The Non accounting of human resources and the change occurring
therein, of an organization may provide a poor picture of the profits
--- Content provided by FirstRanker.com ---
and profitability of the organization.
Likert
--- Content provided by FirstRanker.com ---
Objectives of the Study:This unit aims to provide a basis for the conceptual framework of Human
Resource Accounting. An attempt is made to highlight the following aspects.
--- Content provided by FirstRanker.com ---
Development of the Concept of HRA
An Historical Score Card
--- Content provided by FirstRanker.com ---
Meaning and Definition of HRAImportance
Objectives of Human Resource Accounting
--- Content provided by FirstRanker.com ---
Limitations of Human Resource Accounting
HRA for managers & HR Professionals
--- Content provided by FirstRanker.com ---
Investment in Human ResourcesQuality of Work Force and Organizations Performance
Efficient use of Human Resource
--- Content provided by FirstRanker.com ---
Enumerating the Assets
Calculating the Market Value of Assets
--- Content provided by FirstRanker.com ---
Human Capital.--- Content provided by FirstRanker.com ---
INTRODUCTION
To ensure growth and development of any orgnisation, the efficiency of
--- Content provided by FirstRanker.com ---
people must be augmented in the right perspective. Without human resources,1
the other resources cannot be operationally effective. The original health of the
--- Content provided by FirstRanker.com ---
organization is indicated by the human behaviour variables, like group loyalty,
skill, motivation and capacity for effective interaction, communication and
--- Content provided by FirstRanker.com ---
decision making.Men, materials, machines, money and methods are the resources required
for an organization. These resources are broadly classified into two categories,
--- Content provided by FirstRanker.com ---
viz., animate and inanimate (human and physical) resources. Men, otherwise
known as the human resources, are considered to be animate resources. Others,
--- Content provided by FirstRanker.com ---
namely, materials, machines, money and methods are considered to beinanimate or physical resources.
The success or otherwise of an organization depends on how best the
--- Content provided by FirstRanker.com ---
scarce physical resources are utilized by the human resource. What is important
here is that the physical resources are being activated by the human resources as
--- Content provided by FirstRanker.com ---
the physical resources cannot act on their own. Therefore, the efficient andeffective utilization of inanimate resources depends largely on the quality,
caliber, skills, perception and character of the people, that is, the human
--- Content provided by FirstRanker.com ---
resources working in it. The term Human resource at macro level indicates the
sum of all the components such as skills, creative abilities, innovative thinking,
--- Content provided by FirstRanker.com ---
intuition, imagination, knowledge and experience possessed by all the people.An organization possessed with abundant physical resources may sometimes
miserably fail unless it has right people, human resources, to manage its affairs.
--- Content provided by FirstRanker.com ---
Thus, the importance of human resources cannot be ignored. Unfortunately, till
now generally accepted system of accounting this important asset, viz., the
--- Content provided by FirstRanker.com ---
human resources has not been evolved.For a long period, the importance of human resource was not taken care
of seriously by the top management of organizations. Therefore, at this juncture,
--- Content provided by FirstRanker.com ---
it becomes imperative to pay due attention on the proper development of such an
--- Content provided by FirstRanker.com ---
2important resource of an organization. Let us now concentrate our discussion on
the conceptual framework of the Human Resource Accounting.
--- Content provided by FirstRanker.com ---
Development of the concept of Human Resource Accounting:"Human Resource Accounting" is the offshoot of various research
--- Content provided by FirstRanker.com ---
studies conducted in the areas of accounting and finance. Human resource is an
asset whose value gets appreciated over the period of time provided placed,
--- Content provided by FirstRanker.com ---
applied and developed in the right direction. Till the recent past, organizationstook few efforts to assign monetary value to human resource in its accounting
practice. Behavioural scientists initiated efforts to develop appropriate
--- Content provided by FirstRanker.com ---
methodology for finding out the value of human resource to the organization.
They were against the conventional accounting practice for its failure to value
--- Content provided by FirstRanker.com ---
the human resource of an organization along with physical resources.The traditional concept suggested that expenditure on human resource is
treated as a charge against revenue as it does not create any physical asset. At
--- Content provided by FirstRanker.com ---
present there is a change in this concept and the expenses incurred on any asset
(as human resources) should be treated as capital expenditure as it yields
--- Content provided by FirstRanker.com ---
benefits which can be derived for a long period of time and could be measuredin monetary terms.
--- Content provided by FirstRanker.com ---
The following are the reasons why Human Resources Accounting has
been receiving so much attention in the recent years.
--- Content provided by FirstRanker.com ---
Firstly, there is genuine need for reliable and complete management ofhuman resources.
Secondly, a traditional framework of Accounting is in the process to
--- Content provided by FirstRanker.com ---
include a much broader set of measurement than was possible in the past.
The people are the most important assets of an organization but the value
--- Content provided by FirstRanker.com ---
of this asset yet to appear in financial statements. It does not get included inmanagement information systems too. Conventional accounting of human
--- Content provided by FirstRanker.com ---
3
resources took note of all expenses of Human capital formation which does not
seem to be correct or meeting the actual needs.
--- Content provided by FirstRanker.com ---
Human Resource Accounting is the measurement of the cost and value
of people to the organization. It involves measuring costs incurred by the
--- Content provided by FirstRanker.com ---
organizations to recruit, select, hire, train and develop employees and judge theireconomic value to the organization.
Historical Score Card of Human Resource Accounting:
--- Content provided by FirstRanker.com ---
The concept of considering the human beings as an asset is an old one.
--- Content provided by FirstRanker.com ---
The importance which Emperor Akbar gave to the nine jewels (courtiers) is astrong evidence for the same. The history of our freedom movement will not be
complete without mentioning the names of distinguished freedom fighters such
--- Content provided by FirstRanker.com ---
as Shri Motilal Nehru, Mahatma Gandhi, Sardar Vallabh Bhai Patel and several
others but no effort was made to assign any monetary value to such individuals
--- Content provided by FirstRanker.com ---
in the Balance Sheet of the Nation.Sir William Petty was the pioneer in this direction. The first attempt to
--- Content provided by FirstRanker.com ---
value the human beings in monetary terms was made by him in 1691. Petty
considered that labour was "the father of wealth and it must be included in any
--- Content provided by FirstRanker.com ---
estimate of national wealth without fail. Further efforts were made by WilliamFar in 1853, Earnest Engle in 1883. The real work started only when
behavioural scientists vehemently criticized the conventional accounting
--- Content provided by FirstRanker.com ---
practice of not valuing the human resources along with other resources. As a
result, accountants and economists realized the fact that an appropriate
--- Content provided by FirstRanker.com ---
methodology has to be developed for finding the cost and value of the people tothe organization. For a long period of time, a number of experts have worked on
it and produced certain models for evaluating human resources. The important
--- Content provided by FirstRanker.com ---
among them are Shultz, Flamholtz, Lav and Schwartz, and Kennath Sinclare.
Human Resource Accounting was first started with simple measures of
--- Content provided by FirstRanker.com ---
trying to convert output data into contributions. When an HR programme had4
--- Content provided by FirstRanker.com ---
effected a change in the output especially for organizations operating on profitbasis, its value was determined by calculating the profit contribution.
Rensis Likert in the 1960s was the first to research in HR and
--- Content provided by FirstRanker.com ---
emphasized the importance of strong pressures on the HR's qualitative variables
and on its benefits in the long-run. According to Likert's model, human variables
--- Content provided by FirstRanker.com ---
can be divided into three categories: (i) causal variables; (ii) interveningvariables: and (iii) end-result variables. The interaction between the causal and
intervening variables affect the end-result variables by way of job satisfaction,
--- Content provided by FirstRanker.com ---
costs, productivity and earnings.
Historically the first major systematic effort at evaluation was made by
--- Content provided by FirstRanker.com ---
RG Barry Corporation of Columbus in 1967. Their annual report detailed theinauguration of HRA procedures developed by the company to enable them to
report accurate estimates of the worth of the organization's human assets.
--- Content provided by FirstRanker.com ---
Accumulated costs under the categories namely recruiting and acquisition;
formal training and familiarization; informal training and familiarization;
--- Content provided by FirstRanker.com ---
experience; and development were accounted. Costs for the expected workinglives of individuals (or sometimes shorter periods) were amortized, and
unamortized costs (for example, when an individual left the company) were
--- Content provided by FirstRanker.com ---
written off. That is, today, known as the Historical Cost Approach to employee
valuation. Improvement over the years has helped evolve other bases of
--- Content provided by FirstRanker.com ---
valuation, which have been providing supplemental information.Today they fall under three major categories namely replacement cost,
present value of future earnings and present value to the organization, i.e. profit
--- Content provided by FirstRanker.com ---
contribution.
--- Content provided by FirstRanker.com ---
The formation of a separate Ministry for human resources developmentby Government of India with an initial outlay of Rs.l5OO crores infused a new
vigour into all human development programmes of the nation. Creating such
--- Content provided by FirstRanker.com ---
portfolio by every company creates the necessity of accounting for the same.
--- Content provided by FirstRanker.com ---
5Human resources is one of the most valuable assets and needless to say that the
human beings co-ordinate the best of machines, men and money. Computers, of
--- Content provided by FirstRanker.com ---
course, may challenge the human resources but computer is not a brain and itsimply carries out human commands. Therefore, Accounting for such human
resources is very essential for the organization.
--- Content provided by FirstRanker.com ---
Meaning and Definition of Human Resource Accounting:
--- Content provided by FirstRanker.com ---
The concept of human resource accounting can be better understood ifone goes through some of the important definitions given by the competent
authors in the accounting field.
--- Content provided by FirstRanker.com ---
1. The American Accounting Society Committee on Human Resource
--- Content provided by FirstRanker.com ---
Accounting defines it as follows:"Human Resource Accounting is the process of identifying and
--- Content provided by FirstRanker.com ---
measuring data about human resources and communicating this information to
interested parties." In simple terms, it is an extension of the accounting
--- Content provided by FirstRanker.com ---
principles of matching costs and revenues and of organizing data tocommunicate relevant information in financial terms.
2. Mr. Woodruff Jr. Vice President of R. G. Batty Corporation defines it
--- Content provided by FirstRanker.com ---
as follows:
--- Content provided by FirstRanker.com ---
"Human Resource Accounting is an attempt to identify and reportinvestments made in human resources of an organization that are presently not
accounted for in conventional accounting practice. Basically it is an information
--- Content provided by FirstRanker.com ---
system that tells the management what changes over time are occurring to the
human resources of the business."
--- Content provided by FirstRanker.com ---
3. M.N. Baker defines Human Resource Accounting as follows:"Human resource accounting is the term applied by the accountancy profession
to quantify the cost and value of employees to their employing organization"
--- Content provided by FirstRanker.com ---
4. Another management consultant Stephen Knauf has defined HRA as:
--- Content provided by FirstRanker.com ---
6
"The measurement of quantification of human organization inputs such as
--- Content provided by FirstRanker.com ---
recruitment, training, experience and commitment"Thus, human resources accounting may be defined as, "a process of
--- Content provided by FirstRanker.com ---
accounting which identifies, quantifies and measures human resources for the
use of management to cope up with the changes in its quantum and quality so
--- Content provided by FirstRanker.com ---
that equilibrium could be achieved in between the required resources and theprovided human resources"
In short, human resource accounting is the art of valuing, recording and
--- Content provided by FirstRanker.com ---
presenting systematically the worth of human resources in the books of account
of an organization. This definition brings out the following important
--- Content provided by FirstRanker.com ---
characteristic features of human resource accounting:1. Valuation of human resources
2. Recording the valuation in the books of account
--- Content provided by FirstRanker.com ---
3. Disclosure of the information in the financial statements of the
business.
--- Content provided by FirstRanker.com ---
Importance of Human Resource Accounting:Human Resource Accounting provides useful information to the
--- Content provided by FirstRanker.com ---
management, financial analysts and employees as stated below:
1.
--- Content provided by FirstRanker.com ---
Human Resource Accounting helps the management in the Employment,locating and utilization of human resources.
2.
--- Content provided by FirstRanker.com ---
It helps in deciding the transfers, promotion, training and retrenchment
of human resources.
--- Content provided by FirstRanker.com ---
3.It provides a basis for planning of physical assets vis-?-vis human
resources.
--- Content provided by FirstRanker.com ---
4.
It assists in evaluating the expenditure incurred for imparting further
--- Content provided by FirstRanker.com ---
education and training in employees in terms of the benefits derived by the firm.5.
It helps to identify the causes of high labour turnover at various levels
--- Content provided by FirstRanker.com ---
and taking preventive measures to contain it.
--- Content provided by FirstRanker.com ---
76.
It helps in locating the real cause for low return on investment, like
--- Content provided by FirstRanker.com ---
improper or under-utilization of physical assets or human resource or both.7.
It helps in understanding and assessing the inner strength of an
--- Content provided by FirstRanker.com ---
organization and helps the management to steer the company well through most
adverse and unfavourable circumstances.
--- Content provided by FirstRanker.com ---
8.It provides valuable information for persons interested in making long
term investment in the firm.
--- Content provided by FirstRanker.com ---
9.
It helps employees in improving their performance and bargaining
--- Content provided by FirstRanker.com ---
power. It makes each of them to understand his contribution towards thebetterment of the firm vis-?-vis the expenditure incurred by the firm on him.
Objectives of Hunan Resources Accounting
--- Content provided by FirstRanker.com ---
The aim of HRA is to depict the potential of HR in monetary terms,
while casting the organization's financial statements. The concept can be
--- Content provided by FirstRanker.com ---
examined from two dimensions: (i) the investment in HR; and (ii) the value ofHR. The expenditure incurred for recruiting, staffing and training and
developing the HR quality is the investment in HR. The fruits of such
--- Content provided by FirstRanker.com ---
investments are increased productivity and profit to the organization. The yield
that the investment generates is considered as the basis for HR value.
--- Content provided by FirstRanker.com ---
Putting in a capsule the main objectives of HRA are toImprove management by analyzing investment in HR
Consider people as its asset
--- Content provided by FirstRanker.com ---
Attract and retain qualified people
Profile the organization in financial terms.
--- Content provided by FirstRanker.com ---
The main objective of human resource accounting is to facilitate the
management to get information on the cost and value of human resources.
--- Content provided by FirstRanker.com ---
Human resources accounting brings to light the quantum of human resources
and indicates the right control of conservation, depletion and appreciation of it
--- Content provided by FirstRanker.com ---
8
in the right perspective. It provides data to the interested persons about the cost
--- Content provided by FirstRanker.com ---
of human resources and correspondingly comparing it with the benefit obtainedout of its utilization.
The objective of HRA is not merely the recognition of the value of all
--- Content provided by FirstRanker.com ---
resources used by the organization, but also includes the management of human
resource which will enhance the quantity and quality of goods and services. The
--- Content provided by FirstRanker.com ---
basic objective of HRA is to facilitate the efficiency of human resource. It isbasically adopted to treat human resources as assets, to generate human data
about human resources, to assign value to human resources and to present
--- Content provided by FirstRanker.com ---
human assets in the balance sheet.
The main objectives of a HR Accounting system are as follows:
--- Content provided by FirstRanker.com ---
1. To furnish cost value information for making proper and effectivemanagement decisions about acquiring, allocating, developing and
maintaining human resources in order to achieve cost effective
--- Content provided by FirstRanker.com ---
organizational objectives.
2. To monitor effectively the use of human resources by the management.
--- Content provided by FirstRanker.com ---
3. To have an analysis of the human asset i.e. , whether such assets areconserved, depleted or appreciated.
4. To aid in the development of management principles, and proper
--- Content provided by FirstRanker.com ---
decision making for the future by classifying financial consequences, of
various practices.
--- Content provided by FirstRanker.com ---
5. In all, it facilitates valuation of human resources, recording the valuationin the books of account and disclosure of the information in the financial
statement.
--- Content provided by FirstRanker.com ---
6. Further, it is to help the organization in decision making in the following
areas:
--- Content provided by FirstRanker.com ---
a) Direct Recruitment Vs promotion.b) Transfer Vs. Retention.
--- Content provided by FirstRanker.com ---
9
c) Retrenchment Vs. Retention
d) Impact on budgetary controls of human relations and organizational
--- Content provided by FirstRanker.com ---
behaviour.
e) Decision on reallocation of plants, closing down existing units and
--- Content provided by FirstRanker.com ---
developing overseas subsidiaries etc.Limitations of Human Resource Accounting:
Human Resource Accounting is the term used to describe the accounting
--- Content provided by FirstRanker.com ---
methods, system and techniques, which coupled with special knowledge and
ability, assist personnel management in the valuation of personnel in financial
--- Content provided by FirstRanker.com ---
terms. It presumes that there is great difference among the personnel in theirknowledge, ability and motivation in the same organization as well as from
organization to organization. It means that some become liability too instead of
--- Content provided by FirstRanker.com ---
being human assets. HRA facilitates decision making about the personnel i.e.,
either to keep or dispense with their services or to provide training. There are
--- Content provided by FirstRanker.com ---
many limitations which make the management reluctant to introduce HRA.Some of the attributes are:
i)
--- Content provided by FirstRanker.com ---
There is no proper clear-cut and specific procedure or guidelines for
finding cost and value of human resources of an organization. The
--- Content provided by FirstRanker.com ---
systems which are being adopted have certain drawbacks.ii)
The period of existence of human resource is uncertain and hence
--- Content provided by FirstRanker.com ---
valuing them under uncertainty in future seems to be unrealistic.
iii)
--- Content provided by FirstRanker.com ---
There is a fear that HRA may dehumanise and manipulateemployees.
iv)
--- Content provided by FirstRanker.com ---
For e.g., an employee with a comparatively low value may feel
discouraged and develop a complex which itself will affect his
--- Content provided by FirstRanker.com ---
competency to work.10
--- Content provided by FirstRanker.com ---
v)The much needed empirical evidence is yet to be found to support the
hypothesis that HRA as a tool of the management facilitates better
--- Content provided by FirstRanker.com ---
and effective management of human resources.
vi)
--- Content provided by FirstRanker.com ---
In what form and manner, their value to be included in the financialstatement is the question yet to be classified on which there is no
consensus in the accounting profession.
--- Content provided by FirstRanker.com ---
vii)
As human resources are not capable of being owned, retained and
--- Content provided by FirstRanker.com ---
utilized, unlike the physical assets, there is problem for themanagement to treat them as assets in the strict sense.
viii) There is constant fear of opposition from the trade unions as placing
--- Content provided by FirstRanker.com ---
a value on employees would make them claim rewards and
compensations based on such valuation.
--- Content provided by FirstRanker.com ---
ix)Another question is, on value being placed on human resources how
should it be amortized. Is the rate of amortization to be decreasing,
--- Content provided by FirstRanker.com ---
constant or increasing? Should it be the same or different for
different categories of personnel?
--- Content provided by FirstRanker.com ---
x)In spite of all its significance and necessity, tax laws do not
recognize human beings as assets.
--- Content provided by FirstRanker.com ---
xi)
There is no universally accepted method of human asset valuation.
--- Content provided by FirstRanker.com ---
xii)As far as our country is concerned human resource accounting is still
at the developmental stage. Much additional research is necessary for
--- Content provided by FirstRanker.com ---
its effective application.
HRA for managers & HR Professionals:
--- Content provided by FirstRanker.com ---
HR Professionals must perform a wide variety of functional roles. A
functional role is a specific set of tasks and expected output for a particular job.
--- Content provided by FirstRanker.com ---
We will briefly discuss the roles played by two HR Professionals: the HR
Executive/ Manager and the HR Practitioners
--- Content provided by FirstRanker.com ---
11
--- Content provided by FirstRanker.com ---
The HR Executive/ManagerThe HR executive/manager has primary responsibility for all HR
activities. This person must integrate the HRD programs with the goals and
--- Content provided by FirstRanker.com ---
strategies of the organization, and normally assumes a leadership role in the
executive development program, if one exists. The outputs of this role include
--- Content provided by FirstRanker.com ---
long-range plans and strategies, policies, and budget allocation schedules.One of the important tasks of the HR executive is to promote the value of
HRD as means of ensuring that organizational members have the competencies
--- Content provided by FirstRanker.com ---
to meet current and future job demands. If senior managers do not understand
the value of HRD, it will be difficult for the HRD executive to get their
--- Content provided by FirstRanker.com ---
commitment to HRD efforts and to justify the expenditure of funds during toughtimes. Historically during financial difficulties, HRD programs and HRM has
been a major target of cost-cutting efforts. Unless the HR executive establishes a
--- Content provided by FirstRanker.com ---
clear relationship between HRD expenditures and organizational effectiveness
(including profits), HRD programs will not receive the support they need.
