Whether you manage a restaurant or an entire production line of automobiles, labor forecasting is a critical managerial process that can save your company thousands in labor costs. If you’re not quite familiar with labor forecasting, here is a look at what it is, why your company needs it, and different methods for forecasting labor that you can try today.
What is labor forecasting?
Labor forecasting is simply a formal process for anticipating how many staffing hours your company will require in the future. This is particularly useful for organizations as it helps them to make sure that they are not understaffed – which can negatively impact sales, or overstaffed – which creates unnecessary labor costs.
Finding the perfect balance is not always easy, but it is worth it for the many benefits it can bring to an organization.
Why your company needs labor forecasting
In addition to preventing your company from being overstaffed or understaffed in the short term, successful workforce forecasting also has many other long-term benefits. Some of the main long-term benefits of labor forecasting include:
- Improved overall customer service experience. When your team is working at optimum productivity, they are able to focus on performing their job at its very best. For customer-facing employees, that means they can provide a much better service experience to your customers and clients. For example, if your restaurant is low on wait-staff for the evening, other employees will have to pick up the slack. This can cause frustration, resentment, and can oftentimes lead to mistakes.
- Prevention of employee burnout and improved retention. Working environments that are chronically understaffed can cause employees to feel mentally stressed and drained. Too much stress can cause burnout, which can then lead to increased absenteeism or even more complex mental health problems. On the flip side, an overstaffed environment may make employees feel unfulfilled in their role. In some cases, an employee may feel motivated to seek employment elsewhere if they feel like they are not making an impact.
- Improved managerial capacity to make strategic, long-term decisions. When the day to day staffing runs smoothly, managers are able to focus their energy on more important, long-term matters. Some of these matters include business growth and development projects, process optimization activities, and upskilling for themselves or for their staff.
5 Common Labor forecasting Methods
Whether they are aware of it or not, most managers already perform basic labor forecasting techniques in their day to day managerial duties. Here are five of the most common methods used in the workplace today.
1. Historical Analysis
If you’ve ever made a staffing schedule for an upcoming month based on your staffing needs from the previous month, you have conducted a historical analysis – and it’s one of the best ways to plan ahead for your company’s labor requirements.
Simply put, historical analyses take into account past information and trends, and then future labor planning is based on any patterns that you may find.
Some questions to consider when doing a historical analysis:
- What days/times is your business the slowest/busiest?
- Do you have any particular seasons of the year which are slower or busier?
- Is your company affected by any holidays or special events?
Historical analyses are particularly helpful with restaurant forecasting, as it is easy to identify ‘busy phases’ throughout the day and week – i.e. around mealtimes, special events, and weekends.
2. Market Research
If you are a brand-new business, you may want to conduct some market research to determine what the future staffing needs of your business may be. You can always research the schedule forecasting trends of other companies in your industry, and then apply those trends to your business. You can also reach out to similar business owners to see if they have any advice on staffing, scheduling, or seasonal trends.
Some questions to explore when researching:
- What are the typical daily staffing needs of similar-sized businesses in your industry?
- Are there any particularly slow or busy seasons in your industry?
- Are there any particularly slow or busy seasons in your geographical location?
3. Delphi Method
The Delphi method is another classic forecasting technique that can be beneficial for companies that have multiple leaders making decisions about staffing and scheduling. In this technique, each decision-maker is sent a series of anonymous questionnaires regarding future labor needs. The answers are then collected, and a conclusion is made based on the group’s collective, aggregated responses.
This method is ideal for longer-term staffing decisions that may be sensitive or political. Because participants must submit their responses anonymously, they will answer honestly and with good judgment, without feeling worried about what the other leaders may think.
4. Advanced Quantitative Methods
More advanced forecasting techniques use statistical analysis to form a trendline based on historical data, future events, and other variables such as economic conditions and broader business trends. These methods are particularly useful for larger organizations in need of more sophisticated insights about their anticipated labor needs.
Some of the most common advanced quantitative methods for labor forecasting include regression modeling techniques, the Box-Jenkins technique, econometric modeling, and life-cycle analyses.
5. Managerial Judgment
At the end of the day, nothing beats managerial judgment when making staffing decisions, and good managers will know first-hand when they need staff, and when they do not need staff.
Good managers can also help plan ahead for anomalies that traditional forecasting methods may not catch. Is there a new event in your area that may attract lots of new foot traffic? Have you implemented a new system that may alleviate work required by some of your staff? Do they have first-hand knowledge that an employee may leave soon due to personal reasons?
All of these questions are potential blind spots that only managers will have the insight and responsibility to act on.
It’s Okay to Use Multiple Forecasting Techniques
Remember, it’s okay to utilize several different forecasting techniques for your business. Each method is useful in its own way, and there may be different points in time where one method is more practical to use than another. You may even find that some methods work better for short-term planning, while others work better for long-term planning.
As a conclusion, the most important takeaways regarding labor forecasting are to:
- Be aware of how your company predicts and plans for labor needs
- Implement policies that include a variety of labor forecasting methods and best practices
FAQ
Labor forecasting is the process of estimating the future labor needs of a business based on projected customer demand, sales data, and other external factors. It is crucial for businesses because it helps ensure they have the right number of staff, with the appropriate skills, available at the right times to meet customer demand, optimize workforce management, and maintain high levels of customer satisfaction.
Forecasting labor demand is directly related to forecasting customer demand, as understanding the volume and timing of customer demand allows businesses to accurately predict their labor needs. By analyzing trends in customer behavior and historical sales data, businesses can align their labor forecasting efforts with expected customer demand, ensuring they are adequately staffed to meet peaks and troughs in business activity.
Effective methods for accurate labor forecasting include the use of historical analysis methods, advanced quantitative methods, and labor modeling. These approaches involve analyzing past data, such as historical sales data and trends in customer behavior, and applying statistical techniques to predict future demand. Additionally, labor forecasting software can automate and refine these processes, providing more accurate and timely forecasts.
External factors, such as economic conditions, industry trends, and seasonal variations, can significantly impact labor forecasting efforts by influencing customer demand and labor availability. Businesses must consider these factors in their labor forecasting strategy to ensure they can adapt to changes in the market and maintain the ability to meet customer demand effectively.
Historical data plays a pivotal role in labor forecasting by providing a foundation for predicting future labor needs. By analyzing historical sales data, customer demand patterns, and past workforce performance, businesses can identify trends and patterns that help accurately forecast future demand and labor requirements. This historical analysis method is essential for developing a reliable labor forecasting approach.
Labor forecasting software enhances workforce planning and management by automating the analysis of sales data, customer demand, and other relevant factors to produce accurate labor forecasts. These tools often incorporate advanced quantitative methods and algorithms to predict future demand more accurately, enabling businesses to optimize their workforce scheduling, reduce labor costs, and improve overall efficiency.
Accurately forecasting labor needs is crucial in achieving customer satisfaction because it ensures that businesses have sufficient staff to meet customer demand without delays or compromised service quality. By effectively matching labor supply with projected customer demand, businesses can maintain high service levels, minimize wait times, and enhance the overall customer experience.
Yes, advanced quantitative methods in labor forecasting can predict future demand more accurately than relying on historical analysis alone. These methods use statistical and mathematical models to analyze not only past data but also current trends and external factors, providing a more comprehensive and forward-looking perspective on labor needs. When combined with historical analysis, these advanced methods offer a robust approach to labor forecasting, enabling businesses to prepare more effectively for future demand.
