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Dynamics of Human Resource and Knowledge Management Author(s): K. Hafeez and H.

Abdelmeguid Reviewed work(s): Source: The Journal of the Operational Research Society, Vol. 54, No. 2, Special Issue: Knowledge Management and Intellectual Capital (Feb., 2003), pp. 153-164 Published by: Palgrave Macmillan Journals on behalf of the Operational Research Society Stable URL: . Accessed: 05/02/2013 07:15
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Journal of the Operational Research Society (2003) 54, 153-164

?2003 Operational Research Society Ltd. All rights reserved. 0160-5682/03 $15.00

Dynamics of human resource and knowledge management

K Hafeezl'* and H Abdelmeguid2 'Schoolof Computing andManagement HallamUniversity, Sciences, UK;and Sheffield Sheffield,
2MechanicalEngineering Department,Faculty of Engineering, Nasr City, Cairo, Egypt

Recent transitions fromtheindustrial to knowledge an immediate andwholesale so scenario economy suggest retraining thatmanyorganisations at the cuttingedge of technology. The dynamics of the job market a can remain is creating formanyorganisations in recruiting theircorestaff.Infact,many andretaining arein fearof losing challenge companies critical whentheiremployees business leave.In this paper, is employed to illustrate the knowledge systemsdynamics in a causalloop form.Strategies between for human resource recruitment, skills,andknowledge training, relationship aredeveloped time-based Weanticipate thatsystems management by conducting dynamic analysis. dynamics modelling resource wouldhelporganisations to deviseefficient human strategies. management Journal Research Society(2003)54, 153-164.doi:10.1057/palgrave.jors.2601513 of the Operational intellectual human corecompetence; resource; Keywords: knowledge management; capital; systemsdynamics

Introduction During the last two decades a number of author1-5 have been influentialin shapingthe concepts of core competence. They argue that the core competence is the basis for devising business strategy and offering unique products and services to customers.We agree that core competence is often recognisedin the form of intellectualcapitalor other intangibleassets such as culture,brandname or marketing knowledge as opposed to tangible assets such as plant and 6 equipment. Owing to the work of notable social thinkers such as Handy,7 companies are recognising that their employees are their most valuableassets. Business pioneers are finding surprising ways to measure and manage the ultimateintangiblesof a company,that is, skill, knowledge and information.Intellectual capital is a special form of human capital that is codified, formalised, captured and leveragedto produce a higher value asset. Many managers admit that the bulk of the value added is derived from the intellectualcapital.Moreover,the intellectualcapitalis here to stay-it is the value of tangibleor 'hard'asset, which can depreciateor vanish overtime. However,in the presentbusiness climate of job opportunities, companies are always under the constant threat of losing their core people, and therefore essential business knowledge. This, in our view, is reflected in the recent developments in the competence managementfield.8'9We

have proposed an Analytical Hierarchy Process (AHP) method in order to help companies to identify their core capabilitiesusing both financialand non-financialmeasures such as learningand innovation.10 Staff turnover issues have reached to such a level that many industrial,service and consulting organisationsare investing a big slice of their resourcesunder knowledge managementinitiatives.',2 In our view an efficient human resource or intellectual capital investment strategy demands a good understanding of the dynamics of recruitmentand trainingissues. In this paper, recruitment, training, and skill and knowledge management are illustrated more explicitly in a causal loop form. Strategiesfor human resource managementare developed in the form of a systems dynamics model. Simulations are conducted to illustrate the time-based dynamics of skill attrition, recruitment and training programmes. We anticipate such a modelling exercise would serve as useful aid for devising an effective medium to long-termintellectualcapitalmanagementstrategy for organisations. Human resource and knowledge management

A good knowledgemanagement(KM) definitionis given by Swan et al,13 who defined it as "any process or practice of creating,acquiring,capturing,sharingandusing knowledge, whereverit resides, to enhance learningand performancein organisations". Johannessen et a114 have given a fuller Khalid Schoolof Computing andManagement account of various Hafeez, *Correspondence: types of knowledge, namely systemic, Sciences,SheffieldHallam University, City Campus,HowardStreet, and relationshipknowledge. Systemic tacit, hidden, explicit, S 1WB,UK. Sheffield knowledge is learned by studying patterns such as those