--- Content provided by FirstRanker.com ---
The role of the HR executive has become more important and visible asorganization make the necessary transition to a global economy. The immediate
challenge to HR executives is to redefine a new role for HRD during this period
--- Content provided by FirstRanker.com ---
of unprecedented change.
According to Jack Bowsher, former director of education for IBM, when
--- Content provided by FirstRanker.com ---
HRD executives "delve deeply into reengineering, quality improvement, andstrategic planning, they grasp the link between workforce learning and
performance on the one hand, and company performance and profitability on the
--- Content provided by FirstRanker.com ---
other." The HRD executive is in an excellent position to establish credibility of
HRD programs and processes as tools for managing in todays challenging
--- Content provided by FirstRanker.com ---
business environment.As organization has adjusted to environmental challenges, the roles
played by HR professionals have changed. Based on the ASTD (American
--- Content provided by FirstRanker.com ---
12
Society for Training and Development) study results, Pat Mclagan states that
--- Content provided by FirstRanker.com ---
contemporary professionals perform nine distinct roles, which are described
below:
--- Content provided by FirstRanker.com ---
1. The HR strategic adviser consults strategic decision makers on HRD issuesthat directly affect the articulation of organization strategies and performance
goals. Output includes HR strategic plans and strategic planning education and
--- Content provided by FirstRanker.com ---
training programs.
2. The HR systems designer and developer assist HR management in the
--- Content provided by FirstRanker.com ---
design and development of HR systems that affect organization performance.Outputs include HR program designs, intervention strategies, and
implementation of HR Programs.
--- Content provided by FirstRanker.com ---
3. The organization change agent advises management in the design and
implementation of change strategies used in transforming organizations. The
--- Content provided by FirstRanker.com ---
outputs include more efficient work teams, quality management, interventionstrategies, implementation, and change reports.
4. The organization design consultant advises management on work systems
--- Content provided by FirstRanker.com ---
design and the efficient use of human resources. Outputs include intervention
strategies, alternative work designs, and implementation.
--- Content provided by FirstRanker.com ---
5. The learning program specialist (or instructional designer) identifiesneeds of the learner, develops and designs appropriate learning programs, and
prepares materials and other learning aids. Outputs include program objectives,
--- Content provided by FirstRanker.com ---
lesson plans, and intervention strategies.
6. The instructor/facilitator presents materials and leads and facilitates
--- Content provided by FirstRanker.com ---
structured learning experiences. Outputs include the selection of appropriateinstructional methods and techniques and the actual HRD program itself.
7. The individual development and career counselor assists individual
--- Content provided by FirstRanker.com ---
employees in assessing their competencies and goals in order to develop a
--- Content provided by FirstRanker.com ---
13realistic career plan. Outputs include individual assessment sessions, workshop
facilitation, and career guidance.
--- Content provided by FirstRanker.com ---
8. The performance consultant (or coach) advises line management onappropriate interventions designed to improve individual and group
performance. Outputs include intervention strategies, coaching design, and
--- Content provided by FirstRanker.com ---
implementation.
9. The researcher assesses HR practices and programs using appropriate
--- Content provided by FirstRanker.com ---
statistical procedures to determine their overall effectiveness and communicatesthe results to the organization. Outputs include research designs, research
findings, and recommendations and reports.
--- Content provided by FirstRanker.com ---
Challenges to organizations and HR Professionals
--- Content provided by FirstRanker.com ---
Many challenges face organizations as a new century unfolds before usMichael Hitt and his colleagues have identified increasing globalization and the
technological revolution, in particular, the internet has a two primary factor that
--- Content provided by FirstRanker.com ---
make for a new competitive landscape they suggest a number of actions that
organizations can take to address the uncertainty and turbulence in the external
--- Content provided by FirstRanker.com ---
environments. These actions include developing employees skills, effectivelyusing new technology, developing new organizational structures and building
cultures that fosters learning and innovation. These obviously have a great deal
--- Content provided by FirstRanker.com ---
to do with human resource development. We will add to and build upon that list
to present five challenges currently facing the field of HRD. These challenges
--- Content provided by FirstRanker.com ---
include:1. Changing workforce demographies
--- Content provided by FirstRanker.com ---
2. Competing in a global economy
3. Eliminating the skills gap
--- Content provided by FirstRanker.com ---
4. Meeting the need for lifelong individual learning5. Facilitating organizational learning.
--- Content provided by FirstRanker.com ---
14
Each of these challenges has potential impact on HRD.
--- Content provided by FirstRanker.com ---
Though HRA has had its inception in the 1960s, it is an evolving
concept, which is still at nascent stage. Nonetheless, its relevance to
--- Content provided by FirstRanker.com ---
organizations is immensely gaining ground. Armed with various measures andfigures, managers and firms can focus on decisions regarding investments in
areas of intellectual capital that will have the greatest payoff for the firm.
--- Content provided by FirstRanker.com ---
Internally and externally, HRA would provide information to investors and other
staff, of the value of human resources, the returns on investments in training and
--- Content provided by FirstRanker.com ---
development and also the link between HR interventions and financial results.As a way to assess human capital, HRA represents a new way of thinking
strategically.
--- Content provided by FirstRanker.com ---
Boudreau has noted that measures of HRA and benefits can serve a variety of
purposes. It acts as a catalyst for change. It tends to enhance the credibility of
--- Content provided by FirstRanker.com ---
the HR functioning for it was not long back that this function was looked downdisdainfully as only a department to organize picnics for its staff. HRA also
helps persuade others to support investment in HR and also to improve the
--- Content provided by FirstRanker.com ---
quality of HR decisions.
Change is taking place at the tremendous rate. To make it effective and in order
--- Content provided by FirstRanker.com ---
to make the team, HR professionals need to develop the business skills ofstrategic planning and process technology. And the first step towards the
sustainable growth is accounting HR in financial terms.
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
Investment in Human Resources:There is much debate as to whether the human resources of an
--- Content provided by FirstRanker.com ---
organization can be considered as an asset and treated accordingly in the
accounting system. There are two schools of thought. One says that human
--- Content provided by FirstRanker.com ---
resource is an asset and the other does not agree with this. Now let us see what is15
--- Content provided by FirstRanker.com ---
an asset? Asset is anything which is owned by the entity to derive service infuture and should have legally enforceable claim.
--- Content provided by FirstRanker.com ---
As such there is no guarantee of deriving benefits from the existing
human resources in future and has no sales value like other assets. Therefore,
--- Content provided by FirstRanker.com ---
legally, human resource is not an asset claims one school of thought. Besides,company law also does not consider it as an asset.
But the other school is of the opinion that the "human resource is an
--- Content provided by FirstRanker.com ---
asset". This school of thought puts forth two contentions in favour of its opinion
as follows:
--- Content provided by FirstRanker.com ---
l) There is a legal ownership on the "human resource" which could in practiceprevent him from joining the other organizations unless properly relieved by
complying with some formalities like giving advance notice of resignation, etc.
--- Content provided by FirstRanker.com ---
2) Uncertainty of deriving benefits is a common problem to all assets, not only
with the human resources. Deriving future benefit may be a big question mark in
--- Content provided by FirstRanker.com ---
other assets too due to many factors. ,,Obsolescence may be the one.3) Generally, an asset needs maintenance and development support from the
organization so as to derive benefits over a long period of time. Similarly,
--- Content provided by FirstRanker.com ---
human resources as an asset also is in need of training and development in order
to maintain the service potential for the employer.
--- Content provided by FirstRanker.com ---
4) R.L. Woodruf Junior observed that treating people as assets and accountingthem is logical and satisfactory to the expectation of the future economic
benefits.
--- Content provided by FirstRanker.com ---
The above analysis supports the view that the human resource is an asset
as they are valuable resources to an organization and investments in such asset
--- Content provided by FirstRanker.com ---
will help organization to improve.Now, what is an investment?
--- Content provided by FirstRanker.com ---
Any resource pressed into service for producing good and services is
called investments. Thus, investment refers to expenditure on new plant and
--- Content provided by FirstRanker.com ---
16
machinery, capital equipments, physical construction of new buildings together
--- Content provided by FirstRanker.com ---
with any change in the stock of goods produced. There are two basicdeterminants of investment.
(i)
--- Content provided by FirstRanker.com ---
The expected rate of profit which the business hopes to realize from
investment, and
--- Content provided by FirstRanker.com ---
(ii)The rate of interest.
The level of investment is guided by the level of expected profits. Firms will
--- Content provided by FirstRanker.com ---
invest, only if it is profitable. Further an important cost associated with
investment is the cost of borrowing capital, which is the rate of interest. Of these
--- Content provided by FirstRanker.com ---
two, the expected rate of profit is more influential than the rate of interest.Cost of Hunan Resources
As human resource is considered as an asset, any expenditure incurred in
--- Content provided by FirstRanker.com ---
the acquisition and accumulation of human resource will be treated as an
investment. Cost of human resources represents sacrifice that will have to be
--- Content provided by FirstRanker.com ---
incurred today to acquire and develop people in future. The cost of humanresource otherwise called Historical cost of human resources is the investment in
human resources which has both Revenue (expense) and Capital (asset)
--- Content provided by FirstRanker.com ---
components. This cost may be classified as follows:
1. Acquisition Cost
--- Content provided by FirstRanker.com ---
2. Training (Development) Cost3. Welfare Cost and
4. Other Costs
--- Content provided by FirstRanker.com ---
Acquisition cost comprised the following costs:-
(i)
--- Content provided by FirstRanker.com ---
Recruitment Cost(ii)
Selection Cost
--- Content provided by FirstRanker.com ---
(iii)
Placement Cost
--- Content provided by FirstRanker.com ---
(iv)Campus Interview Cost
Training (Development) cost includes the following:-
--- Content provided by FirstRanker.com ---
17
(i)
--- Content provided by FirstRanker.com ---
Formal Training Cost
(ii)
--- Content provided by FirstRanker.com ---
On the Job Training Cost(iii)
Special Training
--- Content provided by FirstRanker.com ---
(iv)
Development Programmes
--- Content provided by FirstRanker.com ---
Welfare Cost includes the following:-(i)
Medical Expenditure
--- Content provided by FirstRanker.com ---
(ii)
Canteen Expenditure
--- Content provided by FirstRanker.com ---
(iii)Specific and General Allowances
(iv)
--- Content provided by FirstRanker.com ---
Children Welfare Expenses
(v)
--- Content provided by FirstRanker.com ---
Other Welfare ExpenditureOther Costs include the following:-
(i)
--- Content provided by FirstRanker.com ---
Safety Expenditure
(ii)
--- Content provided by FirstRanker.com ---
Ex-gratia(iii)
Multi-trade incentives
--- Content provided by FirstRanker.com ---
(iv)
Rewarding Suggestions
--- Content provided by FirstRanker.com ---
The following paragraphs give a detailed enumeration of the various costsinvolved in the human resources accounting.
l. Acquisition Cost
--- Content provided by FirstRanker.com ---
It refers to the costs incurred in acquiring the right man for the right job
--- Content provided by FirstRanker.com ---
at the right time and in right quantity. It includes the expenses incurred onrecruitment, selection; entire cost is taken into consideration including those
who are not selected.
--- Content provided by FirstRanker.com ---
a) Recruitment cost: It is the cost incurred to identify sources of human
--- Content provided by FirstRanker.com ---
resources both from within and outside the organization. For example, cost ofrecruiting materials, administrative expenses, advertising costs, agency fees,
recruiters salary and travel and outstation costs.
--- Content provided by FirstRanker.com ---
18
b) Selection cost: It depends on several factors such as the type of personnel
--- Content provided by FirstRanker.com ---
being recruited and the method of recruitment. The cost of selection depends on
the position for which a person is being selected. The higher the position, the
--- Content provided by FirstRanker.com ---
greater is the selection cost. It includes cost of application blanks, administrativecost of processing applications, conducting tests, interview, medical
examination and the Salaries, materials and consulting fees of the selectors.
--- Content provided by FirstRanker.com ---
c) Placement cost: In deciding upon the placement, the individual's ability,
attitude, interest, temperament and aspirations are taken into consideration with
--- Content provided by FirstRanker.com ---
reference to the job requirements. The cost of placement can be collected for thepurpose of human resource accounting.
2. Training and Development Cost:
--- Content provided by FirstRanker.com ---
It refers to the sacrifice that must be made to train a person either to
provide the expected level of performance or to enrich the individual's skill.
--- Content provided by FirstRanker.com ---
Training improves the productivity potential of both the individual and theorganization. The training cost includes the following:
a) Formal training cost: It refers to the cost incurred in conventional training for
--- Content provided by FirstRanker.com ---
the orientation of an individual so that he can operate the work. The
remuneration to the training staff and the fixed cost of the training schools are
--- Content provided by FirstRanker.com ---
essentially Human Resource Investment items.b) On the job training cost: Once the employee is placed on the job, he must be
trained to do the job efficiently and effectively and in this regard the employee
--- Content provided by FirstRanker.com ---
learns while he is on his job. In the process, the costs of mishandling the job, the
payments to the employee more than what he actually contributes are on the job
--- Content provided by FirstRanker.com ---
training cost. Thus it is an Investment in Human Resource.c) Special training cost: To achieve the performance standards sometimes
specific training programmes may be devised. Such training gets a distinct
--- Content provided by FirstRanker.com ---
human resource to the organization. The costs of such training are called special
training costs fall under the human resource investment of the organization.
--- Content provided by FirstRanker.com ---
19
d) Development progrornmes cost: Employees may be allowed to participate in
--- Content provided by FirstRanker.com ---
a variety of development programmes to enrich their faculties. Theseprogrammes may range from ordinary lectures to international conferences and
seminars. The participants have an opportunity to interact with other executives
--- Content provided by FirstRanker.com ---
on national and international level. Such association involves cost such as
delegate fees, the travel cost, loss of output during the development programme
--- Content provided by FirstRanker.com ---
etc. which are to be accounted for as a human resource investment.3. Welfare Cost:
Management is after all creation and maintenance of an environment.
--- Content provided by FirstRanker.com ---
Therefore, it is a vital function of an employer to provide an atmosphere to the
employees to perform their work in healthy, congenial climate conducive to
--- Content provided by FirstRanker.com ---
good health and high morale. The expenses incurred for this purpose willfacilitate the employee to increase the quality of his civic life. These welfare
costs can be classified as follows:
--- Content provided by FirstRanker.com ---
i) Welfare and amenities within the organization: Cr?ches, rest shelters and
canteens, latrines and urinals, washing and bathing facilities, drinking water and
--- Content provided by FirstRanker.com ---
occupational safety etc. are the welfare facilities provided by the employerwithin the organization.
ii) Welfare outside the organization: Social insurance measures, maternity
--- Content provided by FirstRanker.com ---
benefit, medical facilities, education facilities, housing, recreational facilities,
holiday homes and leave travel facilities are some of the welfare measures
--- Content provided by FirstRanker.com ---
provided outside the establishment.4. Other Costs
There are some other costs which include expenditure on employee
--- Content provided by FirstRanker.com ---
safety, ex-gratia, multi-trade incentives and others. In India, Factories Act 1948
has made statutory provisions with regard to employees' health, safety and
--- Content provided by FirstRanker.com ---
welfare as follows:I) Health of workers
--- Content provided by FirstRanker.com ---
20
Cleanliness, Disposal of waste and effluents
Ventilation and temperature
--- Content provided by FirstRanker.com ---
Dust and fumes
Artificial humidification
--- Content provided by FirstRanker.com ---
OvercrowdingLighting
Drinking water
--- Content provided by FirstRanker.com ---
Latrines and urinals, spittoons etc.
II) Safety of the workers
--- Content provided by FirstRanker.com ---
Fencing of machineryWork on machinery in motion
Employment of young persons
--- Content provided by FirstRanker.com ---
Casing of new machines
Hoists and lifts
--- Content provided by FirstRanker.com ---
Lifting machinesPressure plant
Protection of eyes, precautions against dangerous fumes
--- Content provided by FirstRanker.com ---
Tests of stability, etc.
III) Welfare of the workers
--- Content provided by FirstRanker.com ---
Washing facilitiesFacilities for storing and drying clothing
Facilities for sitting
--- Content provided by FirstRanker.com ---
First aid appliances
Canteens
--- Content provided by FirstRanker.com ---
Cr?chesWelfare Officers
Rate of Return on Human Resources
--- Content provided by FirstRanker.com ---
21
The calculation of the rate of return on human resources is vital. When
--- Content provided by FirstRanker.com ---
large amount of investment is made on human resource building by not
capitalizing such expenditure, the profits of the organization are understated.
--- Content provided by FirstRanker.com ---
Rate of return can be used as a performance measure. The rate of return can becalculated on the basis of the following premises:
a) Measurement of return on organization building.
--- Content provided by FirstRanker.com ---
b) Measurement of return on organizational utilization.
In order to calculate return on investment, the changes in human
--- Content provided by FirstRanker.com ---
resources must be calculated and recorded. To find out the changes in humanresources, the total investment in human resources must be calculated.
Measurement of Return on Organization building:
--- Content provided by FirstRanker.com ---
When an investment is made in human resources, it is both for the
purpose of organization building and organization utilization. In regard to
--- Content provided by FirstRanker.com ---
human resources investment for building the organization, the recruiting andtraining costs of an individual and group of individuals must be calculated. Also
the orientation cost of building the personnel must be taken into account while
--- Content provided by FirstRanker.com ---
making such calculations.
Measurement of Return on Organization utilization:
--- Content provided by FirstRanker.com ---
Measurement of benefits obtained through utilization of human resourcesmust be done. Besides, the fulfillment of objectives by the utilization of human
resources must also be taken into account for the measurement of utilization.
--- Content provided by FirstRanker.com ---
The clubbed result of measurement of organization building and
organizational utilization of human resources will provide return on Investment.
--- Content provided by FirstRanker.com ---
Quality of Work Force and Organizations` Performance:Work force refers to the employees in the organization in a collective
--- Content provided by FirstRanker.com ---
form or a group. The quality of work force in the organization must be high, as
this force executes the work to achieve the organizational goals. If this work
--- Content provided by FirstRanker.com ---
force experience a sense of frustration due to any factor such as low wages, poor22
--- Content provided by FirstRanker.com ---
working conditions, unfavourable terms of employment biased promotionalpolicies, poor training and bad treatment by their supervisors, the unfair
conditions of employment, inter personal conflicts, role conflict, job pressure
--- Content provided by FirstRanker.com ---
etc, it cannot form a quality work force. The quality of work force results in
'high productivity'. For this, the employees in the organization should have high
--- Content provided by FirstRanker.com ---
morale, participating tendency, innovative thinking and develop a work cultureto work for the common goal of the enterprise. This could be achieved only
when there is quality of work life.
--- Content provided by FirstRanker.com ---
Tight work schedule, speed of machine, tight supervision and control by
supervisor and less social interaction, the limited scope of the job, short cycle of
--- Content provided by FirstRanker.com ---
operations, lack of opportunity to exercise discretion and initiative, prevalenceof bureaucratic controls, oppressive supervision, poor working conditions etc.
will affect the quality of work life.
--- Content provided by FirstRanker.com ---
Quality of Work Life (QWL)
Rapid technological advances and their applications in business have
--- Content provided by FirstRanker.com ---
resulted in a situation in which employees have started developing the feeling ofpowerlessness, meaninglessness, normlessness, social isolation and sell-
estrangement. Such a feeling may result into lesser increase in productivity. This
--- Content provided by FirstRanker.com ---
forced the academicians and practitioners to see the workplace problems with a
different perspective, that is, social perspective which revealed that productivity
--- Content provided by FirstRanker.com ---
of employees was not only affected by the type of technology but also by theenvironment that prevailed at the workplace. This led to the emergence of
concept of quality of work life (QWL} during 1970s.
