For an effective Human Resources Planning, the mangers should understand the context of HRM, both internal and external environments. HRP is the most important element for any organization to thrive towards success. The steps involved in Human Resource Planning process are as follows:

1) Assessing the current Human Resources: HRP process begins by developing a profile of the present status of Human Resources within the organization. Basically, it is an internal analysis of estimating present strength of the workforce available that includes
a) Inventory of the employees and their skills and b) A comprehensive job analysis.

a) HR Inventory: It is just a report, which is derived from ‘Forms' completed by the employees and then checked by the supervisor and personnel department. The report includes a list of names, education, training, prior employment records, current position, salary level, performance ratings, capabilities, competencies and specialized skills of employees. The profile of HR inventory determines what skills are currently available in the organization and provides crucial information for identifying present and future course of actions.

b) Job Analysis: Job analysis defines the job within the organization and the behaviors necessary to perform these jobs. Job analysis obtains information about the jobs and it uses that information to develop job descriptions and job specifications. These, in turn, help managers to identify the kinds of individuals they should recruit, select and develop. JA also provides feedback for training and career development, performance appraisal and compensation administration.

2) Forecasting Human Resource Demand: This determines the number and types of employees needed in the future to fulfill the objectives of the organization. Forecasting should consider the past and the present requirements as well as future organizational directions. Demand for human resources is a result of demand for the organization's products or services. Based on its estimate of total revenue, the firm determines the number and mix of HR needed to reach these revenues. Therefore, after the assessment of current HR and revenue forecasts have been considered, a projection of future HR needs is developed. 

3) Forecasting Human Resource Supply: Next step in the process is to assess and forecast internal and external supply of human resources, which includes:

(a) Increasing Supply of HR: The manager should consider increasing supply of HR within the firm that may occur due to new hires, transfer-in or individuals returning from leaves. New hires and individuals returning from leaves can easily be predicted while transfer-in to a unit is often difficult to forecast.

(b) Decreasing Supply of HR: Decreases in the internal supply within the firm can come about through retirement, dismissals, transfer-out of the unit, layoffs, voluntary quits, sabbatical, prolonged illness, or death.  

(c) Forecast External Supply of HR: External factors that may affect the supply of HR should also be considered such as recent graduates from colleges and institutions, homemakers seeking full or part-time jobs, students and individual seeking part-time job. Migration into a community increases in the number of unemployed/employed individuals should be taken into account and these sources for a firm are considered potential expanders of HR supply.

As a manager, one should be careful about the reasons or sources of increasing, decreasing and external supply of HR that they are not necessarily be predicted or known always. Some sources are difficult to predict or estimate. For instance, retirement, individuals returning from leaves can be estimated while dismissal or transfer-out or death is incidental, hence cannot be predicted. However, in between the extremes, layoffs, sabbaticals, transfers, dismissals should be forecast within reasonable limits of accuracy.    

4) Matching Demand and Supply: The final step of HRP is developing action plans by matching demand and supply of HR. The objective of HRP is to bring together the forecast of future demand and supply of human resources. The outcome of the process will help to appraise shortages of HR both in number and in kind and also, determine the area of overstaffing. The process will aid to determine that the demand for human resources will be increasing in the future, then it will have to hire additional staff or transfer people within the organization or both, to balance the numbers, skill, mix, and quality of its human resources.