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2 ofthe Research Vol. 154 Journal 54,No. Society Operational

from scenario planning exercises or computersimulations. Explicit knowledge is relativelyeasy to attain and communicate through listening and reading. Relationship knowledge is learned via interactionand is relatively difficult to communicate.The most difficult forms are tacit knowledge and hidden knowledge, because these are difficult to comprehend and communicate. Hidden knowledge is the way of organising ideas and mental models and is usually learnedby socialising. However,the most valuable form of referto it knowledge is tacit knowledge. Johannessenet a114 as "know how," which is acquired or "learned by using, doing and experimenting".Tacit knowledge is usually very subjective and resides inside one's head, and is, therefore, difficultto communicate,comprehendand quantify.For this reason organisations are struggling to discover how to motivate their people to share tacit knowledge, which is recognisedas a strategicasset. In our view many companies attemptto achieve this via employee training (apprenticeship) and competence development (job shadow) 1 programmes.

We illustratethe KM process in the form of a 'knowledg flywheel' effect as shown in Figure 1.15 Humanbeings have the amazingcapacityto elicit and enrichexisting knowledge while simultaneously receiving and interpretingdifferent forms of data and informationthrough various knowledge has explainedthatwhen embodimentreceptacles.Demarest9 it may reflect in the is embodied, (explicitly) knowledge form of raw materials, products, services, machinery, mechanisms,business practicesand processes, environment and culture.Note that in our view environmentand culture embodies both tacit as well as explicit forms of knowledge. The challenge for a company is to develop appropriate policies and procedures in order to reflect 'knowledge flywheel' effects, where the knowledge enrichmentprocess betweentacit and explicit is takingplace via the interchange knowledge, and knowledge codification is in operation to enhance 'organisationmemory'. There are many examples where companies are resorting to informationtechnology tools to devise a kind of KM system in order to store explicit knowledge. For us, infor-

Knowledge Sharing

* * *

Individual and culture Environment EXPLICIT Writtenrepositories Raw materialsand services

Machinery and mechanisms

* *

Business practicesand processes and culture Environment




Individualknowledge process (Knowledge Creation)


Knowledgerepositories (Knowledge Embodiment)

withinan organisation. creation andembodiment 'flywheel' Figure1 Knowledge

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155 resource and ofhuman H K Hafeez and management knowledge Abdelmeguid-Dynamics

of a knowledge Table1 Somecharacteristics system management

Term Definition Author

et al"6 the Sanchez Skillis the abilityto master or a of concepts discipline andto applythis domain, in appropriately knowledge new situations CollinsCobuild17 is information Knowledge Knowledge abouta andunderstanding has in whicha person subject mind CompetenceTheset of skillsandknowledge Bakeret a 18 needsin thatan individual a to perform order effectively job specified Fiol andLyles9' Learning Theprocessof improving better actions through andunderstanding knowledge Skill

Based Production Control Structure(IOBPCS) based on systems dynamics as describedby Coyle27and Towill28to develop a skill inventorypool model. Causal loop analysis Causal loop diagrams (or influence diagrams) are used to develop cause and effect relationships between the main variables of a system.27In our view, key components of a simple KM model should representan inter-linkbetween knowledge, skill, and training/learningprocesses as identified in Table 1. Figure2 illustratesthe causal loop formatof a simplistic KMS. In reality, existing knowledge (if not updated)becomes obsolete with time due to the instability of the marketor productportfolio changes. Also, corporate knowledge erodes when employees leave the company, taking away the importantknowledge within their heads. These influences are representedusing feed-forward and feedback loops. Clearly,the higher the knowledge erosion rate, the faster the corporateknowledge pool depletion or 'memory loss'. The managementneeds to take appropriate actions through recruitmentand/or training employees to maintain the minimum reasonable knowledge level to conductessentialbusiness operations.Also, strategicknowledge and competencies (throughrecruitmentand training) need to be developed for long-term competitiveness and sustainabilityof the business. Skill pool model (SKPM) Skill, knowledge and competence are identified as the essential resources of the knowledge economy. These cannot be bought and/or delivered instantly. Usually it takes a considerableamountof time to develop and support to nurture required skills and the required infrastructure in Figure2 is very The causal loop illustrated competencies. feed-forward of inter-linked a number involved, comprising and feedback loops. A computer simulation model and subsequentdynamic analysis is possible, but is of limited use as the individualparameter changes (eg, recruitingrate) cannotbe isolated easily. Also full-scale sensitivityanalyses for the entire organisationwould be prohibitivedue to the large numberof variablesinvolved. Thereforewe propose a simplistic model based aroundthe key variable-skill-to reflect the dynamics of intellectualcapital and organisation knowledge. A Skill Pool Model (SKPM) is developed to help understand the dynamics of skill acquisitionand retention,particularly during times when a company is planning some major changes in its product/service portfolio. There is an implicit link with the organisation environmentto reflect how new skills can improve the organisationproductivity and innovationprocess. The present and futurerecruitment and trainingneeds are representedas a function of present skill loss rate in a feed-forwardpath. Also the skill pool