--- Content provided by FirstRanker.com ---
Purposes of QWL:
Integrating the socio-psychological needs of people in the organization,
--- Content provided by FirstRanker.com ---
the unique requirements of a particular technology, the structure and processesof the organization and socio-cultural milieu are the purposes of QWL. From the
--- Content provided by FirstRanker.com ---
23
shop floor, the concept of quality of work life spread to other parts of the
organization covering white-collar employees and even managerial personnel.
--- Content provided by FirstRanker.com ---
What is Quality of Work Life (QWL)?
--- Content provided by FirstRanker.com ---
Suttle has defined quality of work life as "the degree to which membersof a work organization are able to satisfy important personal needs through their
experiences in the organization".
--- Content provided by FirstRanker.com ---
J. Richard and J. Lloyd define QWL as "the degree to which members of
a work organization are able to satisfy important personal needs through their
--- Content provided by FirstRanker.com ---
experience in the organization".It refers to favourableness or unfavourableness of a job environment for
people. Quality of work life improvement refers to any activity for greater
--- Content provided by FirstRanker.com ---
organizational effectiveness through the enhancement of human dignity and
growth process through which the work force of the organization learn how to
--- Content provided by FirstRanker.com ---
work together for betterment to determine for themselves what actions, changesand improvements are desirable and workable.
Richard E. Walton refers to quality of work life in terms of eight broad
--- Content provided by FirstRanker.com ---
conditions of employment which are also the measuring factors of QWL. They
are:
--- Content provided by FirstRanker.com ---
i) Adequate and fair compensation.ii) Safe and healthy working conditions.
iii) Opportunity to use and develop human capacities.
--- Content provided by FirstRanker.com ---
iv) Opportunity for career growth.
v) Social integration in work force.
--- Content provided by FirstRanker.com ---
vi) Constitutionalism in the work organization.vii) Work and quality of life.
viii) Social relevance of work.
--- Content provided by FirstRanker.com ---
What work force feels about the work place?
--- Content provided by FirstRanker.com ---
24The ,,Economic Times in December 1999 collected the views from top
level HR executives from Indian companies on the emerging workplace. The
--- Content provided by FirstRanker.com ---
views expressed were as follows:1. There would be more celebrations. Music, poetry, and art at work to provide
creative moments in between the lightening speed of work. People with high EQ
--- Content provided by FirstRanker.com ---
levels would be valued far more than yesterday as coaches and facilitators
orchestrate the output of knowledge workers.
--- Content provided by FirstRanker.com ---
2. People tomorrow would want and deserve a workplace free from anxiety andstress, where each can contribute fully from their jobs and also get a satisfactory
growth in return.
--- Content provided by FirstRanker.com ---
3. The new work use habits are going to be far more flexible, and individuals
will use technology more effectively so that they can find optimum balance
--- Content provided by FirstRanker.com ---
between family and work. What teleworking will encourage is a focus on workoutput and results rather than the time put as is the traditional model of a 9-5
office.
--- Content provided by FirstRanker.com ---
4. People at work should have the option to exercise several choices operating
from home, virtual offices, flexible hours, and possibility of switching from a
--- Content provided by FirstRanker.com ---
fast track to a slow track.5. People not in the services sectors ? who therefore have to report to work ? can
look forward to more aesthetically appealing office spaces with technology
--- Content provided by FirstRanker.com ---
enabling environment-friendly intelligent buildings which encourage the body
and mind to give their best.
--- Content provided by FirstRanker.com ---
6. At the intellectual level, there would be a quantum jump in creativity andinnovation. Technology-enabled rich imagery, cross fertilization of ideas of
people from different cultures and magic of cyberspace would make break
--- Content provided by FirstRanker.com ---
through ideas common place.
--- Content provided by FirstRanker.com ---
257. The future workplace will buzz with words like openness, speed, teamwork
and quality: brilliant tomorrow where capability alone will rule, where
--- Content provided by FirstRanker.com ---
demonstrated performance will mean for more than just a paper degree.The role of HR personnel will be crucial to bring such changes. They
will create and sustain high performance cultures which retain talent and provide
--- Content provided by FirstRanker.com ---
unique learning and growth.
How to improve the QWL?
--- Content provided by FirstRanker.com ---
Observed from the above , the concept of quality of work life is to createa climate at the workplace so that human ? technological - organizational
interface leads to a better quality of work life. Climate is a set of attributes
--- Content provided by FirstRanker.com ---
specific to a particular organization that may be included from the way the
organization deals with its members. There are a number of factors involved in
--- Content provided by FirstRanker.com ---
QWL, and these factors can be grouped in three categories: individual factors,job factors, and organizational factors. The characteristics of these factors affect
the individual involvement in the job, his sense of competence which lead to job
--- Content provided by FirstRanker.com ---
satisfaction and finally to job performance and productivity.
An individual in the organization wants to satisfy his needs while
--- Content provided by FirstRanker.com ---
working. Depending on the nature of the individual, he may want equitablefinancial package, employment benefits, job security, and interesting work,
involvement in decision-making process affecting him and his work, and getting
--- Content provided by FirstRanker.com ---
proper feedback about his performance. If these factors are favourable, the
individual will feel job involvement and sense of competence, consequently job
--- Content provided by FirstRanker.com ---
satisfaction and contribute positively. Therefore, in improving QWL, all thesefactors have to be taken into account though there may not be any universal
phenomenon. The Human Resource manager has to take the following steps for
--- Content provided by FirstRanker.com ---
maintaining high order of QWL:
1. Flexibility in Work Schedule. Employees want flexibility in work schedule.
--- Content provided by FirstRanker.com ---
There may be three aspects of flexibility, viz., flexi time ? a system of flexible26
--- Content provided by FirstRanker.com ---
working hours, staggered working hours ? different time intervals for beginningand end of working hours and compressed work-week ? more working hours per
day with lesser number of working days per week.
--- Content provided by FirstRanker.com ---
2. Autonomous Work Group. Creation of autonomous work group helps in
creating positive feelings among employees. They may be given freedom to
--- Content provided by FirstRanker.com ---
choose their own teams; there should be freedom of decision making regardingthe choice of methods for work distribution of tasks among group members and
designing of work schedules.
--- Content provided by FirstRanker.com ---
3. Job Enrichment. Job enrichment attempts to design a job in such a way that
it becomes more interesting and challenging so that the worker makes meaning
--- Content provided by FirstRanker.com ---
out of that. The degree of job enrichment determines the degree of QWL.4. Opportunity for Growth. An employee, particularly the achievement-
oriented one, seeks growth through his work. If the work provides him
--- Content provided by FirstRanker.com ---
opportunity for personal growth and to develop his personality, he will feel
committed to the-job and the organization.
--- Content provided by FirstRanker.com ---
5. Providing stability of employment: Good pay and different alternative waysof providing better wages and stability of emplo5rment will help the work force
to function better
--- Content provided by FirstRanker.com ---
6. Participation. Participation in decision making, particularly on the matters
directly concerned with an individual's working, has an important bearing on his
--- Content provided by FirstRanker.com ---
satisfaction and performance. Higher degree of participation increases the QWLand overall organizational climate.
7. Recognition: Awarding and rewarding for their achievement, job enrichment,
--- Content provided by FirstRanker.com ---
providing well furnished and decent work places, offering membership in
associations and in clubs, offering vacation trips etc., are the ways to recognize
--- Content provided by FirstRanker.com ---
the employees.8. Congenial relationship: Harmonious worker-manager relationship makes the
worker feel a sense of association and belongingness.
--- Content provided by FirstRanker.com ---
27
9. Grievance procedure: when the organization allows the employees to
--- Content provided by FirstRanker.com ---
express their grievances and represent their problems, their confidence in the
management improves.
--- Content provided by FirstRanker.com ---
10. Occupational stress: Stress is a condition of strain on one's emotion. Itadversely affects employee's productivity. The HR manager has to identify and
minimize the stress.
--- Content provided by FirstRanker.com ---
11. Organizational health programme: These programmes educate the
employees about health problems, means to maintain and improve health. This
--- Content provided by FirstRanker.com ---
programme should also suggest physical exercise, diet control etc. Effectiveimplementation of these programmes result in reduction of hospitalization,
absenteeism, excessive job turnover, disability etc.
--- Content provided by FirstRanker.com ---
12. Adequacy of resources: The enterprise must see that sufficient resources
are allocated towards achieving the objectives of QWL.
--- Content provided by FirstRanker.com ---
13. Seniority and merit promotion Seniority is to be taken for promotion foroperating employees and merit is to be considered for advancement of
managerial personnel. The promotional policies and activities should be fair and
--- Content provided by FirstRanker.com ---
Just for maintaining high order of QWL.
14. Communication. To make QWL effective two-way communication is
--- Content provided by FirstRanker.com ---
necessary. Through the downward communication employees would receiveinformation about the various aspects of the organization, instructions about job
performance and other specific communication which may be relevant for them.
--- Content provided by FirstRanker.com ---
Through upward communication, employees can share their views, grievances
and how to overcome these and suggestions for improving the work
--- Content provided by FirstRanker.com ---
performance.At this juncture, it is necessary to make a mention about the Quality
Circle and Task Force which are sometimes used interchangeably by mistake in
--- Content provided by FirstRanker.com ---
place of QWL. The following few lines highlight the demarcation of these
terms.
--- Content provided by FirstRanker.com ---
28
Quality Circles
--- Content provided by FirstRanker.com ---
A quality circle is defined as a "self-governing group of workers with orwithout their supervisors who voluntarily meet regularly to identify, analyze and
solve problems of their work field". This is not the same as "task force".
--- Content provided by FirstRanker.com ---
Quality circles are formed for specific objectives, which are:
i) To develop, enhance and utilize human resources effectively.
--- Content provided by FirstRanker.com ---
ii) To improve quality of product, productivity and reduce cost of production.iii) To satisfy the worker's psychological needs for proper motivation.
iv) To improve supervisory skill.
--- Content provided by FirstRanker.com ---
v) To make use of one's creative and innovative skill through participation for
effective achievement of objectives.
--- Content provided by FirstRanker.com ---
Task force:A task force is a group of most skilled employees selected and appointed
by management, engaged in various functions, with an orientation to problem
--- Content provided by FirstRanker.com ---
solving.
Performance
--- Content provided by FirstRanker.com ---
There is a general relationship between quality of work force andperformance. Greater the quality of work force, higher is the performance. What
is performance then? It is the process of functioning in a stipulated
--- Content provided by FirstRanker.com ---
predetermined manner and achieving the expected results within its framework.
In simple terms, performance refers to the degree of accomplishment of the
--- Content provided by FirstRanker.com ---
tasks that makes up an individual's job. It indicates how well an individual isfulfilling the job demands. It is always measured in terms of results. For eg, a
student may exert himself a great deal but score poor marks or grade which
--- Content provided by FirstRanker.com ---
reflects that his performance is poor.
But to understand really whether the performance is good or bad or
--- Content provided by FirstRanker.com ---
whether it is positive or negative, it needs to be measured. The performance is tobe appraised to know how the employee has taken up his job or work. One's
--- Content provided by FirstRanker.com ---
29
performance is measured on the basis of his achievement. It is a qualitative
consideration and when we say the employees are performing well, it means
--- Content provided by FirstRanker.com ---
they are productive.
It can be generally measured based on the productivity. Productivity
--- Content provided by FirstRanker.com ---
implies both effectiveness and efficiency. The effectiveness refers to the goalaccomplishment and efficiency evaluates the ratio of inputs consumed to output
achieved. The greater the output for a lower input used to get that output, results
--- Content provided by FirstRanker.com ---
in greater efficiency. In addition to productivity, as measured in terms of
effectiveness and efficiency, performance also includes personal data such as
--- Content provided by FirstRanker.com ---
measures of accidents, turnover, absence and tardiness. So, a good employee notonly performs well but also minimizes problems for the organization by going to
work on time, not absenting himself and minimizing the number of work related
--- Content provided by FirstRanker.com ---
accidents. The employee does not cause any disruption apart from doing his job
efficiently.
--- Content provided by FirstRanker.com ---
Efficient use of Human Resource:The Human Resources of an organization represent one of its largest
investments. The term human resources at the macro level indicate the sum of
--- Content provided by FirstRanker.com ---
all the components (like skill, creative ability) possessed by all the people.
Human resources at the organizational level include all the component resources
--- Content provided by FirstRanker.com ---
of all employees from rank and file to top level management. So, it includes theresource, of all people who contribute their services to the attainment of
organizational goals. Human resources play a crucial role in the development
--- Content provided by FirstRanker.com ---
process of the present economy. It is often felt that though the exploitation of
natural resources, availability of physical and financial resources and
--- Content provided by FirstRanker.com ---
international aid play prominent roles in the growth of modern economies, noneof these factors is more significant than efficient and committed manpower.
A country with abundance of physical resources will not benefit itself
--- Content provided by FirstRanker.com ---
unless human resources make use of them. Only the human resources are
--- Content provided by FirstRanker.com ---
30responsible for making use of national resources and for the transformation of
traditional economies into modern and industrial economies. In the real sense,
--- Content provided by FirstRanker.com ---
the values, attitudes, general orientation and quality of the people of a countrydetermine its economic development. The shift from manufacturing to service
and the increasing pace of technological advancement make human resources
--- Content provided by FirstRanker.com ---
the crucial ingredient to the national well-being and growth.
The efficient use of human resources depends upon effective human
--- Content provided by FirstRanker.com ---
resource management. HRM is an approach to the management of people basedon the following main principles:
First, human resources are the most important assets an organization has
--- Content provided by FirstRanker.com ---
and their effective management is the key to success.
Second, this success is likely to be achieved if the personal policies and
--- Content provided by FirstRanker.com ---
procedure of the enterprise are also linked with the achievement of corporateobjective and strategic plans.
Third, the corporate culture and the values, organizational climate and
--- Content provided by FirstRanker.com ---
managerial behaviour that come out from the culture will exert a major influence
on the achievement of excellence. The culture must be managed in such a way
--- Content provided by FirstRanker.com ---
that organizational value may have to be changed or reinforced and thatcontinuous effort starting from the top, will be required to get them accepted and
acted upon.
--- Content provided by FirstRanker.com ---
Finally, HRM is concerned with integration - getting all the members of
the organization involved in the organizational practice and working together
--- Content provided by FirstRanker.com ---
with a sense of common purpose to achieve the organizational goals.It develops a specialized field in attempting to develop programmes,
policies and activities to promote the satisfaction of both individual and
--- Content provided by FirstRanker.com ---
organizational needs, goals and objectives. Through human resource, it tries to
shape an appropriate corporate culture and introducing programmes which
--- Content provided by FirstRanker.com ---
support the core values of the enterprise. The technique for the application of31
--- Content provided by FirstRanker.com ---
HRM will include many functions such as manpower planning, selection,performance appraisal, salary administration, training and management
development. These will be overlaid by special programmes designed to
--- Content provided by FirstRanker.com ---
improve communication systems, involvement, commitment and productivity.
In fact it aims at qualitatively improving the human beings in the organization
--- Content provided by FirstRanker.com ---
who are considered as the most valuable assets of an enterprise.According to Peters and Watennan, to achieve productivity through
people, it is essential to "treat them as adults, treat them as partners, treat them
--- Content provided by FirstRanker.com ---
with dignity and treat them with respect". Both the managers and workers must
be persuaded to realize that they have a common objective and interest in
--- Content provided by FirstRanker.com ---
increasing output. The following actions will be more fruitful to improve the usehuman resources:
a. Conduct a productivity drive.
--- Content provided by FirstRanker.com ---
b. Improve manpower budgeting and control techniques.
c. Introduce work measurement.
--- Content provided by FirstRanker.com ---
d. Use appropriate payment method by results, bonus and profit-sharingschemes.
e. Improve motivation.
--- Content provided by FirstRanker.com ---
f. Involve employees in improvement programmes.
g. Introduce new technology.
--- Content provided by FirstRanker.com ---
h. Negotiate appropriate productivity programme.i. Introduce training programme based on an analysis of productivity needs.
The efficient use of human resources could be successfully planned only
--- Content provided by FirstRanker.com ---
when the employees are made to understand the objectives of the organization,
plan to develop their own career in the organization which will make them more
--- Content provided by FirstRanker.com ---
confident and involve them together as a quality workforce.The efficient use of human resources must result in
- High productivity;
--- Content provided by FirstRanker.com ---
32
- Development of skill and organizational commitment;
--- Content provided by FirstRanker.com ---
- Career development;
Top management has to ensure that it is not sufficient to merely design
--- Content provided by FirstRanker.com ---
the "technological sub-system" which includes work flow, information flow, jobroles, job relationships, task force policies, procedures and job feedback. They
must also consider "human sub-system" which includes organizational climate,
--- Content provided by FirstRanker.com ---
level of motivation, high commitment participation, co-operation, satisfaction
with work environment, willingness to accept change, work group factors,
--- Content provided by FirstRanker.com ---
human resource development and satisfaction with compensation, companypolicies and procedures.
Enumerating the Assets:
--- Content provided by FirstRanker.com ---
Until recently, Human Resource Management (HRM) activities have
commonly been evaluated in behavioral and statistical terms. In this competitive
--- Content provided by FirstRanker.com ---
climate the need to evaluate HRM activities in economic terms is becomingincreasingly apparent. Developing such measures requires an inter- disciplinary
approach wherein information from accounting, finance, economics and
--- Content provided by FirstRanker.com ---
behavioral science has to be incorporated and delivered in the language
understood by the business world.
--- Content provided by FirstRanker.com ---
The next step is to transform generated data into the only language thebusiness world understands-Money.
The need to convert Human Resource Management (HRM) activities in
--- Content provided by FirstRanker.com ---
economic terms has become vital in this competitive scenario. And truly enough
HR has also evolved wherein its functions of hiring, paying salaries,
--- Content provided by FirstRanker.com ---
administration, benefits, developing and retaining employees, etc., have beentranslated into quantitative terms in order to monitor results and facilitate
changes. And today the data that is collected as such is being converted to
--- Content provided by FirstRanker.com ---
monetary values and thus the emergence of Human Resource Accounting
(HRA).
--- Content provided by FirstRanker.com ---
33
According to the theory of accounting for HR propounded by Flamholtz
--- Content provided by FirstRanker.com ---
EG (i) people are valuable resource of an enterprise and; (ii) information on theinvestment and value of human resource is useful for internal and /or external
decision-making. According to the suggestions given by Brummer RL , a firm
--- Content provided by FirstRanker.com ---
has to capitalize on its expenditure on HRM's functions namely recruitment,
selection, orientation, training and development of people and treat them as
--- Content provided by FirstRanker.com ---
assets for the purpose of HRA. The amounts so capitalized can be shown in thebalance sheet as human assets as distinguished from physical assets.
When we refer to assets, we remember only two assets, viz, fixed assets
--- Content provided by FirstRanker.com ---
and current assets. Fixed assets are valued at historical cost basis and current
asset at current price. But the growing awareness of the importance of
--- Content provided by FirstRanker.com ---
intangibles is also reflected in accounting for assets. There is a widening gapbetween the perceived value and the accounting value of the business. It
necessitated the accounting for intangibles and the accountants have handled
--- Content provided by FirstRanker.com ---
several such areas of accounting the intangibles too.
The traditional "bricks and mortar" accounting is of little use in modern
--- Content provided by FirstRanker.com ---
business where more than three fourths of value addition is derived fromknowledge, an intangible asset. For example, the accounting implications of
R and D have been examined and analysis on that has been referred in the
--- Content provided by FirstRanker.com ---
financial statements by some of the foreign companies.
Earlier accounting theorists like Paten and Scott recognized human
--- Content provided by FirstRanker.com ---
resource as an asset and commented that "in a business, well organized and loyalpersonnel are more important asset than a stock of merchandise". Likert first
used the term "human asset accounting", which has been replaced by human
--- Content provided by FirstRanker.com ---
resource accounting which demonstrates the weakness of traditional accounting
for not bringing human resource within its fold. The process of assigning
--- Content provided by FirstRanker.com ---
numeric value to human resources can either be cost based or value based.34
--- Content provided by FirstRanker.com ---
The cost-based approach includes historical cost, replacement cost andopportunity cost. This approach can be further sub-divided into two categories.
