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Why is human resource planning important?

• There is a typical process in managing the human resources (HR) of a business

• Staff costs can make up a large proportion of a business’s costs

  • Careful planning and objective monitoring of employee performance are key elements of effective financial and operational control

The HR flow

• HR planning focuses on identifying how many and what kind of employees are needed

  • It looks at how employees will be:

    • recruited and deployed (used)

    • developed and trained

    • motivated, managed and led

• Key HR metrics that help to guide planning include the following:

  • Labour turnover

  • Labour productivity

  • Employee costs as percentage of turnover

  • Labour cost per unit

• You can read more on these metrics in the revision note Calculating and Interpreting Human Resource Data

Internal factors that influence HR planning

• There are factors inside and outside of the business that can impact the HR planning process

Internal factors

External factors that influence HR planning

• A range of factors beyond the control of a business can also impact the HR planning process

External factors and HR planning

1. Economic conditions

   • The state of the economy, including factors such as economic growth, inflation and unemployment rates

     • During periods of economic growth, a business may need to focus on attracting and retaining staff to meet increased demand

     • During economic downturns, they may need to implement cost-cutting measures such as redundancies or hiring freezes

     • In the post-COVID-19 recovery period (2021–2022), sectors such as retail, construction and logistics experienced a surge in demand. Companies such as Tesco and Amazon UK launched large-scale recruitment campaigns and retention bonuses to attract staff

2. Labour market

   • The supply of suitable employees and the impact of factors such as skills shortages, labour mobility and immigration

     • Post-Brexit, care, hospitality and farming sectors faced shortages

       • The UK government responded with the Seasonal Worker visa and expanded the Shortage Occupation List

3. Technological advancements

   • Rapid technological change can disrupt industries and job roles, affecting HR planning

     • Automation, artificial intelligence and other emerging technologies can lead to changes in job requirements, skills needed and workforce composition

     • HR planning must anticipate these shifts and consider reskilling or upskilling to meet future workforce needs

4. Legal and regulatory environment

   • Laws and regulations related to employment, labour relations, immigration and health and safety

     • The Flexible Working Act (2023) gives employees the right to request flexible work from day one

     • HR teams are updating policies and enabling hybrid working

5. Social and cultural factors

   • Factors such as societal values and demographic trends

     • Workforce diversity and inclusion, flexible work arrangements, work-life balance and employee well-being are examples of areas in which social and cultural factors are external factors that influence workforce planning

6. Political factors

   • Changes in government policies, political stability and geopolitical factors

     • Shifts in labour laws, changing tax regulations, immigration policies and cross-border trade agreements are political focuses that can often impact HR planning

7. Industry-specific factors

   • Different industries may face unique external factors

     • NHS recruits nurses internationally to address shortages

     • Schools offer bursaries and bonuses to attract STEM teachers

8. Competitive landscape

   • The environment in which a business competes for labour and the actions and strategies of competitors influence workforce planning

     • HR planning should consider the organisation’s position in the market and align recruitment strategies so that the pay and benefits reflect the landscape