mation technology solutions ratherrelateto explicit knowledge and organisationmemory. However, an appropriately devised and implemented human resource management system (that emulates 'knowledge flywheel' characteristics has a lot to offer with rewardsto managing in tacit knowledge in the organisation.Also, a good knowledge management system (KMS) should be able to attract company employees as well as other stake-holdersvoluntarilyto get involved in some kind of knowledge sharing and learning activities. Often such communities-of-practice (COP) act as a mediumto enhanceindividuals'knowledgeand skills, and therefore facilitating informallyvia participatingmembers the organisation's competencies.A summaryof some charis presented acteristicsof KMS and their inter-relationships in Table 1.

Systems dynamics conductedsome pioneeringwork by combinJayForrester20 of feedback control theory, computer and the fields ing as early as 1961 in order to shape sciences management the systems dynamics discipline. More recently tools such as systems thinkinghave made many gains in 'soft' systems problem structuring as advocated by Senge.21 In other has used systems dynamicsto examexamples, Morecroft22 ine the managementbehaviouralresourcesystem to analyse a diversificationstrategybased on core and non-core business. Winch23has used systems dynamics to introduce a skill inventory model to manage the skill managementof change. Coyle et a124have key staff in times of fundamental used systems dynamics to manage and control assets and resources in major defence procurement programmes. Warren25defines tangible and intangible resources for systems dynamics model development.Hafeez et a126 have used systems dynamics modelling to re-engineer a supply chain. In this paperwe make use of an Inventoryand Order

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156 Journal of the Research Vol. No. 2 Operational 54, Society


New ideas/ implementation-' l+Knoledge



applicableto the

acquisition rate ++Knowledge

Actual + knowledg level Average knowledge






in process






knowledge in

in process adjustment
Figure 2

process p +

Causal-loopdiagramof knowledge managementin an organisation.

level and recruitment and trainingperformance are managed a feedback by introducing loop. The Skill Pool Model (SKPM) is derived by translating the concepts of IOBPCS. The IOBPCS model has been identified by Coyle27 as representingmuch of the UK's industrialpracticeassociatedwith industrialsystems, which also involves human experience. Towill128 has shown how the IOBPCSmodel can be shapedto satisfythose conditions under which analogous linear control systems for other applications have been regarded as optimum. Cheema et a129have developed an extension of this model by making use of feed-forwardinformationwith regards to ordering trends and targetingcustomer service levels, and the feedback of informationon finishedgoods stock, and production lead-time variances. Ferris and Towill30have shown how IOBPCS forms the basis of a generic family of production control systems representing the performance of many industrialsectors. Hafeez et a126have shown its usefulness for modelling a multi-echelonsupplychain. Mason-Joneset a131have extended this work to show its applicabilityin an Efficient ConsumerResponse (ECR) environmentby linking point-of-sale to instigate inventorytriggers. Influence diagram The influencediagramfor SKPMis shown in Figure3 using the standard Ithinksoftwarepackage. (The softwareallows

