type of labor you’re lacking, so you know who to hire for what roles.

Improve Customer Satisfaction

When it comes to improving customer satisfaction, labor forecasting offers a two-pronged approach.

On the one hand, you’re forecasting demand, so you should have a general idea of what to expect in terms of production — barring any major unforeseen fluctuations.

At the same time, you’re also predicting the labor force you’ll need to meet those demand requirements, so you’re prepared when the time comes.

By anticipating demand and preparing to meet it, you can minimize your chances of not being able to meet customer demand. Additionally, you’ll have forecasted the employees you need to properly cover customer service, so you can promptly meet their needs.

Reduce Employee Burnout

As we mentioned above, labor forecasting helps you predict demand so you can schedule employees accordingly. This can go a long way in fighting burnout among your employees.

Not only can you reduce overtime requirements, but you can make sure you have the appropriate staff during regularly scheduled hours. Your workforce can focus on doing their individual jobs to the best of their potential without having to take on additional tasks.

Enhance Decision-making

Perhaps the greatest benefit of labor forecasting — really a culmination of the previously mentioned and unmentioned benefits — is enhanced decision-making.

By forecasting what to expect from customers and how to meet those expectations, you can improve your decision-making on a company-wide scale. Production, hiring and scheduling — to name a few — can all benefit from labor forecasting and decisions you make based off it.

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Next Steps

Labor forecasting can be an invaluable tool when done correctly. With proper forecasting, you can enhance decision-making across your organization in regards to demand and labor needs.

However, it’s a challenging task that necessitates meticulous data collection and planning. Fortunately, workforce management software can help you collect, store and compile data to improve your labor forecasting efforts.

Are you ready to take your labor forecasting to the next level with workforce management software? Start evaluating top solutions today with our comparison report.

What initiatives does your company have in place to conduct labor forecasting? Let us know in the comments below!