That is non-monetary and monetary. The non-monetary approach focuses on the
--- Content provided by FirstRanker.com ---
organizational and behavioural variables which determine human resource
value. The monetary approach focuses on the revenue generation capacity of
--- Content provided by FirstRanker.com ---
human resource and attaches a value figure accounting.The exponents of human resource valuation models in most cases have
--- Content provided by FirstRanker.com ---
not dealt with the mode of recording and disclosure of the accounting
information relating to human resources in the financial statements of the
--- Content provided by FirstRanker.com ---
organization. It is left to the discretion of the accounting bodies that have yet todevelop a generally accepted basis for valuation, recording and disclosure of
human resource accounting information in the financial statements of an
--- Content provided by FirstRanker.com ---
organization. In most cases, the human resource accounting information is given
in the form of supplementary information attached to the financial statements.
--- Content provided by FirstRanker.com ---
Prof. N. Dasgupta has suggested in his total cost approach the following
mode for disclosure of human resources in the balance sheet of an organization.
--- Content provided by FirstRanker.com ---
According to him, the human resources valued as per his model should be
shown both on the ,,assets as well as ,,liabilities sides of the balance sheet. On
--- Content provided by FirstRanker.com ---
the assets side, it should be shown after the fixed assets as Human Assetsclassified into two parts ? (i) value of individuals, (ii) value of firms
investment. On the ,,Liabilities side, it should be shown after the capital as
--- Content provided by FirstRanker.com ---
Human Assets Capital by that amount at which it has been shown on the asset
side against ,,value of individuals. He has given the following example to
--- Content provided by FirstRanker.com ---
clarify his point.Example: A firm has started its business with a capital of Rs.10,00,000. It has
purchased fixed assets worth Rs.5,00,000 in cash. It has kept Rs.2,60,000 as
--- Content provided by FirstRanker.com ---
working capital and incurred Rs.2,40,000 on recruiting, training and developing
--- Content provided by FirstRanker.com ---
35the engineers and few workers. The value of engineers and workers is assessed
at Rs.8,00,000.
--- Content provided by FirstRanker.com ---
The above items will be shown in the balance sheet as follows:BALANCE SHEET
--- Content provided by FirstRanker.com ---
(INCLUDING HUMAN RESOURCES)
LIABILITIES
--- Content provided by FirstRanker.com ---
Rs.ASSETS
Rs.
--- Content provided by FirstRanker.com ---
Capital
10,00,000
--- Content provided by FirstRanker.com ---
Fixed Assets5,00,000
Human Assets Capital
--- Content provided by FirstRanker.com ---
8,00,000
Human Assets:
--- Content provided by FirstRanker.com ---
(i) Individuals Value
8,00,000
--- Content provided by FirstRanker.com ---
(ii) Value of Firms
Investments
--- Content provided by FirstRanker.com ---
2,40,000Current Assets
2,60,000
--- Content provided by FirstRanker.com ---
18,00,000
--- Content provided by FirstRanker.com ---
18,00,000
--- Content provided by FirstRanker.com ---
Valuation of Human Assets
Valuation of human assets are the most important aspect of human
--- Content provided by FirstRanker.com ---
resource accounting. A recent trend in todays corporate world is to measure thevalue of intangible assets of the companies such as goodwill {valuation of
goodwill is quite old}, brands, patents, and now human assets. Consultants in
--- Content provided by FirstRanker.com ---
HRM emphasize the need for valuation fo human assets. For example,
--- Content provided by FirstRanker.com ---
Brian Friedman Human capital consultant with Arthur Anderson, views that "ifyou treat human resources as your most valuable assets. "Before we go through
the mechanism of valuation go human assets, let us see the types of various
--- Content provided by FirstRanker.com ---
human assets.
Types of human assets
--- Content provided by FirstRanker.com ---
Human assets are in intangible form and are within the inside of humanresources.
--- Content provided by FirstRanker.com ---
36
Therefore, there may be different ways in which these can he classified.
For example, Sumantra Ghoshal has classified these into three categories
--- Content provided by FirstRanker.com ---
intellectual capital, social capital and emotional capital. Besides, there is recent
emphasis on spiritual capital. Let us briefly discuss these to identify how these
--- Content provided by FirstRanker.com ---
contribute to individual effectiveness.Intellectual capital.
The first element of the human capital is intellectual capital which can be
--- Content provided by FirstRanker.com ---
defined at individual level as well as at organizational level.
At the individual level, it refers to his knowledge, skills and expertise. It
--- Content provided by FirstRanker.com ---
may be in the form of specialized knowledge, tacit knowledge and skills,cognitive complexity and learning capacity.
At the organizational level, intellectual capital consists of both the stock
--- Content provided by FirstRanker.com ---
of knowledge, skills and expertise that members of the organization collectively
possess, and the knowledge and expertise that may be embedded in or owned by
--- Content provided by FirstRanker.com ---
the organization including patents. Information technology based knowledgesystems, or specialized processes of work.
Ghoshal observes that "in the recent past, much management attention
--- Content provided by FirstRanker.com ---
has been paid to this issue of intellectual capital, and rightly so. Knowledge
certainly in service industries like consulting, investment banking. IT services,
--- Content provided by FirstRanker.com ---
consumer electronics, and electrical machinery.Social capital
Social capital is derived from the network of relationships, both
--- Content provided by FirstRanker.com ---
internally and externally. From organizations point of view, social capital
relates to structure, quality, and flexibility of the human networks which can be
--- Content provided by FirstRanker.com ---
created through cohorts, joint departments and functions, long-term employmentand internal culture.
The other aspect of social capital is external-built on the relationships
--- Content provided by FirstRanker.com ---
with external forces like customers, suppliers, government agencies, etc.
--- Content provided by FirstRanker.com ---
37however, building external relationships and working on these does not involve
taking undue advantages for furthering the interest of the organization. it is used
--- Content provided by FirstRanker.com ---
in the context of trustworthiness.Emotional capital
Emotional capital involves self-confidence, ambition, courage, risk-
--- Content provided by FirstRanker.com ---
taking ability and resilience. It is reflected in what is described as a ,,can do
spirit. Individuals need self-confidence based on self-esteem, courage, and
--- Content provided by FirstRanker.com ---
resilience to convert their kn0owledge and relationships into effective actions.Organizations require high internal energy and an environment of pride,
trust, and openness to create a bias for speed and action in rapidly changing
--- Content provided by FirstRanker.com ---
environment. In todays context, more companies are involved in developing
emotional quotient {EQ} as the individuals in an organization depend more on
--- Content provided by FirstRanker.com ---
their emotional capital for effectiveness than their intelligence and technicalskills. Emotional capital helps in controlling such emotions as anger, hatred,
frustration, confusion, sadness, etc. which affect the job performance adversely.
--- Content provided by FirstRanker.com ---
Further, it helps in reducing stress, a major problem of the modern
organizations.
--- Content provided by FirstRanker.com ---
Spiritual capitalSpiritual capital is the recent development in the practice of human
resource management. First, it was intelligent quotient (IQ) followed by
--- Content provided by FirstRanker.com ---
emotional quotient (EQ), and now has come spiritual quotient (SQ). Ullhas
Pagey, Director {HR and OD}, Aptech limited, views that "whereas with a high
--- Content provided by FirstRanker.com ---
IQ you may get hired: with a high EQ, you get promoted. But this is a short ?term perspective and long-term growth is linked to SQ. "spiritual capital is
assuming increasing values, ego, and approach to work match those of the
--- Content provided by FirstRanker.com ---
organization. All these forms of human capital are not isolated rather these are
interrelated. Therefore, while measuring human capital, all these must be taken
--- Content provided by FirstRanker.com ---
together. Human resource accounting makes attempt to measure this capital.38
--- Content provided by FirstRanker.com ---
Methods of valuation of human assets:There are a number of methods suggested for the valuation of human
assets. Many of these methods are based on the valuation of physical and
--- Content provided by FirstRanker.com ---
financial assets while others take into account human consideration. Major
methods of valuation of human asserts are historical cost, replacement cost,
--- Content provided by FirstRanker.com ---
standard cost present value of future earnings and expected realizable value.The major developments in HRA were started only during l96o's by
some of the organizations in USA. Of course, the first attempt to value the
--- Content provided by FirstRanker.com ---
human being in monetary terms was made by William Potty who opined that
labour was the father of wealth and it must be taken into account while making
--- Content provided by FirstRanker.com ---
an estimate of wealth. On scanning through literature, the approaches to HRAcan be broadly classified as follows:
a) Cost based approaches:
--- Content provided by FirstRanker.com ---
i) Historical Cost
ii) Replacement Cost
--- Content provided by FirstRanker.com ---
iii) Opportunity Costiv) Standard Cost
b) Monetary value based approaches:
--- Content provided by FirstRanker.com ---
i) The Lev and Schwartz Model
ii) The Eric Flamholtz Model
--- Content provided by FirstRanker.com ---
iii) Morse Modelc) Non- monetary value -based approaches:
i) Likert Model
--- Content provided by FirstRanker.com ---
ii) The Flamholtz Model
iii) Ogan Model
--- Content provided by FirstRanker.com ---
A. Cost Based Approaches:
i) Historical cost approach:
--- Content provided by FirstRanker.com ---
39
Brumnet, Flamholtz and Pyle have developed this method. It is on the
--- Content provided by FirstRanker.com ---
basis of actual cost incurred on human resources. Such a cost may be of two
types- acquisition cost and learning cost.
--- Content provided by FirstRanker.com ---
Acquisition cost is the expense incurred on recruitment, selection; entirecost is taken into consideration including those who are not selected.
Learning cost involves expenses incurred on training and development.
--- Content provided by FirstRanker.com ---
This method is very simple in its application but it does not reflect the true value
of human assets. For example, an experienced employee may not require much
--- Content provided by FirstRanker.com ---
training and therefore, his value may appear to be low though his real value ismuch more than what is suggested by historical cost method.
Under this approach actual cost incurred towards recruitment, hiring,
--- Content provided by FirstRanker.com ---
training and developing human resources of the organization are capitalized and
amortized over the future expected useful life of the human resources. Certain
--- Content provided by FirstRanker.com ---
part of costs will be written off in proportion to the income of the future yearswhich those human resources will provide service.
When these human assets are prematurely liquidated, the amount not
--- Content provided by FirstRanker.com ---
written off is charged to income of the year in which such liquidation takes
place.
--- Content provided by FirstRanker.com ---
When the useful life of the human resource is considered to be longerthan originally expected, revisions are to be effected in the amortization
schedule. The historical cost of human resource is almost similar to the book
--- Content provided by FirstRanker.com ---
value of the other physical assets. The additional costs incurred in training and
developing is capitalized and is amortized over the remaining working life of the
--- Content provided by FirstRanker.com ---
employee. The unexpired value is investment in human assets.ADVANTAGES
--- Content provided by FirstRanker.com ---
1. Simple to understand and easily worked out.
2. Cost is related to revenue
--- Content provided by FirstRanker.com ---
40
3. It enables to provide a basis for evaluating the companys returns on its
--- Content provided by FirstRanker.com ---
investment in human resources.DISADVANTAGES
1. It takes into account only acquisition costs and does not take into account
--- Content provided by FirstRanker.com ---
his potentiality.
2. It is not clear when or up to how many years the amount should be
--- Content provided by FirstRanker.com ---
amortized3. Amount to be amortized is not fixed.
4. Capital cost decreases with amortization.
--- Content provided by FirstRanker.com ---
ii) Replacement cost
--- Content provided by FirstRanker.com ---
Rensis Likert & Eric G.Flamholtz propounded it. This is a measure ofcost to replace a firms existing human resources. Human Resources are to be
valued on the assumption that a new similar organization has to be created from
--- Content provided by FirstRanker.com ---
scratch and the cost to the firm is calculated if the existing resources were
required to be replaced with other persons of equivalent talents and experience.
--- Content provided by FirstRanker.com ---
It takes into account all costs involved in recruiting, hiring, training anddeveloping the replacement to the present level of efficiency.
As against historical cost methods which take into account the actual
--- Content provided by FirstRanker.com ---
cost incurred on employees, replacement cost takes into account the notional
cost that may be required to acquire a new employee to replace the present one.
--- Content provided by FirstRanker.com ---
Replacement cost is generally much higher than the historical cost. For example,Friedman has estimated that the replacement cost of an executive in middle
management level is about 1.5 to 2 times the current salary paid in that position.
--- Content provided by FirstRanker.com ---
Replacement cost is much better indicator of value of human assets
though it may present certain operational problems. For example, true
--- Content provided by FirstRanker.com ---
replacement of a person may not be found easily with whose cost the valuationis done.
--- Content provided by FirstRanker.com ---
41
This approach is more realistic as it incorporates the current value of the
organizations human assets in its financial statements prepared at the end of the
--- Content provided by FirstRanker.com ---
year. Costs incurred by an organization in replacing a terminated employee are
defined as replacement cost like the following ?
--- Content provided by FirstRanker.com ---
a) Communication of job abilityb) Pre-employment administrative functions
c) Interviews
--- Content provided by FirstRanker.com ---
d) Testing
e) Staff Meetings
--- Content provided by FirstRanker.com ---
f) Travel Costg) Employment Medical Examination
LIMITATIONS
--- Content provided by FirstRanker.com ---
1. There may be no similar replacement for certain existing assets.
2. The replacement value is affected by subjective considerations
--- Content provided by FirstRanker.com ---
and therefore the value is likely to differ from one another.3. It is against conventional accounting practice.
c) Opportunity cost method:
--- Content provided by FirstRanker.com ---
Heckiman and Jones first advocated this approach. This is also known as
"Market Value Method". This method of measuring the value of human
--- Content provided by FirstRanker.com ---
resources is based on the economists concept of ,,opportunity cost.Opportunity cost is the value of an asset when there is an alternative
opportunity of using it. In this method there is no opportunity cost for those
--- Content provided by FirstRanker.com ---
employees who are not scarce. As such only scarce people should form part of
the value of human resources. The employee is considered as scarce only when
--- Content provided by FirstRanker.com ---
the employment in one division of an individual or group denies this kind oftalent to another division. Thus the opportunity cost of an employee in one
department is calculated on the basis of offer made by another department for
--- Content provided by FirstRanker.com ---
the employees working in this department in the same organization.
--- Content provided by FirstRanker.com ---
42LIMITATIONS
1. The total valuation of human resource on the competitive bid price may
--- Content provided by FirstRanker.com ---
be misleading and inaccurate. A person may be a valuable person for thedepartment in which he is working and may have a lower price in the bid
by other departments.
--- Content provided by FirstRanker.com ---
2. Only scare employees are included in this method and as a result unscare
employees may lose their morale, as they are not counted.
--- Content provided by FirstRanker.com ---
3. It would be difficult to identify the alternative use of an employee in theorganization.
iv) Standard cost Method.
--- Content provided by FirstRanker.com ---
David Watson has suggested this approach. Instead of using historical or
replacement cost, many companies use standard cost for the valuation of human
--- Content provided by FirstRanker.com ---
assets just as it is used for physical and financial assets. For using standard cost,employees of an organization are categorized into different groups based on
their hierarchical positions.
--- Content provided by FirstRanker.com ---
Standard cost is fixed for each category of employees and their value is
calculated. This method is simple but does not take into account differences in
--- Content provided by FirstRanker.com ---
employees put in the same group. In many cases, these differences may be quitevital.
According to this approach, standard costs of recruiting, hiring, training
--- Content provided by FirstRanker.com ---
and developing per grade of employees are determined year after year. The
standard cost so arrived at for all human beings employed in the organization are
--- Content provided by FirstRanker.com ---
the value of human resources for accounting purposes.The approach is easy to explain and can work as a suitable basis for
control purposes through the technique of variance analysis. However,
--- Content provided by FirstRanker.com ---
determination of the standard cost for each grade of employee is a ticklish issue.
b) Monetary value based approaches:
--- Content provided by FirstRanker.com ---
43
According to this approach, the value of human resources of an
--- Content provided by FirstRanker.com ---
organization is determined according to their present value to the organization.For determination of the present value, a number of valuation models have been
developed. Some of the important models are as follows ?
--- Content provided by FirstRanker.com ---
In this method the future earnings of various groups of employees are
estimated up to the age of their retirement and are discounted at a predetermined
--- Content provided by FirstRanker.com ---
rate to obtain the present value of future earnings used in the case of financialassets. It is the present value of future earnings. To determine this value, the
organization establishes what an employees future contribution is worth to it
--- Content provided by FirstRanker.com ---
today. That contribution can be measured by its cost or by the wages the
organization will pay the employee. The organization does not benefit by
--- Content provided by FirstRanker.com ---
monitoring the efficiency of its investment in employee development becausethe investment has little or no impact on the present valuation of future earnings.
The Lev and Schwartz Model (Present value of future earnings method)
--- Content provided by FirstRanker.com ---
This model has been developed by Lav and Schwartz (1971). According
to this model, the value of human resources is ascertained as follows ?
--- Content provided by FirstRanker.com ---
1. All employees are classified in specific groups according to their age andskill.
2. Average annual earnings are determined for various ranges of age.
--- Content provided by FirstRanker.com ---
3. The total earnings which each group will get upto retirement age are
calculated.
--- Content provided by FirstRanker.com ---
4. The total earnings calculated as above are discounted at the rate of costof capital. The value thus arrived at will be the value of human
resources/assets.
--- Content provided by FirstRanker.com ---
5. The following formula has been suggested for calculating the value of an
employee according to this model ?
--- Content provided by FirstRanker.com ---
Where, V = the value of an individual r years old.--- Content provided by FirstRanker.com ---
= the individuals annual earnings upto the retirement
--- Content provided by FirstRanker.com ---
44--- Content provided by FirstRanker.com ---
t = retirement age--- Content provided by FirstRanker.com ---
r = present age of the employee
--- Content provided by FirstRanker.com ---
R = discount rate
Disadvantages
--- Content provided by FirstRanker.com ---
1. This model implies that the future work condition of the employee will
not change over the span of his working life, but will remain the same as
--- Content provided by FirstRanker.com ---
at present.2. The approach does not take into account the possibility that the
employee will withdraw from the organization prior to his death or
--- Content provided by FirstRanker.com ---
retirement. It is therefore not realistic.
3. It ignores the variable of thee career movement of the employee within
--- Content provided by FirstRanker.com ---
the organization. An engineer will be an engineer throughout his careerin the organization.
4. It does not take into account the role changes of employees. A Personnel
--- Content provided by FirstRanker.com ---
Manager may become Chief Legal Officer.
However, this method does not give correct value of human assets as it
--- Content provided by FirstRanker.com ---
does not measure their contributions to achieving organizational effectiveness.SCARPELLO & THEEKE (1989)
"At the theoretical level, HRA is an interesting concept. If human resource value
--- Content provided by FirstRanker.com ---
could be measured, the knowledge of that value could be used for internal
management and external investor decision-making. However, until HRA
--- Content provided by FirstRanker.com ---
advocates demonstrate a valid and generalizable means for measuring humanresource value in monetary terms, we are compelled to recommend that
researchers abandon future consideration of possible benefits from HRA.
--- Content provided by FirstRanker.com ---
Flamholtz Model (Reward Valuation method)
This model has been suggested by Flamholtz (1971). This is an
--- Content provided by FirstRanker.com ---
improvement on ,,present value of future earnings model since it takes intoconsideration the possibility or probability or an employees movement from
--- Content provided by FirstRanker.com ---
45
one role to another in his career and also of his leaving the firm earlier, that his
death or retirement.
--- Content provided by FirstRanker.com ---
According to this model, the ultimate measure of an individuals value to an
organization is his expected realizable value. Expected realizable value is based
--- Content provided by FirstRanker.com ---
on the assumption that there is no direct relationship between cost incurred onan individual and his value to the organization at a particular point of time. An
individuals value to the organization can be defined as the present worth of set
--- Content provided by FirstRanker.com ---
of future services that the expected to provide during the period he remains in
the organization.
