? Advertisement to attract potential employees ? Recruitment Cost ? Training cost •
point of reference creates more issues. This means every company has to set its own benchmark and needs to carry out an organization-wide research to accomplish this. Lack of Seriousness in Attitude: Many companies in India are still in the process of evolving their business, so paying attention to this concept becomes a secondary task. Also the results of such an exercise may not have direct financial implications, thereby giving more room for leniency.
Chintan Shah & Karan Sood Class of 2013 MMS, Sydenham Institute of Management Studies, Research & Entrepreneurship Education (SIMSREE), Mumbai
? On the job training cost ? Space occupied by the employee in an organization ? Subsistence allowance ? Contribution to Provident Fund ? Educational expenses ? Medical expenses
HUMAN RESOURCES
QUANTIFYING HR GOALS AND OBJECTIVES: THE WAY AHEAD
“People are our most important Asset” “Our Employees-they are our single most greatest asset” “Our employees are our value”
All these items directly or indirectly influence human resources and thereby the productivity of an organization. The Value generated includes upgradation of skills including soft skills, better domain knowledge, moving along the learning curve, ability to multi-task and provide services like consulting to name a few. Creative abilities, innovative thinking, intuition, imagination, knowledge and experience possessed by employees eventually help in successfully executing a task. The output that an organization can generate from human resources is regarded as the value of its human resources. For valuing human resources, different models have been developed. 1. Cost models (Brummet, Flamholtz and Pyle) are based on the acquisition cost, including replacement and training costs and opportunity cost of a human asset. 2. The Lev & Schwartz model, more monetary-centric. Under this method, future earnings of human resources of an organization until their retirement is aggregated and discounted at the cost of capital to arrive at the present value.
However, there are benefits in the long term. Information generated by the analysis of investment in human resources has many applications for managerial purposes. It also helps in guiding the management to frame policies for human resource management. “The only man I know who behaves sensibly is m y tailor; he takes my measurements anew each time he sees me. The rest go on with their old measurements and expect me to fit them.” - George Bernard Shaw The above lines specify that the present performance results will act as an input for future planning. It can also serve as a key factor in case of mergers and takeover decisions, where human asset value becomes a relevant factor. Another very significant role which HRA plays in creating is goodwill for a company. The company can project itself as to having best practices with superior policies in place. Thus, we can see that HRA provides quantitative information about the value of human asset, thereby helping top management to take strategic decisions. The Danish Government has made it mandatory for companies to disclose HRA information. Fortunately, in India companies like BHEL and Infosys have implemented HRA and many others are working on it. Bodies like NASSCOM can play a lead role by firmly rooting HRA policies. Though there is still a long way to go, this is definitely a step ahead in the right direction. HRA has the potential of changing the perception of top management towards HR, a change which shifts HR from being a cost center to an investment center in the coming years.
H
eard it umpteen number of times!!! So common are these phrases that the moment you read them you know who could have said these. And for many companies meaning of these sentences ends along with the sentence itself. The importance of the term capital has shifted with each of the waves. The first wave saw land as the most important capital, second had machines in prime position and now, the third wave regards humans as the most important capital. So is the evidence from the contribution of service sector to India’s GDP. Due to this, the focus is shifting from Return on Investments to Return on Knowledge. There goes a famous saying:“Measurement is the first step that leads to control and eventually to improvement. If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you can’t control it, you can’t improve it.” - H. James Harrington This stands true for measuring human capital in today’s world. By human capital I refer not to the employee strength but to the intellectual capital and its quantification. Quantifying it becomes tricky as financial accounting requires an asset to be owned or to be controlled by the company. However, here an employee may leave the job and this is where the concept of ‘Human Resource Accounting’ comes into play.
What is HRA and how is it measured?
“HRA is the human resources identification and measuring process and also its communication to the interested parties.” - American Accounting Association It is also known as Human Asset Accounting. In simple words, HRA is a management information system (MIS) for human resources. MIS involves measuring, capturing, tracking and analyzing the activities of an organization. HRA does the same but the measurement is of the potential of human resources of a company followed by communicating the resultant information to the stakeholders of the company. It is a method by which cost is assigned to every employee when recruited, and the value that the employee would generate in the future is calculated. Thus, it reflects the potential of human resources of an organization in monetary terms. The two main components of Human Resources Accounting are • • The investment related to employees and The value generated by them.
NAYSAYERS
• Dynamic External Environment: The rate of change is so rapid that it becomes difficult to forecast future requirements and how innovative technology is going to shift the paradigms. This leads to an uncertainty in correctly adjudging the value of skills possessed by the employees. Evolving Standards: Lack of a standard body and uniform standards as a single
Investment in human capital includes all costs incurred in increasing and upgrading the employees’ skill sets and knowledge of human resources. To name a few:
•
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iNM VOLUME 1, October 2011 NMIMS Hyderabad
iNM VOLUME 1, October 2011 39 NMIMS Hyderabad