Planning Concepts and Terms

Human Resources Planning: The Four Critical Steps



Human resource planning is a four-step process designed to help an organization attain its goals by making full use of its workforce. The complexity of a human resource plan depends on various factors, including the work environment expected in the future, the duration of the plan, and the objectives of the organization. The four critical steps of human resource planning are:

1. Environmental Analysis

Environmental Analysis is defined as a “process to identify all the external and internal elements, which can affect the organization’s performance” (Pestle Analysis, 2015). From an HR perspective, environmental analysis requires looking at a variety of different external and internal factors. External elements that an HR professional should take into consideration include changes in employment laws or legislation, unemployment rate and trends, educational trends, technology, and trends within the industry. From an internal perspective, HR professionals should assess the skills of the current workforce, gaps in the skills necessary to achieve organizational goals, and the strategic plans of the organization. Environmental analysis is often achieved by conducting a SWOT (strengths, weakness, opportunities, threats) analysis. Some questions to ask throughout this process include:

1. What is going on with the world and the economies of areas where you operate? How will these trends affect your organization? How will they impact HR decisions? For example:

  • What is the unemployment rate?
  • What laws are changing that will affect your business? Are there other political concerns that will affect your business?
  • In your local areas of operation, what trends are you seeing that will impact the organization?

2. What is going on in your industry, specifically? Is it growing? Where is your organization placed in the industry?

  • Where does your organization fit when competing for talent? How scarce is talent right now?
  • Are there technological trends that will impact your HR needs?
  • What skills does your organization need to be competitive? Do your employees currently have these skills or what training (or hiring) will be needed?
  • What trends are happening in the industry? Does your organization make trends or follow them? What changes will you have to make to remain competitive when it comes to attracting and retaining talent?

3. Who are your direct competitors? How are they changing? Who is new to the picture?

  • How does your compensation and benefits structure compare to those organizations with whom you are competing for talent? What changes might be needed to continue to attract and retain talent?

4. From an organizational perspective, what is going on in the organization?

  • What are the company’s strengths and weaknesses? How do these elements affect HR directly? What can HR managers do to address the weaknesses or capitalize on the strengths of the organization?
  • What trends are you seeing that will impact HR in the next year, the next 5 years, and the next 10 years? What can you do to prepare (Miller, 2018)?

2. Scenario Planning

Scenario planning is described as the process where management evaluates and reviews possible scenarios the company may have to address in the future, mainly by making assumptions. To use scenario planning, there are four critical steps: identify driving forces (economics, politics, technology), identify critical uncertainties, develop a range of plausible scenarios, and discuss the implications (Mariton, n.d.).

3. Forecasting

When most people think about forecasting, they think about the future conditions of a particular environment – what will be needed as there are changes within the organization. In human resource planning, forecasting refers to the assessment of the current supply and demand for people and skills, and the use of that knowledge to determine the need for and availability of personnel in the future(AnderePrepsU, n.d.). In human resource planning, managers evaluate and assess the experience, skills, and attributes, relating to people, that will be required in the future. There are two different types of forecasting: demand forecasting and supply forecasting.

Demand forecasting

The most critical part of human resource planning, demand forecasting, is the process of estimating the number of future employees required, as well as the skills and competencies that will be needed. When demand forecasting, managers consider the long-term objectives of the organization as well as the available workforce, its productivity, and the available budget. With those factors in mind, they must decide whether the organization will need more or less of a particular skill or more or less employees. Summarily, demand forecasting enables managers to match the current workforce with the future demand of the organization. Managers can utilize different methods for determining the demand for employees in the future, including their judgment and experience as well as productivity statistics (AnderePrepsU, n.d.).

Supply forecasting

Supply forecasting is defined as the process of matching the current supply of employees, along with their skills and competencies, to the future demand of the organization. After the future demand is determined, managers, along with human resources, must develop a plan to match the demand by increasing or decreasing the supply of employees. One popular method that managers use in supply forecasting is succession planning. Succession planning is “the process of preparing employees for future jobs and deciding how management vacancies will be filled. The goal is to have highly trained replacements ready to fill vacant positions in all key jobs (AnderePrepsU, n.d.).”

