Resource Forecasting Guide for Project Managers
Please note: this post originally appeared on the saviom.
Managing resources in professional services firms is crucial for maintaining sustainability and achieving anticipated employee performance goals. Without the right tools and techniques, many resource managers rely on approximation and guesswork.
In the dynamic business environment, businesses need accurate estimations for timely decision making and futureproofing workforce against market volatilities.
It helps managers answer questions like:
- Do I have sufficient capacity and the required skill sets to take on additional projects?
- What should I do with the excess capacity and not enough work to engage them?
- How can I stay within the budget?
Resource forecasting can provide answers to these queries and help businesses stay ahead of the curve. It provides actionable insights for improving profitability by maximizing billable resource utilization.
In this guide, we will learn the critical aspects of resource forecasting in project management. Let us begin with the basics.
#1. What is resource forecasting in project management?
Resource forecasting is the process of predicting various resource metrics such as demand, supply, project vacancy, on the bench, and resourcing cost in advance. It helps businesses to act proactively and implement preventive measures ahead of time.
What is the importance of resource forecasting in project management?
Resource forecasting is an essential function of the resource management process. Before projects kick-off, it ensures that they are suitably staffed and equipped to respond to unforeseen circumstances during the entire lifecycle.
It also estimates the workload, skill requirements, project financials, and helps organizations achieve profitable resource utilization. Without the right forecasting tools, enterprises fail to deliver projects on time and within budget. It also results in low client satisfaction and jeopardizes the reputation of the firm.
#2. What are the advantages of resource forecasting?
The significance of efficient resource forecasting in project management is profound. These are some of the critical benefits of resource forecasting in project management:
2.1 Reduce project cost significantly across the organization
Resource costs are the biggest part of the expense for most of the businesses. The best way to keep this under control is by making sure that the right resources are available at the right time with the help of timely forecasting. Even though employees are assigned to the project, it does not necessarily translate into more revenue for the business. They could be either under skilled or overqualified affecting delivery or overall project cost. Modern resource management software with good forecasting capability can help business profitability significantly.
Deloitte Global Cost Survey reveals, “Cost reduction is the most significant initiative for any business.”
2.2 Maximize resource utilization for billable and strategic work:
Resource utilization is one of the most crucial KPI’s of resource management. However, engaging all the resources in various activities doesn’t ensure profitability as they could be working on non-billable or mundane BAU tasks. Forecasting enables you to gain foresight into non-billable, billable, and strategic work ahead of time. Resource managers can improve profitability by mobilizing resources from non-billable to billable and strategic projects periodically. It helps eliminate under and overutilization of resources.
2.3 Enables effective management of pipeline projects:
Lack of visibility into the sales pipeline results in eleventh hour scuffling for competent resources. Resource forecasting helps in planning for the potential project demands in the opportunity or approval sales pipeline. It helps in resource capacity planning in advance to avoid last-minute hiring and project delays. If there is an open position for niche resources, implement an out rotation, and backfill strategy in advance. Resource forecasting also reduces unwanted cost escalation by making the right hiring decisions ahead with sufficient lead time.
2.4 Control excesses/shortages of resources
An efficient resource forecasting tool enables you to perform multidimensional capacity vs. demand analysis based on role, department, team, location, skills, and more. It helps identify the short and long-term resource excesses or shortages and proactively bridge the capacity gap. Resource shortages can be controlled by providing training and hiring a permanent or contingent workforce. On the other hand, bringing forward project timelines or selling excess capacity mitigates the problem of excesses. Resource forecasting also minimizes bench time by providing training or shadowing opportunities.
2.5 Eradicate project planning bottlenecks
To organize the teamwork into manageable sections, the project manager divides the project into several tasks and creates their dependencies. It is known as the work breakdown structure and is designed to meet the project objectives and create the deliverables. Due to their dependencies, delays caused by a critical resource’s unavailability in completing one task can delay other tasks and meet milestone deliverables. Subsequently, the project fails to deliver on time and within budget. Resource forecasting makes the right resource available at the appropriate time.
2.6 Manage project financials to stay ahead of the curve
Periodically monitoring critical financial indicators such as cost, overheads, revenue, and profit margins ensures that the project budget is on track. You can control project resource costs in advance by comparing the actual spending against the estimated budget. Forecasting project financials helps you to improve future estimations and align them to reality. It also tracks shared resources working on multiple projects to adjust resource mix for increasing revenue.