--- Content provided by FirstRanker.com ---
Flamholtz has given the variables affecting an individuals expectedvalue {IERV}: individual conditional values and his likelihood of remaining in
the organization. The former is function of the individuals abilities and
--- Content provided by FirstRanker.com ---
activation level, while the later is a function of such variables as job satisfaction,
commitment, motivation and other factors.
--- Content provided by FirstRanker.com ---
The model suggests a five-step approach for this purpose ?1. Determination of the period for which a person is expected to serve the
organization.
--- Content provided by FirstRanker.com ---
2. Identification of ,,service states (i.e. roles or posts) that the employee
might occupy during his service career including the possibility of his
--- Content provided by FirstRanker.com ---
quitting the organization.3. Estimation of the value derived by the organization when a person
occupies a particular position. Such value can be determined either by
--- Content provided by FirstRanker.com ---
multiplying the price of the services with the quantity of the services to
be rendered or the income expected to be derived from the services to be
--- Content provided by FirstRanker.com ---
rendered.4. The total value of the services derived by the organization by different
employees or group of employees is determined. The value thus arrived
--- Content provided by FirstRanker.com ---
46
is discounted at a predetermined rate to get the present value of human
--- Content provided by FirstRanker.com ---
resources.
Limitations
--- Content provided by FirstRanker.com ---
The model suffers from nearly all the drawbacks from which the presentvalue of future earnings models suffers. Moreover, It is difficult to obtain
reliable data for determining the value derived by an organization during the
--- Content provided by FirstRanker.com ---
period a person occupies a particular position. The model also ignores the fact
that individuals operating in a group may have a higher value for the
--- Content provided by FirstRanker.com ---
organization as compared to individuals working independently.Morse Model (Net Benefit Model)
This approach has been suggested by Morse (1973). According to this
--- Content provided by FirstRanker.com ---
approach, the value of human resources is equivalent to the present value of net
benefits derived by the organization from the service of its employees. The
--- Content provided by FirstRanker.com ---
method involves the following steps ?1. The gross value of services to be rendered in future by the employees in
their individual as well as their collective capacity is determined.
--- Content provided by FirstRanker.com ---
2. The value of future payments (both direct and indirect) to the employees
is determined.
--- Content provided by FirstRanker.com ---
3. The excess of the value of future human resources (as per 1 above) overthe value of future payments (as per 2 above) is ascertained. This, as a
matter of fact, represents the net benefit to the organization on account of
--- Content provided by FirstRanker.com ---
human resources.
4. The present value of the net benefit is determined by applying a
--- Content provided by FirstRanker.com ---
predetermined discount rate (generally the cost of capital). This amountrepresents the value of human resources to the organization.
c) Non- monetary value -based approaches:
--- Content provided by FirstRanker.com ---
47
Pekin Ogan (Certainity Equivalent Net Benefit Model)
--- Content provided by FirstRanker.com ---
This approach has been suggested by Pekin Ogan(1976). This, as a
matter of fact, is an ext4nsion of "net benefit approach" as suggested by Morse.
--- Content provided by FirstRanker.com ---
According to this approach, the certainty with which the net benefits in futurewill accrue should also be taken into account, while determining the value of
human resources. The approach requires determination of the following ?
--- Content provided by FirstRanker.com ---
1. Net benefit from each employee as explained under ,,net benefit
approach.
--- Content provided by FirstRanker.com ---
2. Certainty factor at which the benefits will be available3. The net benefits from all employees multiplied by their certainty factor
will give certainty equivalent net benefits. This will be the value of
--- Content provided by FirstRanker.com ---
human resources of the organization.
--- Content provided by FirstRanker.com ---
S.K. Chakraborthy Model (Aggregate payment approach)Indian author Prof. S.K. Chakraborty in 1976 advocated this model. He
has valued the human resources in aggregate and not on an individual basis. He
--- Content provided by FirstRanker.com ---
suggested that managerial and non managerial man power can be evaluated
separately. The value of human resource on a collective or group basis can be is
--- Content provided by FirstRanker.com ---
multiplied by the average tenure of employment of the employees in that groupand is the investment in human resource.
The average annual salary payments for the next few years could be
--- Content provided by FirstRanker.com ---
found out from the salary grade structure and promotion schemes of the
enterprise. The recruitment, including selection, development and training costs
--- Content provided by FirstRanker.com ---
of each employee could be recorded separately and considered as deferredrevenue expenditure to be written off over the expected average tenure of the
employee in the organisation. The deferred portion should be shown in the
--- Content provided by FirstRanker.com ---
financial statement of the organisation.
--- Content provided by FirstRanker.com ---
48In case of permanent exit on account of death, retrenchment etc. then the
balance on the deferred revenue account of that year of that person should be
--- Content provided by FirstRanker.com ---
written off against the income in the year of exit itself.For the purpose of finding the present value of estimated payments the
expected average after tax return on capital employed over the average tenure
--- Content provided by FirstRanker.com ---
period should be taken as the discount rate.
As for disclosure of accounting information on human resources as an
--- Content provided by FirstRanker.com ---
asset, he has suggested to include human assets under investments in the'financial statement' of the organisation. He is not for taking it as 'fixed assets' as
it will cause problems of depreciation, capital gains or losses upon exit etc.;
--- Content provided by FirstRanker.com ---
neither it could be taken as 'current asset' as it will not be in conformity with the
general meaning of the term.
--- Content provided by FirstRanker.com ---
Human Capital
LPG - Liberalization, Privatization and Globalization all over the world,
--- Content provided by FirstRanker.com ---
has created the need for quality products and quality service. It in turn
necessitated organizations to compete with one another to improve the quality
--- Content provided by FirstRanker.com ---
and device cost reduction measures to exist in the industry. That could be doneonly with the development of human capital which is evidenced by the rapid
economic growth of Japan and other East Asian countries. The investment in
--- Content provided by FirstRanker.com ---
human capital cannot be easily measured as it differs from one person to
another.
--- Content provided by FirstRanker.com ---
Basically, when we talk of human capital it refers to the humanknowledge, their inner capabilities and creativity. The development of
technology cannot be fully utilized without knowledge and skill. The
--- Content provided by FirstRanker.com ---
capabilities of the human capital in relation to the needs of the organization
should be improved by creating a climate in which the human knowledge, skill,
--- Content provided by FirstRanker.com ---
capabilities and creativity can be developed. How do we develop our human49
--- Content provided by FirstRanker.com ---
capital and put it to optimum use is the challenge faced by the present daycorporate sector. Technological improvements, business strategies, quality
concerns etc., will have no meaning without people (human capital). So it is
--- Content provided by FirstRanker.com ---
people who make all the difference.
People and their development only can meet the needs of globalization
--- Content provided by FirstRanker.com ---
and liberalization. The human capital available in the organization should berightly assessed and developed through motivation, training and perceptional
needs of the organization. Only then, the organizational goals can be achieved
--- Content provided by FirstRanker.com ---
and can continue to be a market contributor in the field of competition. The
computer technology offers greater precision but demands different skills. The
--- Content provided by FirstRanker.com ---
owners (personnel) of these new skills are both technically educated and trainedon the job. It is the human capital which should be rightly invented for the
qualitative improvement of human beings who are considered the most valuable
--- Content provided by FirstRanker.com ---
asset of an organization.
Thus, the Human capital refers to the basic skill, capabilities, the
--- Content provided by FirstRanker.com ---
perception, know-how and expertise. Every individual has certain skills andunderstanding. The education one has undergone should help him to develop
knowledge in general. Till one gets basic employment he is not keen on
--- Content provided by FirstRanker.com ---
planning his future and there is uncertainty. This is normal in most of the cases
except a few. As one is placed in an organization in some position, he starts to
--- Content provided by FirstRanker.com ---
look for elevation. The organization too would tap his basic skill and capabilitiesand divert them to achieve the goals of the organization and in the process it
attempts to develop his basic skill through proper training, motivation and
--- Content provided by FirstRanker.com ---
direction. The human capital is rightly put through for effective functioning,
right decision making and career development. In all these it creates value to the
--- Content provided by FirstRanker.com ---
organization and makes it more stable in the competitive environment.At last, the clich? ,,people are our most important resource' has actually
come to mean something. Today more than ever the management realizes that
--- Content provided by FirstRanker.com ---
50
the most effective asset in an organization is its people. In fact it is obsolete to
--- Content provided by FirstRanker.com ---
say people are the most important asset, rather they are the only dynamic asset.
Nothing happens without people-money, equipment, technology..... nothing
--- Content provided by FirstRanker.com ---
means anything without a human to act. Hence, the management has slowlyrealized the importance which in turn has edged Human Resource (HR) from the
background into mainstream organizational strategies. Having moved to the
--- Content provided by FirstRanker.com ---
center stage is not the end. It has to sustain its stand and move even further and
for that to happen HR must learn the language of organizations and
--- Content provided by FirstRanker.com ---
management, i.e. it has to talk in quantitative and objective terms. Time andagain, every manager has always stated 'You can't manage what you can't
measure'. Organizations are managed with quantitative data. Today, HR has also
--- Content provided by FirstRanker.com ---
got into the game. It has learned the terminology of the organization's financial
statement and has begun to contribute in this area. Universally, HR is emerging
--- Content provided by FirstRanker.com ---
as a front line strategic player.Every organization has its eye on the bottom line-profit and all the units
work to demonstrate their contribution to service, quality and performance. It is
--- Content provided by FirstRanker.com ---
to be remembered that every unit affects business results and every function is a
value-adding operation. Hence, it is imperative to be able to measure this
--- Content provided by FirstRanker.com ---
contribution objectively.An organization uses HRA Asset models when it focuses on assessing its
--- Content provided by FirstRanker.com ---
investment in the human capital. In contrast organizations that intend to measure
the economic effects of employee's behavior tend to utilize the HRA Expense
--- Content provided by FirstRanker.com ---
models. This has led HR to finally attempt to account for an organization'sintellectual capital.
Intellectual Capital
--- Content provided by FirstRanker.com ---
Tangible assets can be easily valued. How does one evaluate intangible
assets such as creativity, service standards etc., Intellectual capital such as
--- Content provided by FirstRanker.com ---
knowledge, skill, information, experience etc, which helps create wealth that51
--- Content provided by FirstRanker.com ---
can't be easily assigned a price? To date, there is no clear agreement in theaccounting profession about how to account for them.
Yet the role of intangible assets such as brand names, intellectual capital,
--- Content provided by FirstRanker.com ---
patents etc., in their contribution to increase the amount of wealth in firms can't
be ignored. The shift to a knowledge-based economy has created entirely
--- Content provided by FirstRanker.com ---
different categories of assets, popularly known as "soft assets that are notrecognized in financial statements".
Valuing Intellectual Capital
--- Content provided by FirstRanker.com ---
Human Capital, Structural Capital and Customer Capital comprise of a
company's Intellectual Capital. Even though all the three are intangible, they can
--- Content provided by FirstRanker.com ---
be measured and targeted for investment.Human capital represents knowledge, skills and capability to provide
solutions to problems that customers think are important. Enabling human
--- Content provided by FirstRanker.com ---
capital requires other structures such as software manuals, customer files etc.
Customer capital is the value of an organization's relationship with whom it does
--- Content provided by FirstRanker.com ---
business including suppliers. HR professionals have always been trying todevelop measures to value human capital. Some of the measures utilized are:
Measures of Innovation
--- Content provided by FirstRanker.com ---
Genuine innovation always commands a premium. All companies are
always striving to be different from the other and to stand out from the rest. In
--- Content provided by FirstRanker.com ---
this endeavor, new products, ideas, and strategies are the order of the day andnow companies are [earning to assess this aspect of creativity in the language it
well understands, that is the language of finance.
--- Content provided by FirstRanker.com ---
Measuring Employees' Attitude
--- Content provided by FirstRanker.com ---
Above all it is only employees' attitude about the job and the company,which gets reflected in their behavior towards the customers. That behavior in
turn translates into customers 'retention, recommendations and loyalty, which in
--- Content provided by FirstRanker.com ---
52
turn get reflected in financial performance. Hence, behaviors and attitudes that
--- Content provided by FirstRanker.com ---
affect performance are being measured. Some of the attitudes measured are
satisfaction, locus of control, organizational involvement and commitment, and
--- Content provided by FirstRanker.com ---
motivation: and the behaviors often measured are performance, adjustment,absence or illness and voluntary turnover.
Measures of Tenure, Turnover, Absenteeism, Experience and learning
--- Content provided by FirstRanker.com ---
These indices that comprise of a company's inventory of knowledge
workers need to be quantified. Quantifying tenure, turnover, absenteeism and
--- Content provided by FirstRanker.com ---
experience is quite simple when compared to learning. Turnover normallyrepresents a substantial cost to business. In measuring turnover, an organization
has to consider three major, separate cost categories: Separation costs,
--- Content provided by FirstRanker.com ---
replacement costs and training costs. In addition, the difference in currency-
valued performance between those leaving and their replacements should also be
--- Content provided by FirstRanker.com ---
considered.Similarly, the rate of absenteeism is first calculated and then the cost of
absenteeism can be estimated using set formulae and procedures. This cost
--- Content provided by FirstRanker.com ---
would include employee-hours lost, supervisory hours lost, all other costs
incidental to absenteeism, compensation, benefits, etc.
--- Content provided by FirstRanker.com ---
Structural Capital MeasuresSharing, transporting and enabling human capital require other structures
or organizational capabilities. Structural capital consists of everything that
--- Content provided by FirstRanker.com ---
remains when the employees go home namely, databases, customer files,
software manuals, trademarks and organizational structures. In order to find out
--- Content provided by FirstRanker.com ---
if a company's systems are helping or hindering its employees to perform totheir optimal level measures such as production-to market time, suggestions
versus implementation, databases at estimated costs, etc., are accounted.
--- Content provided by FirstRanker.com ---
Customer Satisfaction Measures
--- Content provided by FirstRanker.com ---
53There are many objective ways to measure customer satisfaction. Some
of the common measures are customer retention rare, brand equity and customer
--- Content provided by FirstRanker.com ---
satisfaction. Then customer satisfaction is linked to performance managementfor individual employees it can generate helpful data for the 360 degree
feedback of employees.
--- Content provided by FirstRanker.com ---
Earlier for HR programs it was sufficient just to collect data and
calculate the cause and effect of those programs. Today, the ultimate aim is to
--- Content provided by FirstRanker.com ---
evaluate not the return on investment and business impact but also to be able toconvert these data into monetary values and compare them with the HR's fully
loaded costs.
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
Books for Reference:
1. Human Resource Management and Accounting, R.P. Gupta.
--- Content provided by FirstRanker.com ---
2. Advanced Accountancy, S.N. Maheshwari & S.K. Maheshwari.
3. Human Resource Development-Conceptual Analysis and
--- Content provided by FirstRanker.com ---
Strategies, R. Jayagopal.4. Human Resource Management, S.S. Khanka
--- Content provided by FirstRanker.com ---
54
5. Personnel / Human Resource Management (Text, Cases and
Games): P. Subbarao & V.S.P. Rao.
--- Content provided by FirstRanker.com ---
6. Personnel / Human Resource Management: A.R. Sharma.
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
QUESTIONS
1. Define ,,human resource accounting.
2. Explain the objectives of Human Resource Accounting.
--- Content provided by FirstRanker.com ---
3. Briefly explain the development of the concept of HRA.4. Give an account of historical score card if human resource of
accounting.
--- Content provided by FirstRanker.com ---
5. Explain the importance of human resource accounting.6. Explain the limitations of human resource accounting.
7. Briefly explain the various concepts of investment in HRA.
--- Content provided by FirstRanker.com ---
55
8. What is quality of work life? Explain how to improve the quality of
work life.
--- Content provided by FirstRanker.com ---
9. Explain the various methods of valuation of human assets.
10. What is spiritual capital?
11. What is emotional capital?
12. What is social capital?
--- Content provided by FirstRanker.com ---
13. What is intellectual capital?14. Explain the various types of human assets.
15. What is human capital?
--- Content provided by FirstRanker.com ---
56
--- Content provided by FirstRanker.com ---
UNIT - IIHUMAN RESOURCE PLANNING & ACCOUNTING
--- Content provided by FirstRanker.com ---
Human Resource Planning ? Human Capital investment ? Expenditure Vs.
Productivity ? Training Human Capital & Productivity ? Human Resource
--- Content provided by FirstRanker.com ---
Accounting ? Measurement of Human Value addition into Money value ?objective of Human Resources Accounting ? Approaches to Human Resource
Accounting.
--- Content provided by FirstRanker.com ---
Most people live ? Whether physically, intellectually or morally ? in a very
--- Content provided by FirstRanker.com ---
restricted circle of their potential being. We all have reservoirs of life to drawupon, which we do not dream.
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
W. James.
--- Content provided by FirstRanker.com ---
2.1 INTRODUCTION
The most valuable input in an organization is the human element. The most
--- Content provided by FirstRanker.com ---
valuable of all capital is that invested in human beings. Organizations arecomposed of people and the people are the most precious of the gamut of assets
owned.
--- Content provided by FirstRanker.com ---
Loose one extra ? ordinary player of a team and who will replace him/her? How
--- Content provided by FirstRanker.com ---
much time will pass before the organization to require the know-how, drive andthe strength diffused by his/her presence amongst the team members? A healthy
organization not only aims at the designation but also how to step forward and
--- Content provided by FirstRanker.com ---
with whom to proceed.
The importance of sustained manpower is evident from the famous saying:
--- Content provided by FirstRanker.com ---
If you wish to plan for a year, Cultivate flowers' ;,If you wish to plan for ten years, Plant trees';,
If you wish to plan for eternity, Develop men'.
--- Content provided by FirstRanker.com ---
57
Hence, in the process of managing an organization, human resources are not to
--- Content provided by FirstRanker.com ---
be neglected, with all-out attention towards financial resources (like money and
credit), physical resources (like land, building, machinery). The only living
--- Content provided by FirstRanker.com ---
resource, the human resource, need to be planned, procured, nourishedpossessed and productivity ? oriented. The growing importance of this vital
resource has pooled the attention researches to develop accounting systems.
--- Content provided by FirstRanker.com ---
2.2 HUMAN RESOURCE PLANNING
--- Content provided by FirstRanker.com ---
2.2.1 Meaning and definitionHuman resource planning (HRP) is a forward-looking function. It occupies a
pivot place in successful human resource management programme. To ensure
--- Content provided by FirstRanker.com ---
that people are available to extend their willing hands towards the development
endeavours of an organization, organizations engage in human resource
--- Content provided by FirstRanker.com ---
planning.In simple terms, human resource planning means:-
--- Content provided by FirstRanker.com ---
The process by which and organization ensures that it has the right number and
kind of people, at the right places, at the right time, capable of affectively and
--- Content provided by FirstRanker.com ---
efficiently completing those tasks that will help the organization to achieve itsoverall objectives.
--- Content provided by FirstRanker.com ---
Objectives are translated into the need of the work force to attain through human
resource planning. Without such plan the requirement estimation is not
--- Content provided by FirstRanker.com ---
systematic, rather a mere guesswork.According to Dale S. Beach. "Human resource planning is a process of
--- Content provided by FirstRanker.com ---
determining and assuring that the organization will have an adequate number of
qualified persons, available at proper times, performing jobs which meet the
--- Content provided by FirstRanker.com ---
58
needs of the enterprise and which provide satisfaction for the individuals
--- Content provided by FirstRanker.com ---
involved."Manpower planning is a continuous process. It cannot be rigid or static. It is
--- Content provided by FirstRanker.com ---
amenable to modifications, review and adjustments, in accordance with the
needs of the organization or the changing circumstances. In the words of
--- Content provided by FirstRanker.com ---
Coleman, " Manpower planning is the process of determining manpowerrequirements and the means for meeting those requirements in order to carry
out the integrated plan of the organization."
--- Content provided by FirstRanker.com ---
2.2.2 OBJECTIVES OF HUMAN RESOURCE PLANNING.
--- Content provided by FirstRanker.com ---
The basic purpose of having a human resource plan is to have an accurateestimate of the number of employees required, with matching skill to meet
organizational objectives. It provides information about the manner in which
--- Content provided by FirstRanker.com ---
existing personnel are employed, the kind of skills required for different
categories of jobs and human resource requirements over a period of time in
--- Content provided by FirstRanker.com ---
relation to organizational objectives. It would also give an indication of the leadtime that is available to select and train the required number of additional
manpower.