4. Action Planning

After creating demand and supply forecasts, organizations should focus on the development of a sourcing strategy– how the company can utilize a variety of resources or methods to reach its desired human resource targets. Some methods may include increasing or decreasing the size of the workforce, investment in employee training and career development, or the utilization of software and technology. In the action planning process, it is important that decisions align and fit within the organizational strategic plan. An effective human resource plan will align with the goals of the organization, minimize costs for the company, and ensure maximum productivity among its employees. Once identified, the plan should be integrated into the organization’s day-to-day activities and monitored regularly. As with any plan, consistent follow-ups and evaluations are necessary to ensure optimal performance.

Failure to implement an effective human resource planning process can impact the organization in several ways, including high employee turnover, lack of competitiveness within the industry, a reduction in financial performance, lack of available resources, and a decrease in quality of services. A productive workforce equals better performance overall. Furthermore, organizations need to balance their demand for efficient workers with the availability of such talent in the market. An imbalance between the demand and supply of labor could, in turn, lead to the loss of an organization’s competitive edge. A talented workforce makes an organization valuable and high-performing. Inadequately planning how to acquire and retain such a workforce in different market conditions lowers the value of a company (AnderePrepsU, n.d.).

Planning Concepts and Terms



Organizational planning is one of the essential roles of management. Well-developed plans assist management and employees in moving the organization in the right direction, in alignment with the goals and objectives. A challenge of many professionals, including HR professionals, is the ability to formulate a strategic plan that aligns with the organization’s strategic plans and goals. Below we will look at the concept of human resource planning, terms related to it, and how management can effectively and strategically plan for their personnel.

Defining Human Resource Planning

According to Business Dictionary, Human Resources Planning is defined as “the process that links the human resource needs of an organization to its strategic plan to ensure that staffing is sufficient, qualified, and competent enough to achieve the organization’s objectives (Human Resources Planning, n.d.).”  Human resource planning involves gathering and analyzing information, developing goals and objectives, and implementing strategies to achieve goals and objectives.

Importance of Human Resource Planning to an Organization

Human resource planning is a crucial component to remaining competitive in today’s business market. An emphasis on strategic staffing allows organizations to operate more effectively while also providing employees with individual career planning. When human resource planning is executed correctly, it can help answer four important questions:

  1. What are the strengths of the organization?
  2. What are the skills of the current employees, and what skills are required?
  3. How should the organization function to be able to utilize all of its resources properly?
  4. How can the organization retain its employees (Majumder, 2019)?

Failure to prioritize human resource planning can result in high financial costs, specifically related to the time it takes to fill vacancies. The inability to plan ahead of time increases the risk that the organization will have an inefficient supply of talent resulting in the failure to meet organizational goals and objectives. The following are the benefits organization enjoy by integrating human resource planning into their strategic planning:

Creation of a Talent Reservoir

Human resource planning involves forecasting talent supply while developing strategies to meet a talent demand when the time comes. In the process of preparing for future demand, organizations create reservoirs of talent. A talent reservoir is a talent management process that takes into account the various aspects of the assessment process to identify competencies required by the organization (Mohanta, 2013). When creating a talent reservoir, the complete talent management process, from selection to succession planning, is taken into account. Ideally, the organization would have a pool of highly talented individuals that can support the current and future business requirements.

Ability to Meet Future Requirements

The goal of human resource planning is to prepare an organization for its future personnel needs while conforming to its mission, vision, and strategic goals. An IBM survey found, 71% of CEOs cite human capital, ahead of products, customer relationships, and brands as the leading source of sustained economic value (Falkingham, 2014). Human resource planning is not just about sourcing, recruiting, and hiring excellent, qualified talent; it is about assessing and evaluating existing personnel. Organizations should focus on ensuring employees having all of the necessary tools to be successful, are empowered to grow, and offered training and development opportunities. To meet future needs, management and HR leaders should take a holistic approach – a hiring plan, retention plan, and succession plans. The most valuable asset of an organization is its human capital. As a result, it is vital not to overlook people in human resource planning.

Ability to meet Organizational Goals

Human resource planning, when done effectively, allows an organization to achieve goals and objectives by developing and adjusting strategic plans to allow for effective management. For instance, the management of an organization may be able to cut costs after looking at a 5-year human resource plan that shows how to utilize the existing workforce instead of sourcing new talent. Similarly, a plan could jolt management into action if it indicates the lack of efficient succession planning strategies within the company. Making structural and functional changes to the organization while guided by a mission-based human resource plan brings organizations closer to efficiently attaining their goals (AnderePrepsU, n.d.).