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Ratio-Trend Analysis in HRM: Example & Techniques
The choice among a variety of qualitative and quantitative techniques for forecasting human resources demand depend on peculiarities of businesses and industries. A particular attention should be given to industries with seasonal variations in demand for human resources. While qualitative techniques are also frequent in supporting HR management decisions, quantitative ones are expected to be more productive in case of industries with seasonal variations in HR demand.
Two of the popular quantitative approaches applicable to HR management are ratio analysis and trend analysis. Trend analysis implies the study of employment levels of a company for a certain period of time, usually from the last three to five years (Dessler, Chinzer, & Cole, 2015).
This approach allows predicting future needs of an organization in human resources. Its goal is to determine employment trends that are likely to sustain in the future because past experiences usually predict further trends. Nevertheless, analysis of trends is valuable only for the estimation stage because there are other impacts such as productivity and sales rates that have to be considered in planning the demand for human resources.
Ratio analysis is a quantitative approach which implies forecasting that is grounded on the ratio between certain casual factors and the staff necessary for a company (Dessler et al., 2015). These factors can be related to the product as well as previous staffing levels. Thus, ratio analysis grounded on production is more suitable for forecasts that involve jobs related to producing a service or some goods.
At the same time, ratio analysis that is premised on past employment data is more applicable for foreseeing the needs of support and administrative staffing. The utiliztion of ratio analysis can be more productive in case past patterns and future expectations are likely to differ significantly. Still, the risk of using this type of analysis implies mistakes in data included in calculations that can be inaccurate or outdated. As a result, the forecast can lack reliability.
Trend analysis is a strategy that can be successfully applied in non-changing environments that are relatively static (Dessler et al., 2015). Ratio analysis is more flexible because in comprises different factors that have impact on human resource demand.
Therefore, for industries with seasonal variations ratio analysis is preferable. Since ratio analysis implies the relationship between staffing needs and another factor, it can be used for businesses that have different staffing needs depending on a season. In this case, seasonal change will become a determining factor for predicting the necessary staffing. However, it is important to use relevant data for this type of analysis as well as consider other factors such as production growth or company extension.
On the whole, the choice between qualitative and quantitative approaches to forecasting human resources demand depends on the purposes of this prediction. In turn, the selection of one approach among the others in each category is predetermined by company peculiarities and the availability of data for analysis. Still, in every case, forecasting is only the initial stage of human resources planning because final decisions are made by HR specialists based on a complex of factors that have impact on the activity of an organization and can result in the change of its staffing needs. Moreover, any approach demands relevant and recent data that contribute to reliability and validity of results obtained during analysis.
Reference
Dessler, G., Chinzer, N., C., & Cole, N. (2015). Management of human resources: The essentials (4th ed.). Toronto, Canada: Pearson.
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