2.7 Plan proactive hiring and reduce bench
Resource forecasting provides visibility for resources that will end up on the bench after a specific date. It helps in minimizing bench-time by proactively looking for appropriate tasks before resources are rolled off from projects. Forecasting project vacancies across the enterprise enables the allocation of suitable benched resources. Resource forecasting also improves billability by facilitating training or shadowing opportunities for benched resources to quickly assign them to projects. One can also proactively make hiring decisions to address any resource shortfalls.
#3. Challenges in resource forecasting:
Market volatilities and sudden changes in project demand can cause a disbalance in the project plan. Without proper resource forecasting tools, firms are caught off-guard in the event of sudden surprises. Let’s take a look at some of the problems faced by many organizations in project resource forecasting:
3.1 Incorrect forecasting due to lack of appropriate tools
Many organizations are still using legacy tools and homegrown solutions for resource forecasting. The use of multiple spreadsheets by different individuals requires reconciliation, causing a high chance of human error. Silos of spreadsheets fail to provide complete visibility of various resource demands for the project and non-project activities. It cannot forecast workload estimates forcing you to resort to unplanned hiring and firing cycles that adversely impact the bottom line.
According to Marketwatch, “88% of spreadsheets are difficult to maintain.”
3.2 Unable to forecast enterprise-wide demand vs. capacity
The use of legacy tools in resource forecasting prohibits the visibility of existing resource capacity across the enterprise. Lack of foresight into future project demands also puts a break in the planning process. Subsequently, resource managers cannot forecast resource excesses or shortfalls and apply appropriate treatments to bridge the gap. Inability to predict project vacancies and which resources will end up on the bench leads to wastage of excess capacity. It leads to costly hiring and firing cycle that impacts the bottom line
3.3 No foresight into billable and strategic utilization
Businesses must ensure that resources are utilized on billable or strategic work for maintaining profitability. Without a proper resource forecasting tool, resource managers fail to predict team members’ utilization across the enterprise. Therefore, resource managers are unable to mobilize resources from non-billable to billable and strategic work. Lack of foresight may cause under or overutilization of resources that compromises quality causes employee burnout and unplanned attrition.
3.4 Not able to predict and forward plan pipeline project
A project’s success is marked by two critical parameters; timely delivery and within budget. But without clear foresight into pipeline project demands, resource managers cannot plan fulfillment activities ahead of time. It puts projects at risk with delivery delays and cost escalations. Resource managers cannot forward plan to meet the project requirements leading to last-minute hiring activities compromising resource quality. If there is a demand for niche skills to start a project, it becomes difficult to hire the same at the eleventh hour without visibility of pipeline projects.
3.5 Estimation for project financial going off-target
Controlling the project budget is essential for its successful delivery. Periodically tracking critical project financial indicators helps you achieve that. However, without proper resource forecasting system, controlling project costs ahead of time becomes a daunting task. Comparing the actual spending with estimated costs helps improve future forecasting. If there is a mismatch, resource managers can take remedial actions to enhance profitable utilization and avoid billing loss.
#4. Factors that affect Resource Forecasting in Project Management
Resource forecasting is an important activity for good project management practice. It depends on several factors, including market dynamics. In this section, we mention a few of them:
4.1 Complexity of Matrix structure
Resource forecasting is carried out at an organization level and not for individual projects. The workforce movement between different business units within a matrix organization allows the re-deployment of rolled-off resources. If the business is looking for expansion in a different geography, the resource forecasting will suggest acquiring a new workforce. At the same time, if the outlook is slow due to poor economic conditions, the hiring activities have to stop. One needs to look at cross-training existing resources for the current demands if there is a skill set mismatch.
4.2 Resourcing Strategy and market condition
As a general rule, one uses contingent resources for short-term assignments and goes for full-time employees for critical positions or longer duration projects. But it has its own set of challenges. The contingent resources’ quality cannot be guaranteed, and permanent employees also leave the organization for better prospects. Resources with hot skills are more vulnerable to leave the organization. The attrition rate could also be high in certain locations, which needs to be analyzed and factored-in while forecasting the demands for resources.
4.3 Keeping up with emerging technologies
It is required to forecast both future and current resource demands for sustainability. Of late, there has been an explosion of new IT skills such as IoT, machine learning & AI, Blockchain, Big Data, and more. As a result, many existing technologies will be obsolete, and the current workforce needs to pick up new skills to stay relevant. Therefore, it is necessary to analyze future projects’ skill requirements as a part of the forecasting process and plan accordingly.