one with no or only elementarycontroltheoryknowledge to construct an equivalent model to represent time-based dynamics.) In orderto anticipatethe skill loss replacement some kind of averagingis useful. The present requirements, skill loss rate is exponentiallyaveragedover a time (Ta)and added back to the original training rate to reflect the skill loss history in the recruitment planning. Figure 3 illustrates that the company-training rate comprises two parts, one the present skill deficit/gap, and the otherthe averaged(forecast)skill loss rate. Trainingrate is thereforeeffectively controlledvia Ta(the averagetime to determinethe forecast skill loss rate), and Ti (the time over which the present skill gap is to be recovered). The differencebetweenthe presentskill loss rateand recruitment or skill developmentrate is accumulated to give the present actual level of the skill pool. Thereforethe model as shown in Figure3 consists of two parts;feedbackcontrolbased on the skill gap and feed-forward controlbased on the forecast skill loss rate. In orderto analyse the dynamic response of the skill pool, recruitment (training)process delay is represented by a time delay Tr (traininglead-time),and the time over which skill loss rate is averaged by Ta. Towill28 suggests using exponential delay for industrial dynamics simulation.We have used the discreteversion of exponential delay in SKPM. Details of the discrete-timefeed-forward and feedback difference equations giving the relationship between the majorvariablesare presentedin the Appendix.

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157 resource and ofhuman H K Hafeez and management knowledge Abdelmeguid-Dynamics

0 Trainees Recruitment raecompletion ecruatmen rate rate skill pool PresentSkill Loss rate

Recuitment Lead time (T,) Desired level of skill

po l

Skills gap

Skill loss averagingtime (Ta)

Skills shortage Recovery Skilsorer Time (Ti)

/ Forecastskill loss rate

of SkillPoolModel(SKPM). diagram Figure3 Influence

It is importantto recognise how to manage the actual level of the skill pool. To reach the desired value, a simple and appropriate control, where inforpolicy is proportional mation concerningthe magnitudeof the level (actual level of skill pool) is fed back to control the training rate. The training rate is calculated by dividing the discrepancy between the desired and actual value of the level by a time factor,which representsthe averagedelay in performing the trainingrate. Dynamic analysis As shown in Figure3 the policy parameters Ti, Taand Tr are their determine variedto optimumsettingsusing simulation the results. Once selected, system operateswith the recruit skill rate automatically governedby Taand Ti for a present skill and skill loss rate gap. During normal operation,the skill gap and trainingcomplewould observe management the to meet tion rate requirement. organisation's The system dynamics model and simulation analyses presentedin this paper relate to a hypotheticalIT company employing400 staff. The companyis going througha major diversification strategy needing one-quarter of the total workforce to undergo a recruitment and/or training programme. Also, the company has to cope with, on average, 5% employee turnoverat any time. Thereforethe simulationmodel is subjectedto some 20% increase in the present skill re-training rate (as per 100 employees) as shown in Figure 4. Figures 4(a) and (b), respectively, show the response of actual skill pool, and training(recruitment) completion rate for a range of Ti values. The larger the Ti values, the larger the skill pool drop, indicatingthe

companyis unableto recoverfrom the skill shortagesover a period of time. Withthe worst case scenario(in Figure4(a)), the company faces skill shortages for about 50 months if Ti = 16 months). On the otherhand, a small Ti value would allow recovery of the skill deficiency much more quickly (eg, note the actualskill pool values for Ti rangingfrom 1 to 4). However,very small Ti values induce unwantedoscillations about the required skill pool value over a longer period. (Clearly, in control theory terminology this is a bad system design.) In reality,this shows a very aggressive hiring and firing human resource policy, showing inappropriate management of human capital and associated cost implications.Under such circumstances,the company would be forced to introduce short-term employment or golden handshake contractsto avoid offeringredundancy and The firing policy would aggressive hiring packages. reflect in low staff morale and a realistic risk of more staff leaving the company while voting with their feet. Consequently,therewould be serious implicationson productivity and customerservice level, and, ultimately,on the bottomline performance.For a pure training scenario, these transients reflect excessive-training or under-trainingissues, again an undesirable situation. Also, while selecting Ti, training pace has to be adjusted in line with workforce backgroundand individuallearning capacity. Figure 5 illustrate the influence of Ta, the averaging parameter,to control the extravaganthiring and firing and trainingpolicy. Figure 5(a) shows that as the value of Ta is graduallyincreased,say from 0 to 16 (months), the actual skill pool overshootand therefore(hiringand firing)oscillations are well managed. However, this would dictate the correspondingskill pool recovery only after 30 months-a

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ofthe 2 158 Journal Research Vol. 54,No. Operational Society



350 aa


300 ~<
250 40 0 60 20 40 80 80 100 0.5 4.5 8.5




o E


100 4.5 1





Time (months)

Figure 4 Step response of SKPM for varying values of Ti: (a) Skill level behaviour(Tr= Ta = 4 months); (b) Recruitmentcompletion rate behaviour(Tr= Ta = 4 months).

