Companies can use strategic human resource planning (HRP) to forecast current and future staffing needs using a variety of techniques, but the end goal is always to limit exposure to surpluses or shortages in labor. Managers need to anticipate the movement of people into, within and out of an organization. They need to be able to approximate the level of future demand for the business's goods and services. Lastly, they need to implement processes and activities that promote employee competencies within the framework provided by supply and demand estimates.

Labor supply, or the amount of labor required by a business to meet its business objectives, can come from within an organization or from outside sources. Using strategic HR planning, a company assesses the level of skill and overall productivity within the business. It tends to be much more expensive to make new hires than to improve the existing skills of employees, which means companies generally have a strong incentive to foster productivity internally as a first option.

The Art of Forecasting

Demand forecasting is more difficult than supply forecasting. Unsurprisingly, there are competing philosophies on how to best approach it. Businesses need to assess the level of consumer demand in the future and begin building an infrastructure to meet those demands. They need to understand their turnover rates and the labor market.

Smaller businesses gravitate toward less technical and qualitative methods. Larger companies, where it is too difficult to assess individual workers using "gut feeling," must rely on a certain amount of statistical metrics and trend analysis. Workforce planning always involves a certain degree of guessing. But whatever their size, businesses better at recognizing, acquiring and cultivating talent have a large competitive advantage.