4.4 Future Client Requirements
It is important to estimate future client demands based on the sales pipeline. Resource capacity planning will determine the gaps between demand and supply. Forecasting based on this gap will ascertain if there is an excess or shortage of capacity. It will lead to acquiring additional resources or diverting the available workforce to other projects within the organization. A new capability in certain skill areas also needs to be built for business sustainability.
4.5 Sudden Ramp-up / Ramp-down of resources
Frequent ramp-up and ramp-down of resources within a project can upset the resource planning process. Sometimes the new resource request can come with a short lead time. Usually, the contingent workforce is used to fulfill these kinds of requirements. However, the PMO needs to forecast this in advance so that one does not compromise on the quality of resources. Building relationships with a few vendor organizations that can supply quality resources within short notice becomes important.
PwC Project Management Insights states, “30% of project failures are due to resources related challenges.”
4.6 Estimating Project Financials
Usually, there is a variance between the actual cost and the initial estimated budget. So, the project managers allow additional buffers while committing to the project end-date and its approximate cost. Excess buffers will make the proposal uncompetitive while the project risk goes up with less buffer. So, deciding on an appropriate buffer size is an essential parameter in forecasting financials. It also influences the resource requirements for future projects.
4.7 Resource movement across locations
Some of the key resources are often required to work at the client’s site for an extended period to complete a successful project. The movement of resources between locations can be affected due to administrative delays resulting in client dissatisfaction. In that situation, it becomes necessary to hire additional resources at the client’s location as part of the resource planning process. It will ensure no disruption in project delivery and must be factored into the resource forecasting process.
#5. Tips for Resource Forecasting in Project Management
A Project Manager can start a new project from scratch or is asked to join an ongoing project. During the entire project lifecycle, the resource requirements vary and need to be forecasted in advance so that they are available at the right time.
Following are some of the tips for resource forecasting in project management:
5.1 Know the strengths and weakness of resources within your project
Resource managers must evaluate the strengths and weaknesses of each team member before assigning them to the tasks. Reviewing their past performance based on the quality of output, skill level, and ability to deliver on time is essential for successful delivery. If a resource lacks the proficiency needed to execute a project task, a timely decision on upskilling or recruiting can be taken.
5.2 Understand the skill requirements for your project to complete delivery:
Project managers need to have a thorough understanding of the skill sets required to deliver the project within time and budget. Analyzing the deliverables at a granular level within the project plan helps determine the skills needed to complete every activity. Once the skills are predetermined, the resource manager starts planning the fulfillment.
5.3 Analyze lesson learned from the success and failure of past deliverables:
Reviewing the past resource utilization trends, one can forecast which resource is crucial for the entire project lifecycle and who can join on an ad-hoc basis. Accordingly, project managers can factor in buffers for time lost while accommodating the ebbs and flows when a resource leaves.
5.4 Build a direct communication channel with all the stakeholders:
Establishing transparent and direct communication with all stakeholders facilitates accurate forecasting. If a client communicates about a future project, the delivery team can start prepping for the same. Similarly, when internal stakeholders share cost reduction initiatives, project managers can replace high-cost resources with low-cost ones.
5.5 Take a complete stock of new requirements and the work that is getting finished
Resource managers should consider new project demands as well as those that are getting over. It will help in forecasting and distributing rolled off resources on new projects for maintaining billability. Those not matching the skill sets to take up new assignments can be trained or provided shadowing opportunities and made billable.
5.6 Perform demand capacity planning for resources to identify gaps
Identifying the shortages or excesses of resources is a prerequisite in planning pipeline project requirements. Capacity planning analyzes the gap between the existing capacity and demand. It enables resource managers to initiate necessary resourcing treatments like hiring, training, or selling excess capacity for fulfillment.
5.7 Plan to acquire or release resource as per delivery commitments in advance
Project managers will encounter situations where resources are either acquired or released as per delivery commitments. Resource managers must have a contingency plan to duly fill the open positions and ensure billability of rolled off resources. It is also an opportunity to release some of the non-performers when their assignment is ending.
