Using scenario planning to prepare for labour market uncertainty

The myriad of economic factors impacting the global labour market, and each regional labour market differently, leaves organisations operating in times of great uncertainty.

Companies navigating this economic and labour uncertainty should undertake a great deal of planning, with business and labour strategies in place for a few of the most likely outcomes. Firms that emerge successful will be those with the agility to respond quickly and creatively to changing business and labour market conditions. For multinationals, factoring in the nuances of the various markets in which they operate will be imperative.

This type of planning is often referred to as ‘scenario planning,’ which, for HR teams, should form part of a Strategic Workforce Planning programme. In its purest form, workforce planning is a framework for analysing both the current and desired future states of the workforce, which must be scoped in accordance with business context and strategy. Workforce planning can be a very complex, analytical activity involving advanced technologies and many varied data inputs. Although workforce planning is based on numbers and data, it should not be seen as dehumanising. Instead, this data helps leaders to understand and address the challenge of having the right people, with the right skills, at the right time.

The result of strategic workforce planning is a plan (or prediction) of talent requirements and sources over a given period. Scenario planning is the process of producing variations or alternative versions of the workforce plan to predict and prepare for the impact of any external factors that are likely to occur. In this sense, HR professionals can consider the impact of economic factors, such as rising interest rates and the Ukraine crisis, on their labour needs, potential sources of talent and demand over a certain period. The workforce plan is not static – instead it should be reviewed on a regular basis, considering the development of relevant factors.

It is imperative that workforce planning activities include stakeholders from across the business. It will require a collaborative effort across the strategy, human resources, operations and finance functions to map out the impact not just on team structures and operations but also on finances if higher wages for retention erode profitability. Furthermore, experts from across the organisation should be used to input into scenario analysis and validate the predictions made.

Three key takeaways:

Economic factors, such as inflation, the Ukraine crisis, supply chain disruptions, monetary policy decisions (e.g., interest rate changes) and resulting economic growth or decline, have a significant impact on the labour market. This should be considered and planned for by HR professionals. The same events impact different regions differently, as employment level sensitivity to GDP varies across geographies and different factors impact regions specifically.

‘Scenario planning’ is a tried and tested strategic method of predicting the impact of various external factors on an organisation’s labour demand and supply. Planning effectively balances the labour force location and flexibility with potential scenarios. Organisations should ensure they have an effective Strategic Workforce Plan in place

Workforce planning and scenario planning are not HR-only activities. They should be based on strategic business priorities and influence leaders’ decision-making across the board. HR needs to collaborate with strategy, operations, business and finance functions from across the organisation.

Final word

The global labour market is yet to recover from the Covid-19 pandemic. Organisations are facing great uncertainty, but this time should be viewed as a transition period rather than a permanent state of disruption. HR professionals who think like economists are in a prime position to help navigate these challenging waters. By responding quickly and creatively to changing economic and therefore labour market conditions, organisations are capable of emerging from this period not just intact, but stronger and better positioned.

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