Labor forecasting is an incredibly important part of construction management. In this article, we’ll discuss the best practices and provide a handy labor forecasting template.
The basics of labor forecasting
As we discussed in this post, labor forecasting addresses important questions such as:
- whether you have the capacity to take on new projects
- which areas that capacity might apply to
- how a new project might impact your workforce planning
- whether new hires are required to keep up with demand
Consequently, the template and methods in this article will help you answer these questions more effectively.
Construction labor forecasting methods
No single approach to forecasting labor demand applies in every situation. Savvy construction workforce management professionals tailor their approach as needed, often combining multiple strategies.
1. Utilizing sales data
A construction company’s bid-hit ratio provides context regarding how action in the sales department will contribute to workforce demand later on.
For example, let’s say you typically file seven bids per award. By calculating the number of bids you’ll make within a given period, you can estimate your labor needs.
If the demand outpaces your workforce capacity, you’ll want to make adjustments. You could increase labor capacity or decrease your sales targets.
2. Conducting historical analysis
If your company’s priorities, services, market, and sales targets resemble those of prior years, a historical analysis will likely be quite useful when forecasting labor demand.
Start by identifying the period for which you’re creating a forecast. For example, are you forecasting labor demand for Q2 of a given year? With this strategy, you’d look at workforce data from the same quarter in a prior year.
The benefit of this method is that you’ll have concrete data to rely on rather than hypotheticals. For greater accuracy, be sure to consider any changes in your company’s strategy that could conceivably make your forecasted period different from the historical one.
COVID-19 is a classic example of a black swan event that would have made historical analysis challenging in 2020. Check out this article for some insights into how resource management was affected by such a monumental event.
You’d likely want to employ additional forecasting techniques in such a scenario.
3. Market research
Market research is a powerful labor forecasting method for new construction companies or even those simply facing specific circumstances for the first time.
There are many ways to go about conducting market research. For example, you could monitor procurement and employment sites to gauge whether comparable companies in your market are hiring more or less than usual.
Also, construction is collaborative enough to provide many opportunities for communicating directly with your industry counterparts. You can glean information from these conversations regarding the market’s direction.
As a subcontractor, you can also conduct market research by communicating with established clients. Ask what they have coming down the pipeline and incorporate that information into your labor forecasting.
4. Delphi method
The Delphi method is a staple of labor forecasting across numerous industries. It involves consulting a panel of experts and asking them specific questions (in this case, tailored towards labor forecasting).
Once each expert has responded to a question, you’ll share the aggregated information with the entire group. The experts can subsequently adjust their responses based on the collective input. Theoretically, you’ll end up with a true consensus since all responses are anonymous. Many workforce managers consequently view the Delphi method as being a valuable influence during tense, potentially political decision-making processes.
While the aforementioned labor forecasting methods can be incredibly valuable, don’t discount the importance of intuition on the part of experienced managers at your organization. It can result in a labor forecasting approach tailored to your company’s specific needs.
For example, let’s say you’re attempting to forecast labor demand for a specific period, season, situation, or type of project. Have any workforce planners at your company been involved in forecasting for similar scenarios in the past? They’ll likely add value to your forecasting in this scenario as well.
This doesn’t mean you need to rely on their intuition alone, mind you. You can view this intuition as being complementary to other strategies. Again, it will provide nuance.
Labor forecasting template
As with many other resource management tasks, it can be helpful to visualize data while forecasting. Here’s a template we’ve put together.
Key fields to note include the following.
This field should contain your company’s objectives. For example, are you looking to increase revenue or simply hit a specific target? This will set the stage for your labor forecasting by determining whether you’re embarking on a new and different journey or sticking with trends.
In this field, describe your current client base and potential changes that may occur within it during the period being forecasted.
Here, describe the potential internal and external factors that could impact your workforce planning. For example, will you be downsizing? Have specific situations appeared in the broader market (i.e. economic hardship) that would impact your workforce capabilities?
These are all things to consider and mention in this section.
Next, look at the potential impacts highlighted in the previous section and describe the workforce characteristics your company will need to address them.
For example, do you need innovative managers that can think creatively and work well under pressure? Do you need someone with a specific set of skills or certifications to handle a particular client?
Current workforce profile
Here, you’ll describe your current workforce and its capabilities. While you painted a picture of the ideal workforce in the previous section, these fields will deal solely with reality.
Make note of specifics such as:
Much of the data you need for this section can be obtained from a compensation and benefits analysis. Read more about this and other labor planning tools here.
Workforce strength analysis
Here’s where you’ll tie everything together and spot the gaps between your current workforce and what’s needed for the future. Highlight the strengths and weaknesses of both here.
Once you’ve assembled this analysis, you’ll have a very strong idea of your future workforce needs and what it will take to bridge the gap.
We hope you’ve found this guide helpful in laying a foundation for effective labor forecasting. For more workforce and resource management tips, visit our blog.