#6. Remote work and resource forecasting
Remote working has become a new norm with the outbreak of COVID19, and many organizations have adopted this practice. It has become very convenient for the employees as most of their regular work, including meetings, can be done from their home’s comfort. Some of the benefits are:-
- Businesses do not need to invest in expensive office space
- Employees will save on commuting time
- It will be possible to attract talents from multiple locations
- Part-time workers will be able to balance their other responsibilities better
- Significant reduction in administrative and operation cost, and more
Being away from the office introduces new challenges about tracking down information and disrupting the natural way of carrying out regular activities. It possesses three primary challenges for the businesses:
- How do I ensure that the employees are fully productive?
- How do I monitor and track their performance remotely?
- How do I attract cost-effective resources for my organization?
An efficient resource forecasting solution can manage both regular and remote workers, including contractors and freelancers. It combines resourcing forecasts for live projects and pipeline projects in a single Gantt chart view. This way, one can analyze if there is any shortfall or bottleneck and take proactive action accordingly. The activities and deliverables of the resources can be tracked using integrated software instead of micro-managing the workforce. It will ensure the productivity of remote teams.
Some of the intelligent resource forecasting solution also allows one to simulate several scenarios and apply the best possible option in case of resource crunch. Many organizations are still using spreadsheets or home-grown applications for resource forecasting, and they will find it difficult to manage remote workers.
A very few companies provided the WFH option to their employees earlier. But the current environment has forced businesses to explore remote working for business continuity. They have already reaped the benefit of this, and it seems this practice will continue even after the situation becomes normal.
A new businesses model may opt for a smaller working space and ask their employees to come to the office on a rotational basis. Therefore, it makes more sense to invest in an integrated resource forecasting software to manage remote workers.
#7. What are the forecasting techniques in project management:
There are several techniques available for forecasting the workforce, and one must use them judiciously. We describe some of the methods for forecasting human resources for an organization:
Delphi Technique
It is based on the principle that forecasts (or decisions) from a structured group of individuals are more accurate than those from an unstructured group. A panel of relevant people or SMEs are chosen to make forecasting decisions for the entire organization.
Nominal Technique
A nominal group is formed with members having minimal interaction before making a decision. Selected participants are presented with a problem and asked to write their ideas anonymously. A designated facilitator manages this process in a structured manner and collates all the suggestions. The group analyzes each suggestion and collectively decides.
Brainstorming
Brainstorming is a creativity technique where one finds a solution to a specific problem by capturing a list of ideas spontaneously contributed by a group. Its success depends on each member’s capacity, willingness to listen, think out of the box, and feel free to express them. One may need a moderator for the success of this approach.
Trend Analysis
Trend analysis studies past employment resource requirement patterns to predict future needs. The purpose is to identify trends that might continue. For example, an annual support maintenance contract is likely to be renewed with the same terms and conditions. It can only provide an initial estimate.
Time Series
It involves decomposing historical series into its various components, viz. trend, seasonal variances, cyclical variations, and random variances. When the various components of a time series are separated, the subject under study can be known over the period, and projection can be made accordingly.
Ratio Analysis
Ratio Analysis is a forecasting technique for determining resource requirements using ratios between any causal factor and the number of employees. It assumes that productivity does not change, and the number of people required is directly proportional to parameters such as sales volume. It works better in a shop-floor environment.
Scatter Plot
It is a graphical technique used to help identify the relationship between two variables. Managerial judgment plays a significant role here. If one can forecast the level of business activity, it will be possible to estimate resource requirements. It is similar to the ratio analysis but more visual.
#8. Conclusion:
Forecasting defines the probability of the happening of future events. Since resource planning is based on future demand, the manager needs to consider all possible future outcomes. Therefore, forecasting is a critical element in the planning process. Every decision within an organization is based on some forecasting and taking appropriate risks.
Businesses can choose to use any of the above forecasting techniques and customize them as per their working model. Though forecasting cannot check future happenings, it provides clues with a certain probability for the next action course. Good resource forecasting can be a business game changer and significantly improve the profitability of an organization.
#9. The Saviom Solution
SAVIOM is no doubt the market leader in offering the most powerful and configurable Enterprise Resource Management Solution. Having more than 20 years of experience, this Australian-based MNC has a global presence in over 50 countries. It is also popular with more than 100 customers and helping them to achieve their business goals. SAVIOM also has products for project portfolio management, professional service automation, and workforce planning software which can be easily customized as per business requirements.
Please get in touch with us to discuss your business challenges and significantly reduce project resource costs, increase billable utilization, and more !