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K H ofhuman resource and 159 Hafeez and Abdelmeguid-Dynamics knowledge management



350 316.5



20 40 60 0.5


Time (months)






" Eo SE







20 20

40 40

80 :

0.5 0

Time (months)

Figure 5 Step response of SKPM for varying values of Ta:(a) Skill level bahaviour(Tr= Ti = 4 months);(b) Recruitmentcompletion rate behaviour(Tr= Ti = 4 months).

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160 Journal ofthe Operational Research Society Vol. 54,No. 2


400 0.5 3504.5 < 300f 8.5 250 o1. 12.5




80 100


Time (months)




120 0,5


100 0 20 m 60 40 T 60n16.5 Time (months) 80

12.5 o? 100 1

Figure 6 Step response of SKPM for varying values of Tr:(a) Skill level behaviour(Ti = Ta= 4 months);(b) Recruitmentcompletion rate behaviour = Ta- 4 months). (Ti

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Table 2 A summaryof the performanceindex for the optimum human resourcepolicy design parameters

SKPM design parameters Performanceindex Skill pool measurements Initial skill pool drop (representing skill shortages) Durationof the skill pool deficit Peak skill pool overshoot(ie, redundant skills) Rise time (time for recruitment policy to make an impacton the pool) Peak overshoot(or over recruitment) Durationof overshoot (over recruitment) Ta IncreasingTa increases the initial skill pool drop IncreasingTa increases the settling time IncreasingTa decreases the peak skill pool overshoot IncreasingTa increases the rise time Ti Increasing Ti increases the initial skill pool drop Increasing Ti increases the settling time Increasing Ti decreases the peak skill pool overshoot Increasing Ti slightly increases the rise time Increasing Ti slightly increases the peak overshoot Increasing Ti slightly increases the duration of overshoot T IncreasingTr increases the initial skill pool drop IncreasingTr increases the settling time Increasing Tr increases the peak skill pool overshoot IncreasingTrincreases the rise time

Id pe in

Recruitment(training) completion rate measurements

IncreasingTa decreases the peak overshoot IncreasingTa increases the durationof overshoot

IncreasingTrincreases the peak overshoot IncreasingTr increases the durationof overshoot


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162 Journal ofthe Research Vol. 2 54,No. Operational Society

totally unacceptablescenarioin many situations.Also, there is a marginalimprovement in the recruitment overshootrate, for higher values of Ta. Figure6 illustratesthe skill pool and recruitment completion rate response for varying recruitment(training)leadtime Tr. Clearly,the smallerthe Tr, the quickerthe skill pool If inventoryrecovers while avoiding any over-recruitment. and recruitment requiredskills are scarce in the marketplace delay approaches 16 months, for example (an extreme scenario), the company could suffer from an agitated hiring and firing policy for well over a 5-year period in orderto recover from present skill needs. In orderto devise a good human resourcepolicy, that is, which values of Ti, Tarelatedto Tryield the best recruitment (training) performance, we have made use of the well documented IOBPCS model 'trade off' procedure The optimisationguidelines taken under consid(Towill128). erationinclude: (i) Good skill pool recoveryin responseto changes in skill loss rate, and (ii) Good recruitment (training)completionratein response to skill loss changes, including the ability to attenuate fluctuationsthat lead to increasedcost. As with Towill,28the SKPM optimum was found to be Ti = Tr and Ta= 2Tr at Tr = 4 months. Table 2 gives the overallsummaryof the effect of varyingTi, Ta,and Tron the humanresourcepolicies.

