Small and mid-sized business leaders might be so focused on the day-to-day operations that they forget to be more strategic in how they do things. One area where not enough small businesses focus is on labor and demand forecasting.

Labor and demand forecasting can help reduce labor costs, which for many small businesses is their most significant expense. Using software like a leave tracker or attendance management system can help in this area, but before getting into the specifics of that, what exactly is labor forecasting? Why is labor forecasting important, and what benefits can it strategically bring to an organization?

What Is Labor Forecasting?

Labor forecasting is something usually managed by human resources, although in small businesses there might not be a dedicated human resources department. The HR department or whoever is responsible for things like managing schedules and payroll needs to look and determine what their staffing needs are in the short- and long-term. Some of the factors that labor forecasting can be based on include customer demand in service-driven businesses, as well as projected growth and sales.

The HR department or whoever is responsible for HR planning uses labor forecasting as an opportunity to see not only who needs to be working that’s currently on the payroll, but also when new workers might be needed. Labor forecasting should also look at what the costs are for the current labor needs, and what the costs of labor might be if there’s future growth.

The following are some specific considerations to keep in mind when it comes to creating labor forecasts.

• There needs to be a sense of balance. If you’re overstaffed, it’s extremely expensive. If you’re understaffed, it can cause problems in meeting the needs of customers or getting work done.
• Scheduling employees, managing time off, and ensuring that demand is met isn’t just about putting people down for specific times. There are other things to think about as well, such as avoiding overtime, and reducing labor costs and staying on budget while having the necessary people to do the work needed at any given time.
• A lot of labor forecasting can come from looking at trends. This is one place where a leave tracker can be part of the equation. You can look back at times in the past and see who was working, and what you might need in the future. You can also use a leave tracker to determine key times the most employees are asking off for vacation or other reasons, and integrate that into labor forecasting.
• Labor forecasting isn’t just relevant to service businesses like restaurants, its’ also important for manufacturers, wholesalers and retailers.

Why Is Labor Forecasting Important?

There are so many reasons that working to accurately forecast demand and labor needs is important for an organization.

• You want to stay on budget with your human capital costs. Too many small and mid-sized businesses don’t look at the costs of payroll and other associated human capital costs like overtime when they’re scheduling. They just fill out schedules without really thinking about budget or strategy.
• If you don’t have the labor needed at any given time to meet customer needs, it’s going to cause problems with service and satisfaction. It can lead to costly errors, and in the age of social media reviews, you really can’t afford to have even one day where customers are dissatisfied with the service they receive at your business. If you’re a wholesaler, as an example, this is important as well. For example, if you’re slow to fulfill orders and you’re not meeting deadlines because you’re understaffed, it’s going to create friction with your customers that can be tough to overcome.
• Inaccuracy in labor forecasting or the failure to do it at all can cause compliance problems related to federal and state employment laws.
• It’s difficult to grow a business or plan for the future without labor forecasting. For example, recruiting new talent isn’t something that happens overnight. It requires careful planning, and it can take a while to find the right people. It needs to be started sooner rather than later. Otherwise, you’re either not going to fill positions, or you’re going to fill them with the wrong people. With labor forecasting, it’s possible to be proactive in hiring needs giving the organization the necessary time to find the best talent, rather than hastily hiring or not hiring at all.
• Employee engagement and productivity are essential to the success of any business. Employees need to feel like they enjoy their work environment, and yet in organizations where employees feel overworked and overburdened, they tend to check out and feel disengaged. That can cause problems with productivity, and these effects are often the result of understaffing or not hiring when necessary, putting more and more on the plate of existing employees.
• Another thing to think about with labor forecasting is the fact that you need to know why you’re hiring. You need to know the specific roles that need to be filled. If you simply go on feeling and think you need to bring a new person on board, but you’re not sure of the specific role they should fill, it’s not a strategic talent management decision. With proactive labor forecasting, it’s easier to use data to see exactly what you need, which will help you find the right person for the job.

Staffing for demand is something that can take some time to get right, but once an organization has the right tools and processes in place, it can bring a lot of value. Properly forecasting labor needs can save money, and can also ensure an organization is competitively productive.

A leave tracker or attendance management system is one tool that can be used for labor forecasting. The data derived from a leave tracker can be part of the decision-making and the planning for what the future needs of an organization might be, including when they need to expand and hire and also seasonal considerations.