--- Content provided by FirstRanker.com ---
More specifically; HR planning is required to meet the following objectives:
--- Content provided by FirstRanker.com ---
Forecast personnel requirements: HR planning is essential todetermine the future manpower needs in a organization. In the absence of
such a plan, it would be difficult to have the services of right kind of
--- Content provided by FirstRanker.com ---
people at the right time.
Cope with changes: HR planning is required to cope with changes in
--- Content provided by FirstRanker.com ---
market conditions, technology, products and government regulations inan effective way. These changes may often require the services of people
--- Content provided by FirstRanker.com ---
59
with the requisite technical knowledge and training. In the absence of an
HR plan, we may not be in a position to enlist their services in time.
--- Content provided by FirstRanker.com ---
Use existing manpower productively: By keeping an inventory of
--- Content provided by FirstRanker.com ---
existing personnel in an enterprise by skill, level, training, educationalqualifications, work experience, it will be possible to utilize the existing
resources more usefully in relation to the job requirements. This also
--- Content provided by FirstRanker.com ---
helps in decreasing wage and salary costs in the long run.
--- Content provided by FirstRanker.com ---
Promote employees in a systematic manner: HR planning providesuseful information on the basis of which management decides on the
promotion of eligible personnel in the organization. In the absence of an
--- Content provided by FirstRanker.com ---
HR plan, it may be difficult to ensure regular promotions to competent
people on a justifiable basis.
--- Content provided by FirstRanker.com ---
2.2.3 HUMAN RESOURCE PLANNING PROCESS
Human Resource Planning consists of the following areas:
--- Content provided by FirstRanker.com ---
1. Analyzing organizational plans.
2. Demand Forecasting ? Forecasting the overall human resource
--- Content provided by FirstRanker.com ---
requirements in accordance with the organizational plans.3. Supply Forecasting ? Obtaining the data and information about the
present inventory of human resources and forecast the future changes in
--- Content provided by FirstRanker.com ---
present human resource inventory.
4. Estimating the net human resource requirements.
--- Content provided by FirstRanker.com ---
5. In case of future surplus, plan for redeployment, retrenchment and layoff.
6. In case of future deficit, forecast the future supply of human resources
--- Content provided by FirstRanker.com ---
from all sources with reference to plans of other companies.
--- Content provided by FirstRanker.com ---
607. Plan for recruitment, development and internal mobility in future supply
is more than of equal to net human resource requirements.
--- Content provided by FirstRanker.com ---
8. Plan to modify or adjust the organizational plan if future supply will beinadequate with reference to future net requirements.
The eight steps of human resource planning are depicted in the figure in the
--- Content provided by FirstRanker.com ---
order mentioned above. But the same order need not be followed in the actual
planning process, as the steps are independent.
--- Content provided by FirstRanker.com ---
Human Resources Planning Model:
--- Content provided by FirstRanker.com ---
Adjust or Modify the Organsational Plans 10
Org anizational (1)
--- Content provided by FirstRanker.com ---
Objectives, Plans andProgrammes
--- Content provided by FirstRanker.com ---
Control &
Present
--- Content provided by FirstRanker.com ---
Review MechanismProgrammes
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
Demand Forecast (2)Supply Forecast (3)
Net Human Resource (4)
--- Content provided by FirstRanker.com ---
Resou
Present Inventory
--- Content provided by FirstRanker.com ---
Minusrce Requirements
Requirements for Future
--- Content provided by FirstRanker.com ---
Skill wise, Value wise
Of Human Resources
--- Content provided by FirstRanker.com ---
Skill-KnowledgeKnowledge wise etc.
Additions-Losses-Skill wise
--- Content provided by FirstRanker.com ---
Value wise
--- Content provided by FirstRanker.com ---
Knowledge wise etc.--- Content provided by FirstRanker.com ---
Shortage of Future (7)
Forecast the Future (9)
--- Content provided by FirstRanker.com ---
Surplus of FutureAvailable Human
Supply
--- Content provided by FirstRanker.com ---
(5)
--- Content provided by FirstRanker.com ---
Of Human ResourcesAvailable Human
Resource
--- Content provided by FirstRanker.com ---
In all the Sources If Supply
Resources within
--- Content provided by FirstRanker.com ---
The Organization
is Inadequate
--- Content provided by FirstRanker.com ---
Within the Organization
8
--- Content provided by FirstRanker.com ---
6
--- Content provided by FirstRanker.com ---
Recruitment
Training
--- Content provided by FirstRanker.com ---
DevelopmentInternal Mobility
Re
--- Content provided by FirstRanker.com ---
development
Retrenchment/
--- Content provided by FirstRanker.com ---
Redundancy--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
61
--- Content provided by FirstRanker.com ---
2.2.4. Benefits of HRPEffective manpower planning provides adequate lead time for the procurement
and training of employees. It is all the more crucial because the lead time for
--- Content provided by FirstRanker.com ---
procuring personnel is a time consuming process and in certain cases, one may
not always get the requisite type of personnel needed for the job. Non-
--- Content provided by FirstRanker.com ---
availability of suitable manpower may result in postponement of delays inexecuting new projects and expansion programmes, which ultimately lead to
lower efficiency and productivity. To overcome this an organization must plan
--- Content provided by FirstRanker.com ---
out its manpower requirements well in advance, so that it can compete
effectively with its competitors in the market.
--- Content provided by FirstRanker.com ---
Manpower planning is an important tool of human Resources Management as ithelp in the following ways.
--- Content provided by FirstRanker.com ---
1. Manpower planning results in reduced labour costs as it helps management
to anticipate shortages and/or surpluses of manpower and correct these
--- Content provided by FirstRanker.com ---
imbalances before they become unmanageable and expensive.2. It is a better basis for planning employee development that is designed to
make optimum use of workers skills within organization.
--- Content provided by FirstRanker.com ---
3. It enables indemnification of the gaps of the existing manpower so that
corrective training could be imparted. Thus, the training programme
--- Content provided by FirstRanker.com ---
becomes more effective.4. It leads to improvement in the overall business planning process.
5. It helps in to formulating managerial succession plan as a part of the
--- Content provided by FirstRanker.com ---
replacement planning process which is necessitated when job-change plans
for managers are formulated. Besides this exercise would provide enough
--- Content provided by FirstRanker.com ---
lead-time for identifying and developing managers to move up the corporateladder.
--- Content provided by FirstRanker.com ---
62
6. It leads to a greater awareness of the importance of sound manpower
management throughout the organization.
--- Content provided by FirstRanker.com ---
7. It serves as a tool to evaluate the effect of alternative manpower actions and
policies.
--- Content provided by FirstRanker.com ---
2.2.5 RESPONSIBILITY FOR HRP
--- Content provided by FirstRanker.com ---
Executives at higher level are responsible for HR planning as it is an important
factor to steer the organization move in the path of success. Prof. Geisler has
--- Content provided by FirstRanker.com ---
outlined the responsibilities of the HR Department in respect of HR planning asunder :
a)
--- Content provided by FirstRanker.com ---
Assist and counsel operating managers to plan and set objectieves.
b)
--- Content provided by FirstRanker.com ---
Collect and summaries manpower data keeping long-run objectivesand broad organizational interests in mind.
c)
--- Content provided by FirstRanker.com ---
Monitor and measure performance against the plan and keep top
management informed about it.
--- Content provided by FirstRanker.com ---
d)Provide proper research base for effective man-power and
organizational planning.
--- Content provided by FirstRanker.com ---
2.2.6 Effective HR Planning :
--- Content provided by FirstRanker.com ---
Krishna Swamy in his study "Manpower Planning Practices in Indian
Manufacturing organizations" has examined 45 companies of different
--- Content provided by FirstRanker.com ---
categories and found that scant attention is plaid towards human resource
planning. Most of the Indian organizations. Do not have adequate information
--- Content provided by FirstRanker.com ---
on human resources.--- Content provided by FirstRanker.com ---
63
There are unpredictable external influences like changes in labour market
conditions, technology, market conditions, economic cycles, changes in social
--- Content provided by FirstRanker.com ---
and economic values, political changes etc., In such a scenario, forecasting of
manpower is a touch task. However to make HR planning effective the
--- Content provided by FirstRanker.com ---
following guidelines can be followed :(a) HR Plan must fit in with the over all objectives of the organization
--- Content provided by FirstRanker.com ---
keeping in view the various aspects of the human side of the enterprise.
(b) The plan should enjoy consistent support from top management.
--- Content provided by FirstRanker.com ---
(c) The Organization can develop on up-to-date employee shills inventory.Mark analysis is an approach to forecast the internal supply of man
power, tracking past records & personnel movements; may be adopted
--- Content provided by FirstRanker.com ---
for preparing manpower inventory.
(d) Human resource information system may be developed and data regards
--- Content provided by FirstRanker.com ---
individual demographics, career progression, appraisals, skills, interests,training, target positions performance rating, geographic performance,
promo ability ratings may be computerized.
--- Content provided by FirstRanker.com ---
(e) In large organization, a separate HR Planning division may be created to
look after the plans for requirement, promotion and retention of human
--- Content provided by FirstRanker.com ---
resources.Systematically executed HRP can be a good means for achieving greater
effectiveness.
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
642.3
HUMAN CAPITAL INVESTMENT
--- Content provided by FirstRanker.com ---
2.3.1 Human Capital Structure
--- Content provided by FirstRanker.com ---
Just like financial capital structure, which consist of various types of capital, the
human capital structure consist of various types of employees employed in an
--- Content provided by FirstRanker.com ---
organization. The types of employees may be executives, supervisory, artisans,clerical and skilled-staff or semi-skilled staff. The composition and proportion
of various types of employees play an important role in the development of an
--- Content provided by FirstRanker.com ---
organization.
--- Content provided by FirstRanker.com ---
People are the greatest asset the only real difference between one organizationand the other is the performance of the people. The survival, development and
performance of an organization depends heavily upon the quality of manpower,
--- Content provided by FirstRanker.com ---
Right from Alfred marshal a century ago, down to the management Guru Peter
Drucker, focusing attention knowledge workers and knowledge industries come
--- Content provided by FirstRanker.com ---
out clear message that "Knowledge" is the key to development. We are in theknowledge era where the new wealth of matrons is tied directly up with the
creation, transformation and capitalization of knowledge.
--- Content provided by FirstRanker.com ---
Knowledge based industries especially in the science and technology based units
--- Content provided by FirstRanker.com ---
are expanding faster than many other industries and contribute towards thetransformation of a countrys economic infrastructure. As there is greater
demand for knowledge based products the role of knowledge in achieving
--- Content provided by FirstRanker.com ---
competitive advantage has become a very important matter in all sections of
management. Knowledge, a primary competitive factor in business, which is
--- Content provided by FirstRanker.com ---
non-traditional and intangible, and its accumulation, transformation andvaluation lie at the heart of intellectual capital management. A recent study
--- Content provided by FirstRanker.com ---
65
estimates that 50 to 90 percent of the value created by a firm comes from the
management of intellectual capital and not from management of traditional
--- Content provided by FirstRanker.com ---
physical assets (Hope and Hope 1998).
--- Content provided by FirstRanker.com ---
Proportion of
--- Content provided by FirstRanker.com ---
10
50 to
--- Content provided by FirstRanker.com ---
10Total value
20
--- Content provided by FirstRanker.com ---
10%
20
--- Content provided by FirstRanker.com ---
created
30
--- Content provided by FirstRanker.com ---
30
--- Content provided by FirstRanker.com ---
Management
40
--- Content provided by FirstRanker.com ---
40
--- Content provided by FirstRanker.com ---
O f traditional50
--- Content provided by FirstRanker.com ---
50
Physical
--- Content provided by FirstRanker.com ---
6060
--- Content provided by FirstRanker.com ---
assets
70
--- Content provided by FirstRanker.com ---
70
Intellectual
--- Content provided by FirstRanker.com ---
80
--- Content provided by FirstRanker.com ---
80management
90
--- Content provided by FirstRanker.com ---
50 to
90
--- Content provided by FirstRanker.com ---
100
90%
--- Content provided by FirstRanker.com ---
100
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
Fig: Value created by FirmHuman capital refers to the know-how, capabilities, skills, and expertise of the
--- Content provided by FirstRanker.com ---
human members of the organization. It is that knowledge that each individualhas and which can be put to productive use.
--- Content provided by FirstRanker.com ---
2.3.2 HUMAN CAPITAL AND ITS ELEMENTS
The world is shrinking in all major respects, people, goods, capital and
--- Content provided by FirstRanker.com ---
information are moving around the to be as never before. Companies are tryingto become global players just to survive. Companies like Colgate even proclaim
--- Content provided by FirstRanker.com ---
66"We want to build a common corporate culture. We want them all to be
collators", while trying to bridge the cultural gap between domestic employees
--- Content provided by FirstRanker.com ---
and those in global operations for serving business interests.With the concepts of the liberalization, privatization and globalization being
--- Content provided by FirstRanker.com ---
applied all over the countries in the world, the need has arisen to go in for
quality products and quality service. Each organization has to compete with one
--- Content provided by FirstRanker.com ---
another to improve the quality and device cost reduction measures to exist in theindustry. That could be done only with the development of human capital. If
Japan and other East Asian countries like Korea and Taiwan have recorded rapid
--- Content provided by FirstRanker.com ---
economic growth, it is because of their investment in human capital, which
cannot be easily measured and which differs from one to another. Basically,
--- Content provided by FirstRanker.com ---
when we talk of human capital it refers to the human knowledge, their innercapabilities and creativity qualities. These are to be tapped from the employees.
With all the development of technology it cannot be fully utilized to its full
--- Content provided by FirstRanker.com ---
potential without knowledge and skill. The capabilities of the human capital in
relation to the needs of the organization should be improved with the creation of
--- Content provided by FirstRanker.com ---
a climate in which the flower of human knowledge, skill, capabilities andcreativity can bloom. How do we develop our human capital and put it to
optimum use is the challenge that the present day corporate sector faces.
--- Content provided by FirstRanker.com ---
Technological improvements, business strategies, quality concerns etc., will all
have to be implemented through people (human capital only). So it is people
--- Content provided by FirstRanker.com ---
who make all the difference. People and their development are quite central tomeeting the needs of globalization and liberalization. The human capital
available in the organization should be rightly assessed and should be further
--- Content provided by FirstRanker.com ---
developed through motivation training and perception to the needs of the
organization. Only then, the organizational goals can be achieved and more so, it
--- Content provided by FirstRanker.com ---
can continue to be market contribution in the field of competition. With the67
--- Content provided by FirstRanker.com ---
arrival of micro-electronic technology, work processes have changed. Thecomputer technology offers greater precision but demands different skills. The
owners (personnel) of these new skills are both technically educated and trained
--- Content provided by FirstRanker.com ---
on the job.
--- Content provided by FirstRanker.com ---
It is the human capital, which should be rightly invented for the qualitativeimprovement of human beings who are considered the most valuable asset of an
organization. Human capital refers to the basic skill, capabilities, the perception
--- Content provided by FirstRanker.com ---
know-ho and expertise. Every individual has certain skills and understanding.
The education one has undergone should help him to develop knowledge in
--- Content provided by FirstRanker.com ---
general. Till one gets basic employment he is no keen on planning his future andthere is uncertainty. This is normal most of the cases except one, who makes his
planning as to what he should be even when he takes his education.
--- Content provided by FirstRanker.com ---
As one is placed in an organization in some position, he starts to look for
elevation. The organization too would tap his basic skill and capabilities and
--- Content provided by FirstRanker.com ---
divert them to achieve the goals of the organization and in the process itattempts to develop his basic skill through proper training, motivation and
direction. The human capital is rightly put through for the personnel in the
--- Content provided by FirstRanker.com ---
organization for effective functioning, right decision making and career
development. In all these it creates value to the organization and makes it more
--- Content provided by FirstRanker.com ---
stable in the competitive environment.The basic elements of human capital are projected as under:
--- Content provided by FirstRanker.com ---
Know-how
Education
Vocational qualification
Work related knowledge
--- Content provided by FirstRanker.com ---
Occupational assessments68
--- Content provided by FirstRanker.com ---
Psychometric assessmentsWork related competencies
Entrepreneurial innovativeness, proactive and reactive abilities.
Changeability.
--- Content provided by FirstRanker.com ---
(Source: SMAC, 1998)1. Know-how : This is one of the major elements as it relates to the process
--- Content provided by FirstRanker.com ---
of the means to get the end results. It answers the question what is what
and how to do it and the functions involved in general.
--- Content provided by FirstRanker.com ---
2. Education : This is a basic factor which makes one to understand thevarious aspects of the job or work allotted. This is also a motivating facts
for career advancement.
--- Content provided by FirstRanker.com ---
3. Vocational qualification : This element refers to the practical
knowledge a person gets through vocational education and training
--- Content provided by FirstRanker.com ---
certain sphere of activity.4. Work-related knowledge : It is ones knowledge in the particular field
of work which he has gained through such work being allotted to him.
--- Content provided by FirstRanker.com ---
His earlier work experience in that particular job or work will be of
additional value.
--- Content provided by FirstRanker.com ---
5. Occupational assessment: A good analysis of the job will motivate oneto study the nature of work or occupation. This will enable one to plan is
future career depending upon the value of assessment.
--- Content provided by FirstRanker.com ---
6. Psychometric approach : This approach tries to measure the ability,
i.e., intelligence in terms of quantity or how much intelligence a person
--- Content provided by FirstRanker.com ---
has. In other words, this approach tries to determine and measurequalitatively the factos that make up intelligence.
To day Psychometric testing is used to discover usually able youngsters,
--- Content provided by FirstRanker.com ---
who may benefit from enriched or alerted learning.
--- Content provided by FirstRanker.com ---
69Each persons score is compared with standardized norms, standards
obtained from the scores of a large, representative sample of children of
--- Content provided by FirstRanker.com ---
the same age who took the test while it was in the process of preparation.Besides providing standardized norms, test developers must devise
techniques to try to ensure that the tests are valid (that they measure the
--- Content provided by FirstRanker.com ---
abilities may claim to measure) and reliable that the results are reasonably
consistent from are time to another. These are rigorous criteria, but tests can
--- Content provided by FirstRanker.com ---
be meaningful and useful only if they are both valid and reliable.7. Work related competencies : This relates to the knowledge one
processes with regard to the work he is allotted or involved in. This
--- Content provided by FirstRanker.com ---
includes the nature of the job, his or her practical knowledge and
experience in that line of activity, the training one has undergone in that
--- Content provided by FirstRanker.com ---
line or work, is aptitude towards the work etc.8. Entrepreneurial innovativeness, proactive and reactive abilities : It is
the entrepreneurial skill and force with which one involves himself in his
--- Content provided by FirstRanker.com ---
work. The aptitude in the particular sphere of activity should motivate
him for innovative approach. That should make one to act so when there
--- Content provided by FirstRanker.com ---
is some adverse result. Innovativeness is based on the constant bent ofmind on research in the work field.
9. Changeability : The competitiveness among the enterprises drive them
--- Content provided by FirstRanker.com ---
making various changes in the organization. As the organizations look or
changes, the employees would be driven for challenging tasks with many
--- Content provided by FirstRanker.com ---
changes being made in the organizational structure. It may even salt inpositional change. One should be capable of adjusting himself to the
changing organizational setup and changing situations.
--- Content provided by FirstRanker.com ---
These are all the elements of human capital. To tap these qualities highly
and develop them would be the task of Human resource development.
--- Content provided by FirstRanker.com ---
70
--- Content provided by FirstRanker.com ---
2.3.3 Measures to Evaluate Human Capital:In an enterprise the following indicators are being applied as measures
evaluate the human capital:
--- Content provided by FirstRanker.com ---
i)
Reputation of company employees with head hunters.
--- Content provided by FirstRanker.com ---
ii)Years of experience in profession.
iii)
--- Content provided by FirstRanker.com ---
Rookie ratio (percentage of employees with less than 2 years
experience)
--- Content provided by FirstRanker.com ---
iv)Employee satisfaction.
v)
--- Content provided by FirstRanker.com ---
Employee participation.
vi)
--- Content provided by FirstRanker.com ---
Proportion of employees making new innovative plans andsuggestions.
vii)
--- Content provided by FirstRanker.com ---
Value added per employee.
viii) Value added per salary rupee.