Pool Model presentedin this paper allows organisationsto maximise the value of their intellectual assets and workforce. By tweakinghumanresourcepolicy parameters Ti, Ta, and Tr, management should be able to optimise desired recruitmentpatterns while looking at current workforce shortages. Also, it is possible to minimise the currentand future (desired) skill gap by devising appropriaterecruitment and trainingprogrammes. From the simulationresults, it is evident that the proportional control achieved through Ti in the feedback path is more influentialthan Ta in the feed-forwardpath. Also, an adherenceto the given recruitment time (assumed4 months in this case) is absolutely essential to minimise unwanted transients in the system impacting on staff morale or scheduling required customer service level. Also, knowledge of unnecessaryrecruitment(training)delay transients would allow management to estimatethe incurredlosses due to an acute hiring and firing policy. In some situations managementmay decide to meet some staff shortages by moving towardsa multi-skillpolicy and offeringtrainingto existing employees. Here, systems dynamics simulations can help to providetraining/learningtime estimatesagainst the requiredskill shortagesand associated costs.

Appendix: Transfer function of SKPM Notation Ti:Time over which the presentskill gap is to be recovered Ta:Skill loss rate averagingtime lead-time Tr: Training/recruiting Figure Al shows the block diagram representationof the key variablesof the model and their interactions. Equations(1) to (5) outline the main structureof SKPM in termsof its variables.Equation(1) calculatesthe skill gap

Conclusions Many organisationshave realised that proper management of their skill and competence base is key to their survival and profitabilityin the knowledge economy.6'32 Therefore, they need to understandthe dynamics of their intellectual capital and human resource managementpolicy. The Skill

Forecast skill loss rate

1 I + T


Presentskill loss rate

Desired level of Skill pool


Actual + Training rate completion rate

Skill gap


level of skill pool

Figure Al

A block diagram representation of SKMP.

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163 and resource ofhuman H K and Hafeez knowledge management Abdelmeguid-Dynamics

as the differencebetween a fixed or constantdesiredlevel of skill and the actual level of skill pool. Equation (5) shows the forecast skill loss rate as a smoothing function, [1/(1 + TaS)], of the present skill loss rate. The latteris then used to derive the scheduledtraining rate in Equation(2). The schedule aims to meet the forecast skill loss rate but adjuststhis targetto take into accountthe is given by function(1/Ti), currentskill gap. The adjustment representinga control algorithmas shown in Equation(3). The training completion rate is given as the result of the delaying function[1/(1 + TrS)]of the scheduletrainingrate in Equation(3). Finally,in Equation(4) the actual level of skill level is shown as the accumulationonto its previous level, function (1/S) of the training completion rate less presentskill loss rate. These equationscan be writtendown directly from Figure Al using the differenceequations. Equations SKG = DLSKP- ALSKP (1)

designer, interact and affect the actual level of skill loop componentis dynamicrecoverypattern.If the feed-forward of skill pool, level is actual law the control so that removed, the applicationof the Final Value Theoremshows thatthere is a steady-stateskill deficit of Ti for a suddenunit change in present skill loss rate. With the feed-forwardcomponent added, it may be similarly shown that this deficit is eliminated. Equations (6) and (7) are the form requiredif the LaplaceTransform recoveryis to be calculatedvia standard Tables.

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where SKG = currentskill gap; DLSKP = desired level of skill pool; and ALSKP= actual level of skill pool. = SKG. TRATE ()
loss rate.



= trainingrate;and FSKLR= forecast skill where: TRATE = TRATE TCRATE

(I1 1 ++ TrTr



= trainingcompletionrate. where TCRATE





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where PSKLR= present skill loss rate.

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= PSKLR . 1 FSKLR (1 + Ta



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Equations(1) to (5) are solved to develop the actuallevel of the skill pool/present skill loss rate transferfunction(Equation 6), and actual level of skill/training completion rate (Equation7) as shown in the following: Actual level of skill pool Presentskill loss rate

T[ (1 +
Trainingcompletionrate Presentskill loss rate

?rTa)+" TaS)(1


TaS2 +r



(1 + TaS)(1 + TiS + TiTrS2)

S 1 + (Ti + Ta) '

Equations(6) and (7) are extremelyuseful in understanding how the two parametersTi and Ta,to be set by the system

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