Making forecasts based on sales volumes and number of employees required

Ratio analysis: A forecasting technique for determining future staff needs by using ratios between, for example sales volume and number of employees needed.

Another approach, ratio analysis, means making forecasts based on the historical ratio between (1) some causal factor (like sales volume) and (2) the number of employees required (for instance, number of sales people). For example suppose a salesperson traditionally generates $500,000 in sales. If the sales revenue to sales people ratio remains the same, you would require six new sales people next year (each of whom produces an extra $500,000) to produce hoping for extra $ 3 million in sales.

Like trend analysis ratio analysis assumes that productivity remains about the same – for instance, that each sales person can’t be motivated to produce much more than $ 500,000 in sales. If sales productivity were to rise or fall, the ratio of sales to sales people would change. A forecast based solely on historical ratios would then no longer be accurate.

Scatter Plot: A graphical method used to help identify the relationship between to variables.

A scatter plot shows graphically how two variables such as a measure of business activity like sales, and your firm’s staffing levels are related. If they are, then if you can forecast the level of business activity you should also be able to estimate your personnel.

For example assume a 500 bed hospital expects to expand to 1,200 beds over the next five years. The director of nursing and the human resource director want to forecast the requirement for registered nurses. The human resource director decides to determine the relationship between size of hospital (in terms if number of beds) and number of nurses required. She calls eight hospitals of various sizes and gets the follows figures:

Size of Hospital No of Registered Nurses
(No of beds)

200 240
300 260
400 470
500 500
600 620
700 660
800 820
900 860

While simple there are several drawbacks to techniques like trend or ratio analysis and scatter plots:

1) They generally focus almost exclusively on projected sales volume and historical sales/personnel relationships, and generally assume that the firm’s existing structure and activities will continue into the future.
2) They generally do not consider the impact the company’s strategic initiatives may have on future staffing levels.
3) They tend to support outdated compensation plans that reward managers for managing ever larger staffs and don’t reveal managers who expand their staffs irrespective of the company’s strategic needs.
4) They tend to bake in the nonproductive idea that increases I staffs are inevitable.
5) They tend to validate and institutionalize existing planning processes and ways and ways of doing things even in the face of rapid change.

Using Computers to forecast Personnel requirements:

Determination of future staff needs by projecting sales, volume of production and personnel required to maintain this volume of output using software packages.

Computerized forecasts enable the manager to include more variables into his or her personnel projections. These variables might direct labor hours required to produce one unit of product (a measure of productivity) and three sales projections – minimum maximum and probable for the product line in question. Based on such input a typical program generates average staff levels required to meet product demands as well as separate computerized forecasts for direct labor such as assembly workers, indirect staff (such as secretaries) and exempt staff (such as executives).

With programs like these employers can more accurately translate projected productivity and sales levels into forecasted personnel needs. And, they can estimate the effects of various productivity and sales level assumptions on personnel requirements.

Many firms use automated computerized employee forecasting systems. In retailing for instance, automated labor scheduling systems help retailers estimate required staffing needs based on sales forecasts and estimated store traffic.

Whichever method you use, managerial judgment will play a big role. It’s rare that any historical trend ratio or relationship will simply continue unchanged into the future. You will therefore have to modify the forecast based in factors such as projected turnover or a desire to enter new markets – you believe will be important.

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