--- Content provided by FirstRanker.com ---
The accounting and reporting of intellectual capital will face the followingproblems.
i)
--- Content provided by FirstRanker.com ---
The need for better tools to manage investment in people, skills
and technological capabilities.
--- Content provided by FirstRanker.com ---
ii)The need to be able to measure, over the long run, the returns of
investment in peoples skills, information bases and the
--- Content provided by FirstRanker.com ---
organizational technological capabilities.
--- Content provided by FirstRanker.com ---
2.3.4 HUMAN CAPITAL INVESTMENTThe Human Capital acts as a building block for the organizational (structural)
--- Content provided by FirstRanker.com ---
capital of the firm. So, when the enterprise looks for making the Human Capital
more effective and beneficial, it has to focus on the effectiveness of investing in
--- Content provided by FirstRanker.com ---
training, research and development outcome and returns to technologicalinfrastructure spending.
--- Content provided by FirstRanker.com ---
71
The investment in human capital should be properly planned keeping in mind
--- Content provided by FirstRanker.com ---
the future expansion and development programmes as the organizational goal.
Already it is seen that the organization required personnel who have to be
--- Content provided by FirstRanker.com ---
rightly used for achieving its long project objectives. So, these personnel needproper motivation and encouragement through job analysis, training and
research development. Lines of activities are to be thought about for making the
--- Content provided by FirstRanker.com ---
employee to be more innovative. They must conduct themselves so to be a
suggestive body to the organization.
--- Content provided by FirstRanker.com ---
To have effective human capital investment, any organization should plan
broadly on five major areas as follows:
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
Acquisitio
--- Content provided by FirstRanker.com ---
n--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
Research
--- Content provided by FirstRanker.com ---
Developm
--- Content provided by FirstRanker.com ---
ent
Effective human
--- Content provided by FirstRanker.com ---
capital
--- Content provided by FirstRanker.com ---
investments
areas
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
Motivation
--- Content provided by FirstRanker.com ---
Mainten
--- Content provided by FirstRanker.com ---
ance1.
Acquisition
--- Content provided by FirstRanker.com ---
72
Acquisition involves.
--- Content provided by FirstRanker.com ---
a)
Human Resource Planning
--- Content provided by FirstRanker.com ---
b)Recruiting: Internal and External
c)
--- Content provided by FirstRanker.com ---
Employees Socialization
--- Content provided by FirstRanker.com ---
In HR planning, the management has to ensure that it has the rightnumber and kind of people at the right places, at the right times, capable
of effectively (doing the right thing) and efficiently (doing things rightly)
--- Content provided by FirstRanker.com ---
completing the work needed for the enterprise to achieve its overall
objectives. This necessitates job analysis. If the HR planning finds the
--- Content provided by FirstRanker.com ---
need or specific or additional employees based on job analysis, to hirethese additional employees, the enterprise must discover potential
applicants. Out of these potential applicants, screening is to be done to
--- Content provided by FirstRanker.com ---
identify job applicants who will be successful if selected.
--- Content provided by FirstRanker.com ---
This acquisition function is over when the selected applicants have beenappointed in the organization, who have to adapt themselves to the
organizational culture and their work environment. The organizational
--- Content provided by FirstRanker.com ---
culture conveys the new employees how things are done and what really
matters for the workforce and for the organization. When they adopt the
--- Content provided by FirstRanker.com ---
organizational culture, they learn the rope, i.e., what is most significantfor them and for the enterprise and how one gets adapted to the new
environment. This is what is referred to as "employee socialization. The
--- Content provided by FirstRanker.com ---
term socialization refers to all passages undergone by employees. When
an employee enters fresh or takes up a new job, or gets a promotion or
--- Content provided by FirstRanker.com ---
accepts a lateral transfer, he has to make an adjustment with the newenvironment. This is due to different work activities, new boss, a
different group of co-workers and different set of standards for better
--- Content provided by FirstRanker.com ---
73
performance. The most profound adjustment will occur when one makes
--- Content provided by FirstRanker.com ---
the move into an organization ? the move from being an outsider to
being an insider.
--- Content provided by FirstRanker.com ---
The first process in the employee socialization will be "orientation" on
the job. This is only a small part of the overall socialization of a new
--- Content provided by FirstRanker.com ---
employee in the organization Basically "orientation" covers the activities
involved in introducing a new employee to the organization and to his
--- Content provided by FirstRanker.com ---
work units. The orientation programme should familiarizes the newemployee with the organizations objectives, history, procedures, and
rules. Further it communicates relevant personnel policies such as focus
--- Content provided by FirstRanker.com ---
of work, pay procedures, active requirement and fringe benefits, reviews
the specific duties and responsibilities of the new employees job etc.
--- Content provided by FirstRanker.com ---
2.
Development
--- Content provided by FirstRanker.com ---
This includes,
a)
--- Content provided by FirstRanker.com ---
Employee trainingb)
Management development
--- Content provided by FirstRanker.com ---
c)
Career Development
--- Content provided by FirstRanker.com ---
a)
Employee Training : As jobs have become more complex, the
--- Content provided by FirstRanker.com ---
significance of employee training has increased. The modern complex
societies have created increased pressure for the organizations to readapt
--- Content provided by FirstRanker.com ---
the produce and services produced as a competitive product. This hasnecessitated raise the skill level and adaptability of the employees.
--- Content provided by FirstRanker.com ---
Training is a learning experience, which seeks a permanent change in an
individual to improve his ability to perform on the job. It can involve the
--- Content provided by FirstRanker.com ---
74
changing of skills, knowledge attitudes or social behavior. The training
--- Content provided by FirstRanker.com ---
techniques can help to improve employees job performance, gainconfidence in their attitude towards their job and their interactions with co-
workers and supervisors.
--- Content provided by FirstRanker.com ---
b)
--- Content provided by FirstRanker.com ---
Management Development: This is more future oriented and moreconcerned with education than assisting a person to become a better
performers with training. The management development activities should
--- Content provided by FirstRanker.com ---
attempt to instill sound reasoning process ? to enhance ones ability to
understand and interpret knowledge. Development focuses more on the
--- Content provided by FirstRanker.com ---
employees personal growth. A successful manager is one who hasanalytical, human, conceptual and specialized sill. The management
normally adopts four popular on-the-job techniques. They are coaching
--- Content provided by FirstRanker.com ---
understanding assignments, job rotation and committee assignment.
--- Content provided by FirstRanker.com ---
Coaching: When one manager takes an active role in guiding another person tosimilar position, that is referred to as "coaching. An effective coach gives
guidance through directions, advice, criticism and suggestions in an attempt to
--- Content provided by FirstRanker.com ---
aid the growth of an employee.
--- Content provided by FirstRanker.com ---
Understudy Assignments: As a development technique, the understudyassignment is to replace vacationing managers. The potential managers are
given opportunity to relieve an experienced manager of his job and act as his
--- Content provided by FirstRanker.com ---
substitute during that period. As a staff assistant to a manager, the understudy
gets the opportunity to learn the managers job.
--- Content provided by FirstRanker.com ---
75
--- Content provided by FirstRanker.com ---
Job Rotation: It refers to placing the employee in different new positions. Itcould be either vertical or horizontal. Vertical rotation is promoting the worker
to new positions. The horizontal job rotation is more significant at the
--- Content provided by FirstRanker.com ---
development level. It could be termed as lateral transfer. It is a very good
method for broadening the managers new positions. It reduces boredom and
--- Content provided by FirstRanker.com ---
stimulates one to develop new ideas. The horizontal job transfer can be (a) on aplanned basis, i.e., by means of a development program where one spends two
to three months in the same activity and then moves to the next (b) on a situation
--- Content provided by FirstRanker.com ---
basis, e.g., by changing the person from one activity to another when the
previous one is no longer challenging or to meet the needs of work scheduling.
--- Content provided by FirstRanker.com ---
It permits a greater understanding of other activities within the organization, itbecomes increasingly necessary to understand the intricacies and inter
relationships of activities and these abilities can be more quickly acquired by
--- Content provided by FirstRanker.com ---
moving about within the organization.
--- Content provided by FirstRanker.com ---
Committee Assignment: Assignment in a committee can give a betteropportunity to the employee to share in the managerial decision making to learn
by watching others and to analyze and investigate specific organizational
--- Content provided by FirstRanker.com ---
problems. Committees often take up task force activities designed to go into a
particular problem, ascertain alternative solution and make recommendations for
--- Content provided by FirstRanker.com ---
implementing a solution. This sort of assignment can both be interesting andrewarding to the employees growth. It increases the employees exposure to
other members of the organization as well. Off-the-job development techniques
--- Content provided by FirstRanker.com ---
are also equally important while ones efficiency in higher level of organization
in to be achieved. Among the different techniques which are adopted in the
--- Content provided by FirstRanker.com ---
enterprise more commonly used ones are : Sensitivity Training, Transactional76
--- Content provided by FirstRanker.com ---
Analysis, Lecture Course and Simulation Exercises (for e.g. case study, decisiongame, and role plays).
--- Content provided by FirstRanker.com ---
Career Development: A "career" is a sequence of positions occupied be a
person during the course of a life time. Effective organizational career
--- Content provided by FirstRanker.com ---
development ensures the needed talent being available and improves theorganizational ability to attract and retain high talent personnel. It also reduces
employee frustrations. Individual career development is a three step self-
--- Content provided by FirstRanker.com ---
assessed process:
a)
--- Content provided by FirstRanker.com ---
Identifying and organizing skill, interest, work-related need andvalues.
b)
--- Content provided by FirstRanker.com ---
Converting these inventories into general career fields and specific
job goals.
--- Content provided by FirstRanker.com ---
c)Testing these possibilities against the realities of the organization.
--- Content provided by FirstRanker.com ---
3.
Motivation
--- Content provided by FirstRanker.com ---
"Motivation" is the willingness to do something and is conditional by thisactions ability to satisfy some need for the individual. A need is one which is
looking for certain outcomes appearing very attractive. An unsatisfied need
--- Content provided by FirstRanker.com ---
creates tension which stimulates drives within the individual. These drives
generate a search behaviour to find particular goals that, if attained, satisfy the
--- Content provided by FirstRanker.com ---
need and lead to the reduction of tension. A need is the deficit state. It is aninternal state that makes certain outcomes appears attractive. An unsatisfied
need creates tension that stimulates drives within the individual. These drives
--- Content provided by FirstRanker.com ---
generate a search behavior to find particular goals that, if attained, will satisfy
that need and lead to the reduction of tension. It can therefore, be said that
--- Content provided by FirstRanker.com ---
motivated people are in the sate of tension. To relieve this tension, they exert77
--- Content provided by FirstRanker.com ---
effort. The greater the tension, the higher is the effort level. If this effortsuccessfully leads to the satisfaction of the need, tension is reduced.
--- Content provided by FirstRanker.com ---
The Organization has to develop right type of motivational techniques to help
the workers achieve their need satisfaction and reduction of tension. If a person
--- Content provided by FirstRanker.com ---
is to perform effectively, extrinsic factors such as job design, workingconditions, job security and supervision must be seen as satisfactory. But more
intrinsic factors such as achievement, recognition and responsibility from their
--- Content provided by FirstRanker.com ---
work are also the motivating factors. People expect their work to be objectively
evaluated. So, the performance appraisal and its results will affect employees
--- Content provided by FirstRanker.com ---
motivation. If they think that their efforts will be unfairly judged, motivationwill decrease. The rewards or punishments that follow the performance appraisal
will influence motivation.
--- Content provided by FirstRanker.com ---
4.
--- Content provided by FirstRanker.com ---
MaintenanceThe objective of this is to retain people who are performing at high levels. This
--- Content provided by FirstRanker.com ---
requires that the organization provides safe and healthy working conditions and
satisfactory labor relations. This involves compensation administration.
--- Content provided by FirstRanker.com ---
Employees exchange work for rewards and the main reward is certainly money,
but how much? This is to be rightly decided. The goals of compensation
--- Content provided by FirstRanker.com ---
administration are to design the lowest-cost pay structure that will attract,
motivate and retain competent employees who will perceive the reward as fair.
--- Content provided by FirstRanker.com ---
As the organization wants to pay fair wages the employees want faircompensation for the job being done. So, the organization is concerned with
--- Content provided by FirstRanker.com ---
78
determining a fair compensation plan. It also recognizes that while paying the
employees, compensation systems are predominantly designed around the jobs.
--- Content provided by FirstRanker.com ---
The responsibilities and the demands of the job determine the pay range. The
actual performance of incumbents determines the pay range and where they are
--- Content provided by FirstRanker.com ---
to be placed. The essence of compensation administration is job evaluation andestablishment of a good pay structure.
--- Content provided by FirstRanker.com ---
Job Evaluation : Job evaluation seeks to use the information in job analysis to
orderly determine the value of each job in relation to all jobs within the
--- Content provided by FirstRanker.com ---
organization. It means to rank all the jobs in the organization and place them inthe order or position that will reflect the worth of each job. It is mainly ranking
of the jobs and not people. The ranking through the job evaluation is a means to
--- Content provided by FirstRanker.com ---
make a good pay structure. It can also provide an objective standard from which
modifications can be made for any compromise. The four basic approaches to
--- Content provided by FirstRanker.com ---
job evaluation are :i)
The ranking method.
--- Content provided by FirstRanker.com ---
ii)
The classification method.
--- Content provided by FirstRanker.com ---
iii)The factor comparison method.
iv)
--- Content provided by FirstRanker.com ---
The point method.
--- Content provided by FirstRanker.com ---
In addition to a basic wage structure, organizations offer incentivecompensation. These incentives can be designed around the individual, the
group or the organization. Executive compensation is also considered which is
--- Content provided by FirstRanker.com ---
higher than that of rank-and-file personnel and also includes other financial and
non-financial benefits not otherwise available to operative employees.
--- Content provided by FirstRanker.com ---
79
--- Content provided by FirstRanker.com ---
The organizations have to offer other benefits as ,,sweetening the pot Employeesare accustomed to such benefits but the cost of benefit for the enterprise
sometimes cause more problems. These costs include social security insurance,
--- Content provided by FirstRanker.com ---
worker compensation, pay for rest period, sick leave pension programmes, life
insurance, health insurance, expenses as social and recreational events, housing,
--- Content provided by FirstRanker.com ---
educational and medical facilities, etc.Safety and Health : Organizations have to make provisions for the safety and
--- Content provided by FirstRanker.com ---
health of the workers. Based on the Organizational safety and health rules,
preventive measures and to be provided. Basically, employees are to be given
--- Content provided by FirstRanker.com ---
safety education, skill training, engineering, protection and regular enforcement.Work surroundings should be well maintained. Health programmes are to be
adopted. Provision for stress management is to be made. Causes for stress to be
--- Content provided by FirstRanker.com ---
identified and steps to reduce the stress must be implemented. The burnout i.e.,
emotional and physical exhaustion caused due to various factors should be
--- Content provided by FirstRanker.com ---
brought under control by job enrichment, smooth environment and otherprogressive activities.
--- Content provided by FirstRanker.com ---
5.
Research
--- Content provided by FirstRanker.com ---
Since effective management of human resources depends on refining
HRM practices to changing conditions, there is need for conducting research to
--- Content provided by FirstRanker.com ---
keep abreast of the latest findings in HRM and provide a suitable framework by
which the solutions to the problems of HRM can be found. Research helps to
--- Content provided by FirstRanker.com ---
introduce changes with new and relevant HRM practices. Research leads tosystematic goal oriented investigation of facts that seek to establish certain
results and findings. The HRM research could be in any of these are as:
--- Content provided by FirstRanker.com ---
Wage surveys.
--- Content provided by FirstRanker.com ---
80Effectiveness of various recruitment sources.
Job analysis
Performance appraisal validation
Effectiveness of training methods.
--- Content provided by FirstRanker.com ---
Attitude survey towards reward systemJob satisfaction survey
Effectiveness of an assessment center etc.
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
2.4
Expenditure Vs Productivity
--- Content provided by FirstRanker.com ---
2.4.1. Expenditure
--- Content provided by FirstRanker.com ---
Expenditure refers to a planned and purposeful outflow of funds for growth and
development in business over a period of time. Business spends to earn; to grow
--- Content provided by FirstRanker.com ---
and be excellent in the line of operation.Any organization in the competitive world of "Survival of the fittest", incurs
--- Content provided by FirstRanker.com ---
expenditures towards personnel. Better wages, better working conditions, better
facilities better tools and equipments, better training and development etc., are
--- Content provided by FirstRanker.com ---
the areas where expenditures are made with the intention of business gain. It hasto channels these outflows of funds under appropriate heads in appropriate
--- Content provided by FirstRanker.com ---
81
situations-towards wage and salary administration, fringe benefits, enhancing
the quality of work life, management development, change, organizational
--- Content provided by FirstRanker.com ---
development. These are some of the areas of outflow of funds with the
expectation of better and more profitable return, otherwise called attainment of
--- Content provided by FirstRanker.com ---
higher productivity.2.4.2 Productivity :
--- Content provided by FirstRanker.com ---
Historically, the term is believed to be used for the first time by economist
Quinsy in 1776. Towards the end of the 19th century it was understood as "the
--- Content provided by FirstRanker.com ---
faculty to produce". In the modern sense, it indicates the relationship betweenthe results and the means employed. It seeks to measure the economic soundness
of the means. It is the amount of work that is being produced in the organization
--- Content provided by FirstRanker.com ---
in terms of how much. Peter Drucker has referred productivity as, "That balance
between all factors of production that will give greatest output for the smallest
--- Content provided by FirstRanker.com ---
effort".To reduce the description of productivity to precise terms, it is the relationship
--- Content provided by FirstRanker.com ---
between output and input. Symbolically, P=O/I where P= Productivity, O =
Output and I = Input. Productivity can be considered to be higher if the same
--- Content provided by FirstRanker.com ---
product can be obtained by limited means and lower if larger quantity of meansis required for the same product level. Productivity increases as an organization
finds new ways to use fewer resources to produce its output.
--- Content provided by FirstRanker.com ---
Though the overall productivity is being defined as a ratio of output over input,
--- Content provided by FirstRanker.com ---
the measurement of productivity is a difficult proposition as account of non-homogeneous nature of relationship between input and output, difficulty in
quantifying factors like entrepreneurship acuity and lack of identical behavior of
--- Content provided by FirstRanker.com ---
input and output in differing circumstances.
--- Content provided by FirstRanker.com ---
822.5 TRAINING
--- Content provided by FirstRanker.com ---
2.5.1. MeaningTraining is a learning experience in that it seeks a relatively permanent
change in an individual that will improve his or her ability to perform on
--- Content provided by FirstRanker.com ---
the job. Training can involve the changing of skills, knowledge, attitudes or
social behaviour. It may mean changing what employees know, how they
--- Content provided by FirstRanker.com ---
work, their attitudes towards their work or their interactions with their co-workers or their supervisors.
--- Content provided by FirstRanker.com ---
2.5.2 Determining Training Needs and Priorities
For determining the training needs the following four questions, should be
--- Content provided by FirstRanker.com ---
answered:What are the organisation`s goals ?
What tasks must be completed ?
What behaviours are necessary for each job incumbent to complete
--- Content provided by FirstRanker.com ---
his or her assigned task?
What deficiencies do incumbents have in the skills, knowledge, or
--- Content provided by FirstRanker.com ---
attitudes required to perform the necessary behaviours ?These questions demonstrate the close link between human resource
planning and determination of training needs. When a manager sees
--- Content provided by FirstRanker.com ---
evidence of inadequate job performance, assuming the individual is making
a satisfactory effort, attention should be given towards raising the skill level
--- Content provided by FirstRanker.com ---
of the worker. When a manager is confronted with a drop in productivity, itsuggests that skills need to be fine-tuned. If deficiencies in performance are
uncovered it need not necessarily follow that the manager should take
--- Content provided by FirstRanker.com ---
corrective action. It is important to put training into perspective. Training
--- Content provided by FirstRanker.com ---
83is judged by its contribution to performance where performance is a
function of skills, abilities, motivation and the opportunity to perform.
