What is resource forecasting in project management?
By definition, resource forecasting is predicting the demand for various project metrics and skills they require over a given period of time - usually a month, a quarter, a year, or simply the duration of a project.
In project management, these metrics usually include:
- human resources (employees, contractors, etc.),
- equipment (computers, additional devices, software, etc.),
- space, i.e. in the office,
- any other physical or non-physical factors needed to complete the project.
In general, resource forecasting is done using dedicated tools such as Primetric.
However, in numerous cases of service companies, resource forecasting often refers to forecasting exclusively human resources, as no or few other factors are required for the project. To add to that, human resources make up the majority of both costs and incomes in the company. As a result, their forecasting is directly connected to the financial forecasts.
This usually applies to IT, marketing or any other businesses based on providing services. In this article, we will focus on that approach, as it is the most popular in modern business.
Resource forecasting vs other processes
Additionally, resource forecasting also has a huge impact on other processes in the company. They include:
- resource planning processes in Jira,
- professional services project life cycle,
- project management forecasting,
- cost estimation.
Therefore, resource forecasting has to be accurate not to cause mistakes in other processes, too.
What can you achieve with resource forecasting?
The main objective of resource forecasting in project management: to accurately estimate the number of specialists needed to complete a project, as well as the skills they need to have to complete assigned tasks.
However, creating accurate predictions is not the only benefit of resource forecasts. They can also:
- reduce project costs. Employees (or, more specifically, their wages) make up a majority of all company’s costs. Resource forecasting reduces benches and overtimes, resulting in a huge spike in profitability.
- improve project portfolio management. None of the service companies manage just one project at the time. As a result, they need to predict the demand for resources and juggle them flexibly to complete projects on schedule. Resource forecasting can help them do just that.
- maximize resource utilization. With numerous endeavors at hand, it is sometimes hard to make sure that everyone’s output is maximized. With resource forecasts, you can see both overworked and underbooked employees and optimize the workforce.
- prevent organizational bottlenecks. Benches and overtimes are not the only challenges you can see in resource forecasts - vacancies can be equally threatening for any project. Fortunately, if you complete resource forecasting regularly, you can spot them before they affect your projects.
- improve employee morale. Overworked employees, as well as those who have little to do, can suffer from stress or simple anger over the situation they found themselves in. However, a reasonable workload based on accurate resource forecast, can improve their experience and positively affect the entire organization. It can also help employees plan their work better, as they can see exactly what tasks they are going to work on in the future.
How to forecast resources? Step-by-step guide
The importance of resource forecasting is undeniable. Fortunately, the process can be completed in just a few simple steps.
1. Estimate the change in the demand.
First, take your crystal ball out of the closet and try to guess what the future may bring.
Of course, don’t do that in your business!
To estimate the demand for your work in the future, use one of the following methods:
Resource forecasting techniques
Of course, this is just a base process that can be adjusted with various resource forecasting techniques. They can help you reflect the exact situation of your company - all while making sure your predictions are accurate.
The most common resource forecasting techniques include:
The Delphi technique
This is a perfect resource forecasting technique for those wishing to gather the opinions from all the parties involved.
When a resource forecast needs to be created, a survey is sent to all the managers that need the prediction to plan their work. Then, they propose their own design of the plan and discuss the propositions together to choose the best one or make the adjustments. As a result, they create a resource forecast approved by the representatives from all the departments involved.
This resource forecasting technique is very simple for those companies which already collect the data on their resource demand and sales.
Trend analysis focuses on the historical data. It analyzes them to find patterns and general tendencies that are likely to repeat in the future, such as growth rate, spikes in sales or seasonality. Then, the discovered trends are applied to a subsequent period, allowing for creation of accurate resource forecasts.
The analysis of the time series for resource forecasting is a slightly more detailed version of trend analysis.
In this technique, the historical data is separated into various business performance indicators, such as sales rate, profitability, growth, used capacity, and more - depending on the needs of the company in question. Then, the changes in these indicators are applied to current data to create an estimation for the future.
Ratio analysis focuses mostly on the utilization of resources, and, as such, it is one of the most precise methods of resource forecasting.
In this technique, resource utilization is directly related to other variables, such as sales rates, and productivity remains constant regardless of the circumstances. Therefore, this technique is designed to use other, more predictable indicators, to predict the demand for resources.
2. Identify project scopes.
The second step of resource forecasting may seem obvious, but it is, in fact, a backbone of the process. It is to identify the project scope.
To successfully forecast resources, take a look at all your projects - both those in progress, and the ones that are about to start. Then, for each project, identify the tasks needed to be completed in a period of time you want to create a forecast for. Define the skills that your employees will need to work on these operations.
3. Estimate the time needed to complete particular operations.
Having identified the skills needed to work on projects, you must now calculate the approximate time each skill needs to be used for to complete subsequent stages of the project in a given period. Importantly, you need to do that for each project phase your company expects to complete during the planned period.
The result for a particular project should look like this:
4. Create draft allocations for your projects.
With estimates in place, you can start assigning people to the phases of the projects.
Of course, you probably won’t succeed in the first try. To prevent incorrect plans from coming live, you can use draft allocations and change them whenever you feel they need some adjustments. In that way, you can test numerous scenarios at once and choose the best ones.
5. Solve any problems you can identify.
Sometimes draft allocations will give you an idea of problems that may affect your resource forecasts. These problems usually include:
- benched employees,
- unrealistic deadlines.
Thanks to the resource forecasts, you can react to these issues before they affect your projects. It is the right moment to take action and add more people to the project, hire some new specialists or acquire new projects benched employees could work on.
Resource forecasting: common mistakes
Having learned what a proper resource forecasting process looks like, you are probably wondering what can have a negative impact on it. These are a few things you have to be vary of in that case:
- lack of project scheduling tools. With numerous projects and tens of people on board, it is impossible to create an accurate resource forecast on a piece of paper. Advanced software can gather the information needed for the process and - with a little help from decision makers - turn them into transparent plans visible for the entire organization. That’s just how Primetric works!
- incorrectly forecasted demand. We understand that in service companies a new customer can appear out of the blue. However, you don’t just need to sign a deal with him - you also need to adjust your forecasts to this change. Otherwise, you will face incorrect predictions on a daily basis.
- financial inconsistencies. Every project has a budget that needs to pay for wages, tools, and more. That is why you should also include financials in your resource forecasts. Otherwise, you may one day wake up with a huge debt in the company’s account!
How to improve resource forecasting in my company?
Good question! Fortunately, there are a few things you can do to make the accuracy of your resource forecasts better than ever before. These things include:
- risk analysis. Every project has its virtues, as well as vulnerabilities. Identify them to prepare for the worst case scenario - and prevent it from happening.
- accurate project scope. This advice may seem trivial, but an incorrect project scope is often a cause for delays rooted in lack of skills necessary for the project to continue. Focus on the talks with the customer to avoid that issue.
- learning from the past projects. If your company has been on the market for some time, you probably have some similar projects you’ve done in the past. Use them to predict risks and improve processes that were imperfect last time.
- analyze the work that is already in progress. Existing projects have a huge impact on resource forecasting. Analyze them to identify delays or specialists that are about to be benched, and use the information to your advantage.
- perform capacity planning. Knowing how much work your employees are expected to complete will help you plan new projects and improve the existing ones.
Improve your resource forecasting with Primetric
Is the resource forecasting a challenge for your organization?
It shouldn’t be - and we can show you exactly how to improve it.