Costing Human Resources by vwm20081


									Costing Human
       Chapter 1
 The Costs and Benefits
  Of Human Resources
                In the past. . .
“HR professionals have
  been getting by focusing
  on the day-to-day. They
  need to develop a
  broader and farther-
  reaching vision and
  understand where their
  organization is headed
  and how they can help
  steer the company in
  that direction.”
    Human Resource Accounting
 HRA procedures are the first step in developing
  sophisticated measurement and accounting
  procedures to enable to company to report
  accurate estimates of the worth of the
  organization’s human assets.
 Historical-cost approach to employee valuation
  looks at costs actually incurred. Most appropriate
  for external reporting used to inform interested
  parties of the financial position & results of a
  company’s operations.
More on historical-cost approach
   Based on false assumption that the
    dollar is stable.
   Because the assets are not salable
    there is no independent check of
    valuation (subjectivity).
   Measures only costs to the
    organization; it ignores completely
    any measure of the value of the
    employee to the organization.
              Replacement Cost
   Measures the cost of replacing the employee rather
    than the historical cost of an employee.
   Most appropriate in the context of dismissal and
    replacement staff.
   Include: recruitment, selection, compensation, and
    training costs
   May lead to upwardly biased estimates because an
    inefficient firm may incur greater costs.
   How often do company’s make decisions regarding
    dismissing & replacing staff?
    Present Value of Future Earnings
   Organization establishes what an employee’s future
    contribution is worth to it today
       Can be measured by its cost or by the wages the
        organization will pay the employee
   Measure is limited because it assigns value to the
    average rather than to a specific
    group or individual.
                   Details. . .
   Uses statistics such as consensus income
    returns and mortality tables
   Since there value is assigned to the average,
    there is no benefit to monitoring an individual
    firm’s investment in employee development
    since the investment would have little or no
    impact on the present
    value of future earnings.
               Endless Search
   The search continues for a single, limited-
    criterion measure for HRA but it is unrealistic
    to expect that such a measure will be
   We judge the value of athletes by
    measuring how much a particular
    team is willing to pay him.
  Costing Employee Behaviors
“The criterion should measure the
contribution of the individual to the
overall efficiency of the organization…It
centers on the quantity, quality, and cost
                   of the finished product.
Such                    factors as skill are
latent-their            effect is realized in
the end                 product.”
          Costing Emp Behaviors
   The contribution each       Outlay costs (ex. Materials
    employee makes it not       used in training new
                                employees) v. time costs (ex
    related to the size of a
                                supervisors’ time spent
    firm’s investment in that   orienting new employees)
    employee, but it is
    directly related to how        Fixed costs (salaries)
    each person works and          Variable costs (sales
    what is produced.               commissions)
                                   Opportunity costs (forgone)
            Intellectual Capital
   Traditional financial statements are less
    illuminating with respect to the assets that
    create wealth than they were in the past.
   Intangible assets such as brand names,
    intellectual capital, patents, copyrights, and
    expenditures for research and development
    now generate an increasing amount of wealth
    for firms.
   “Soft” assets – not recognized in financial
    Put People on the Balance Sheet
   “Every country, every company, and every
    individual depends increasingly on knowledge
    – patents, processes, skills, technologies,
    information about customers and suppliers,
    and experience.”
   This has brought up a new way of strategic
    thinking about “how to put people on the
    balance sheet.”
      Valuing Intellectual Capital
   “A way of describing the
    otherwise intangible
    dimensions of the operation,
    and not as an attempt to create
    added value in the likes of the
    emperor’s new clothes.”
   Found in one or more of three
    places: people, structures, and
               Define Yourself
   Human capital: knowledge, skill, and
    capability of individual employees to provide
    solutions to problems that customers think are
    important – “outside-in approach”
   Structural capital: sharing, transporting, and
    enabling human capital
   Customer capital: value of an organization’s
    relationships with the people with whom it
    does business, including suppliers
Measuring Intellectual Capital
1.   Keep it simple
2.   Measure what is
3.   strategically important
4.   Measure activities that produce
     intellectual wealth
Measurement of intellectual
capital can help managers and
investors by providing a more
accurate estimate of the true
value of the company than
would a single accounting of its
physical holdings.

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