--- Content provided by FirstRanker.com ---
Managers must compare the value received from the increase inperformance that can be attributed to training with the costs incurred in
that training. The desire for improved worker productivity cannot be
--- Content provided by FirstRanker.com ---
approached in a vacuum. The benefits that accrue from training must
exceed the costs incurred.
--- Content provided by FirstRanker.com ---
Once it has been determined that training is necessary training goals are
established. Management should explicitly state what changes or results are
--- Content provided by FirstRanker.com ---
sought for each employee. It is not adequate to say that there is a need to
improve the behaviour, knowledge and skills of the employee but also by
--- Content provided by FirstRanker.com ---
how much. The goals should be tangible, verifiable and measurable andclear to both management and employee.
--- Content provided by FirstRanker.com ---
Data about individual training needs can be gathered from performance
appraisals. Interviews with the jobholder, tests, surveys, and career plans
--- Content provided by FirstRanker.com ---
for individuals. Let us look more loosely at the steps in the managerdevelopment process, focusing first on the present job, then on the next job
in the career ladder, and finally on the long-term future needs of the
--- Content provided by FirstRanker.com ---
organization.
--- Content provided by FirstRanker.com ---
Present Job
Next Job
--- Content provided by FirstRanker.com ---
The Future
--- Content provided by FirstRanker.com ---
Actual
Required
--- Content provided by FirstRanker.com ---
Present
Required
--- Content provided by FirstRanker.com ---
per formancePerformance
Competency
--- Content provided by FirstRanker.com ---
Competency
New competency
--- Content provided by FirstRanker.com ---
Required by changes
Technology and methods
--- Content provided by FirstRanker.com ---
The gap: needs
--- Content provided by FirstRanker.com ---
The gap: needsIdentified by
Identified by
--- Content provided by FirstRanker.com ---
performance
Pot 84
--- Content provided by FirstRanker.com ---
entia l reviewreview
Additional needs
--- Content provided by FirstRanker.com ---
Identified by top
Individual training
--- Content provided by FirstRanker.com ---
managementneeds
Enterprise
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
Manager Development Process and Training
--- Content provided by FirstRanker.com ---
Adapted from John W. Humble, Improving Business Results (Maidenhead,
England: MC Graw-Hill Book Company (UK) Ltd., 1968
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
2.5.3 TRAINING METHODS
The most popular training methods used by organizations can be classified
--- Content provided by FirstRanker.com ---
as either on-the-job training or off-the-job training.On-the-job training: On-the-job training places the employees in an actual
--- Content provided by FirstRanker.com ---
work situation and makes them appear to be immediately productive. It is
learning by doing. For jobs that are either difficult to simulate or can be
--- Content provided by FirstRanker.com ---
learned quickly by watching and doing, on-the-job training makes sense.--- Content provided by FirstRanker.com ---
85
One of the drawbacks to the on-the-job training can be low productivity
while the employees develop their skills, Another drawback can be the
--- Content provided by FirstRanker.com ---
errors made by the trainees while they learn. However, when the damage
the trainees can do is minimal, where training facilities and personnel are
--- Content provided by FirstRanker.com ---
limited or costly, and where it is desirable for the workers to learn the jobunder normal working conditions, the benefits of on-the-job training
frequently offset its drawbacks. Some of the on-the-job training programs
--- Content provided by FirstRanker.com ---
are
--- Content provided by FirstRanker.com ---
Apprenticeship Programs : People seeking to enter skilled trades to become,for example, plumbers, electricians or iron-workers are often required to
undergo apprenticeship training before they are accepted to journeyman
--- Content provided by FirstRanker.com ---
status. Typically, this apprenticeship period is from two to five years.
During the apprenticeship period, the trainee is paid less than a fully
--- Content provided by FirstRanker.com ---
qualified worker. Apprenticeship programs put the trainee under theguidance of a master worker. The argument of apprenticeship program is
that the required job knowledge and skills are so complex as to rule out
--- Content provided by FirstRanker.com ---
anything less than a long time period where the trainee studies under a
skilled master journeyman.
--- Content provided by FirstRanker.com ---
Job Instruction Training : During World War II, a systematic approach to
on-the-job training was developed to prepare supervisors to train
--- Content provided by FirstRanker.com ---
operatives. This approach called job instruction training (JIT) was part of
the training within Industry program. JIT proved highly effective and
--- Content provided by FirstRanker.com ---
became extremely popular. JIT consists of four basic steps:Preparing the trainees by telling them about the job and overcoming
--- Content provided by FirstRanker.com ---
their uncertainties:
--- Content provided by FirstRanker.com ---
86Presenting the instruction, giving essential information in a clear
--- Content provided by FirstRanker.com ---
manner.Having the trainees try out the job to demonstrate their
--- Content provided by FirstRanker.com ---
understanding;
--- Content provided by FirstRanker.com ---
Placing the workers into the job, on their own, with a designatedresource person to call upon should they need assistance.
--- Content provided by FirstRanker.com ---
Basics of Instruction
Essentials of
--- Content provided by FirstRanker.com ---
LearningPrepare
--- Content provided by FirstRanker.com ---
Motivation
--- Content provided by FirstRanker.com ---
Break down the jobPrepare an instruction plan
--- Content provided by FirstRanker.com ---
Put the learner at ease
--- Content provided by FirstRanker.com ---
PresentUnderstandin
--- Content provided by FirstRanker.com ---
g
--- Content provided by FirstRanker.com ---
TellShow
--- Content provided by FirstRanker.com ---
Demonstrate
--- Content provided by FirstRanker.com ---
Explain
Try Out
--- Content provided by FirstRanker.com ---
Participation
--- Content provided by FirstRanker.com ---
Have the learner talk through the jobHave the learner instruct the supervisor on how the job is done
--- Content provided by FirstRanker.com ---
Let the learner do the job
--- Content provided by FirstRanker.com ---
Follow-upApplication
--- Content provided by FirstRanker.com ---
Check progress frequently at first
--- Content provided by FirstRanker.com ---
Tell the learner whom to go to for help87
--- Content provided by FirstRanker.com ---
Gradually taper off progress checks
--- Content provided by FirstRanker.com ---
Table 3.1: JIT Instruction / Learning Sequence
--- Content provided by FirstRanker.com ---
Off-the-job training : Off-the-job training covers a number of techniquesclassroom lectures, films, demonstrations, case studies and other simulation
exercises and programmed instructions. The facilities needed for each of
--- Content provided by FirstRanker.com ---
these techniques vary from a small makeshift classroom to an elaborate
development center with large lecture halls, supplemented by small
--- Content provided by FirstRanker.com ---
conference rooms with sophisticated audio-visual equipment, two-waymirrors and all the frills. Some frequently used methods are:
--- Content provided by FirstRanker.com ---
Classroom lectures or conference : The lecture or conference approach is well
adapted to conveying specific information rules, procedures, or methods.
--- Content provided by FirstRanker.com ---
The use of audiovisuals or demonstrations can often make a formalclassroom presentation more interesting while increasing retention and
offering a vehicle for clarifying more difficult points. The lecture`s
--- Content provided by FirstRanker.com ---
liabilities include possible lack of feedback and the lack of active
involvement by the trainees. However, this can be partially offset by
--- Content provided by FirstRanker.com ---
reducing the structured lecture format and allowing trainees to providefeedback to the lecturer or creating discussion groups under the direction
of a conference leader.
--- Content provided by FirstRanker.com ---
Films : Motion pictures can be useful training technique. Whether
--- Content provided by FirstRanker.com ---
purchased from standard film distributors or produced internally by theorganization, they can provide information and explicitly demonstrate skills
that are not easily presented by other techniques. Motion pictures are often
--- Content provided by FirstRanker.com ---
88
used in conjunction with conference discussions to clarify and amplify those
--- Content provided by FirstRanker.com ---
points that the films emphasized.
--- Content provided by FirstRanker.com ---
Simulation exercises : Any training activity that explicitly places the traineein an artificial environment hat closely mirrors actual working conditions
can be considered a simulation. Simulation activities include case exercises,
--- Content provided by FirstRanker.com ---
experiential exercises, complex computer modeling and vestibule training.
Cases present an in-depth description of a particular problem an employee
--- Content provided by FirstRanker.com ---
might encounter on the job. The employee attempts to find and analyze theproblem, evaluate alternative courses of action, and decide what course of
action should be most satisfactory.
--- Content provided by FirstRanker.com ---
Experiential exercises : Experiential exercises are usually short, structured
--- Content provided by FirstRanker.com ---
learning experiences where individuals learn by doing. For instance, ratherthan talk about interpersonal conflicts and how to deal with them, an
experiential exercise could be used to create a conflict situation where
--- Content provided by FirstRanker.com ---
employees have to experience a conflict personally and work out its
solution. After completing the exercise, the facilitator or trainer typically
--- Content provided by FirstRanker.com ---
discusses what happened and introduces theoretical concepts to helpexplain the members` behaviour during the exercise.
--- Content provided by FirstRanker.com ---
Computer modeling: Complex computer modeling simulates the work
environment by programming a computer to imitate some of the realities of
--- Content provided by FirstRanker.com ---
the work situation. Computer modeling is widely used by airlines in thetraining of pilots. The computer simulates the number of critical job
dimensions and allows learning to take place without the risk or high costs
--- Content provided by FirstRanker.com ---
that would be incurred if a mistake were made in a real life-flying situation.
An error during a simulation offers an opportunity to learn through one`s
--- Content provided by FirstRanker.com ---
89
mistakes. A similar error under real-life conditions might cost a number of
--- Content provided by FirstRanker.com ---
lives and the loss of multimillion dollar aircraft-quite a high price for alearning exercise. Obviously, complex computer modeling is expensive and
can be justified only where programs are formal, a number of trainees will
--- Content provided by FirstRanker.com ---
be developed, and the costs of allowing the individual to learn on the job are
prohibitive.
--- Content provided by FirstRanker.com ---
Vestibule training: In vestibule training, employees learn their jobs on the
equipment they will be using, but the learning is conducted away from the
--- Content provided by FirstRanker.com ---
actual work floor. In the 1990s many large retail chains train cashiers on
their new computer cash registers, which are much more complex because
--- Content provided by FirstRanker.com ---
they control inventory and perfom other functions in addition to ringing uporders-in specially created vestibule labs that simulated the actual check-
out counter environment. While expensive, vestibule training allows
--- Content provided by FirstRanker.com ---
employees to get a full feel for doing tasks without real world pressures.
Additionally, vestibule training uses the same equipment the trainee will
--- Content provided by FirstRanker.com ---
use on the job.Programmed instruction : The programmed instruction technique can be in
--- Content provided by FirstRanker.com ---
the form of programmed texts or manuals, while in some organizations
teaching machines are utilized. All programmed instruction approaches
--- Content provided by FirstRanker.com ---
have a common characteristic. They condense the material to be learnedinto highly organized, logical sequence, which require the trainee to
respond. The ideal format provides for nearly instantaneous feedback that
--- Content provided by FirstRanker.com ---
informs the trainee if his or her response is correct.
--- Content provided by FirstRanker.com ---
Training evaluation : Training does not always work and when it does it israrely 100 percent effective. Sometimes the skills required to do the job is
--- Content provided by FirstRanker.com ---
90
impossible for the target population. Sometimes the organization will not
permit performance of the job as specified, and at other times there are
--- Content provided by FirstRanker.com ---
design deficiencies inherent in the equipment, that are so severe that no
reasonable amount of training and learning can make the equipment
--- Content provided by FirstRanker.com ---
useable or maintainable. These are all the factors that are to be consideredwhile evaluating a training programme. We need to evaluate the training
effectiveness in meeting its objective and the validity of those objectives.
--- Content provided by FirstRanker.com ---
While the number of possible evaluation criteria could be very large, it is
necessary to narrow the list to those that are most needed and meaningful.
--- Content provided by FirstRanker.com ---
The measures considered most meaningful and essential are those relatingto training acceptance, appropriateness to trainee population, objectives
assessment and job relevance.
--- Content provided by FirstRanker.com ---
Evaluation design : As in any other experiment the design is completed
--- Content provided by FirstRanker.com ---
before the evaluation is done. A common approach is to establish what skillor knowledge level is held by the trainee prior to training. For this a pre-
training test could be conducted. If the trainees have been selected after
--- Content provided by FirstRanker.com ---
proper identification of training needs none of them should be able to pass
this test. A test administered after the training will provide the data
--- Content provided by FirstRanker.com ---
necessary to determine if the objectives were met. If the data reveals thatnone of the trainees could pass the pre-training test and all the them could
pass after training test, then we can state unequivocally that the training
--- Content provided by FirstRanker.com ---
was effective in upgrading the knowledge and skills of the trainees.
Evaluation should be done at different points of time, at the end of a lesson
--- Content provided by FirstRanker.com ---
or module, at the end of the course, shortly after beginning to use the skillsand knowledge on the job, three to six months after completing training
and one to three years after training.
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
91Training the trainers : When an instructor is required for a training
program, the person should have a comprehensive understanding of the
--- Content provided by FirstRanker.com ---
training material, the subject matter and the techniques necessary for theeffective presentation of the material. The roles of instructors can vary
widely depending upon the training developer`s design for the instructor.
--- Content provided by FirstRanker.com ---
Typical roles for the instructor are traditional lecturer, administrator,
facilitator, expert and feedback provider. An instructor may assume all the
--- Content provided by FirstRanker.com ---
roles in a single program or session or may rely solely on one for a trainingprogram. Trainer training, therefore, must include the entire array of
activities from classroom demeanor to discipline. Formal trainer training
--- Content provided by FirstRanker.com ---
generally takes a three fold course: training principles and practices;
techniques of classroom behaviour and observations and practice in the
--- Content provided by FirstRanker.com ---
classroom. Trainer must also know the methods to be used for taking thefeedback. In a simple stimulus-response situation, such as in the target
example where shooter must know where he hit in previous round to
--- Content provided by FirstRanker.com ---
improve, the feedback is simple, in a more complex situation, where the
correct answers vary or may not be so apparent, feedback deals more with
--- Content provided by FirstRanker.com ---
the process than with the substance of the decision. Trainers need to learnhow to draw out the learner so that the process becomes clear to the
trainers. The trainer must suppress value judgment in giving feedback.
--- Content provided by FirstRanker.com ---
Feedback must be objective, unless the task is to please another person.
--- Content provided by FirstRanker.com ---
2.5.4 Estimating costs in training:Costs associated with the development and delivery of training programmes
are labour, materials and overheads. Media and materials costs may vary
--- Content provided by FirstRanker.com ---
substantially from one program to another. Some programs require most
extensive data collection and analysis than others, while still others accrue
--- Content provided by FirstRanker.com ---
large publishing costs. Cost questions always arise while considering92
--- Content provided by FirstRanker.com ---
training program development. The sponsor needs to be able to meetbudget resources to ensure successful completion of the program.
Therefore, the training developer needs to provide a reasonably accurate
--- Content provided by FirstRanker.com ---
estimate of the costs associated with each phase of the development process
and for the total costs to the point where the program has been tested and is
--- Content provided by FirstRanker.com ---
ready for learners.2.6 HUMAN CAPITAL AND PRODUCTIVITY:
--- Content provided by FirstRanker.com ---
Productivity measured in terms of output per man (or per man-hour) is broadly
determined by two principal factors: (i) technological development, and (ii)
--- Content provided by FirstRanker.com ---
employees job performance. Of these employees job performance dependsprimarily on (a) the ability of the individual employees (may be called the
ability to work), (b) the motivation of employees (may be called the willingness
--- Content provided by FirstRanker.com ---
of the worker to work) and (c) physical conditions of work. The following chart
* spelling out these factors will help us in understanding the whole set of forces
--- Content provided by FirstRanker.com ---
that have a bearing on productivity.--- Content provided by FirstRanker.com ---
Productivity
--- Content provided by FirstRanker.com ---
TechnologicalEmployees Job
Development
--- Content provided by FirstRanker.com ---
Performance
--- Content provided by FirstRanker.com ---
(a) Plant ? size, capacity
etc.
--- Content provided by FirstRanker.com ---
Ability
Motivation
--- Content provided by FirstRanker.com ---
Physical conditions of work(b) Raw materials
(c) Job la y ? out
(d) Machine and
--- Content provided by FirstRanker.com ---
equip ment design
(a) Skill (Aptitude
--- Content provided by FirstRanker.com ---
(a) Formal Organization(a) Lighting
(e) Power utilization
--- Content provided by FirstRanker.com ---
Personality
(Structure, Policies,
--- Content provided by FirstRanker.com ---
(b) Temperature(f) Scient ific Management
(b) Knowledge
--- Content provided by FirstRanker.com ---
Efficiency,
(c) Ventilation
--- Content provided by FirstRanker.com ---
Techniques(Education,
communication, etc.)
--- Content provided by FirstRanker.com ---
(d) Rest pauses
(Stan
--- Content provided by FirstRanker.com ---
Experience. Training.(b) Informal Organization
dardization, work
--- Content provided by FirstRanker.com ---
(e) Safety, etc.
study. Etc.)
--- Content provided by FirstRanker.com ---
Innovation Etc.(Size, Goals, etc.)
(c) Leadership (Skill,
--- Content provided by FirstRanker.com ---
knowledge, Type, etc.)
--- Content provided by FirstRanker.com ---
93 (d) Need Satisfaction(Physiologist, Social
and Psychological).
--- Content provided by FirstRanker.com ---
(e) Union.--- Content provided by FirstRanker.com ---
*Adapted from Report A. Sutermeister : People and Productivity.
--- Content provided by FirstRanker.com ---
1.
--- Content provided by FirstRanker.com ---
Technological Development : Technical factors including thedegree of mechanization, technical know-how, raw materials, layout
and the methods and techniques of work determine the level of
--- Content provided by FirstRanker.com ---
technological development in any industry. Research shows that in
industrial plants technological development is by far the most
--- Content provided by FirstRanker.com ---
important factor influencing productivity. Improvements in methodsof work and equipment are reported to have shown increases in
productivity ranging from 20 to 200 per cent. In marketing firms, on
--- Content provided by FirstRanker.com ---
the other hand, the degree of technology with a more important part
to play.
--- Content provided by FirstRanker.com ---
2.
Employee` Job Performance : It has been emphasized earlier also
--- Content provided by FirstRanker.com ---
that the human factor is a critical factor in the success of an
enterprise or an industry. The human side of an enterprise is its
--- Content provided by FirstRanker.com ---
dynamic part; good machines, improved methods of work, newprocesses, in short, all improvement in technology, calls for
willingness and action on the part of men in industry to serve as
--- Content provided by FirstRanker.com ---
agents of higher productivity. Employees include men at levels of
organization right from the rank-and-file workers up to the top-level
--- Content provided by FirstRanker.com ---
executives. Sometimes an improvement in technology is more thanoffset by changes for the worse on the human side of productivity
which should go up actually goes down.
--- Content provided by FirstRanker.com ---
94
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
a)
Motivation : The willingness of the employee to work for an
--- Content provided by FirstRanker.com ---
organization is related to his productivity in an important way. The urge
to work is a complex phenomenon governed by several factors the
--- Content provided by FirstRanker.com ---
motivation of an employee will depend upon the organization structure(formal as well as informal), leadership, need satisfaction and the
influence of trade unions. Delegation and decentralization of authority,
--- Content provided by FirstRanker.com ---
participative management, organizational efficiency, proper personnel
policies relating to selection, placement, promotion, wage-salary levels,
--- Content provided by FirstRanker.com ---
incentives, merit-rating, job evaluation, training and provision for two-way communication are some of the features of the formal organization
which influence motivation. Likewise, the existence of groups with
--- Content provided by FirstRanker.com ---
higher productivity as their goal is likely to contribute to the
organizational objectives.
--- Content provided by FirstRanker.com ---
Research shows that job performance results from "ability times
motivation". A person may be very capable but if he is not motivated, he
--- Content provided by FirstRanker.com ---
cannot perform well on his job. Likewise, a person may be highly
motivated, but if he lacks the basic ability required for the job, he cannot
--- Content provided by FirstRanker.com ---
do well. This is a point that is generally overlooked in stressing theimportance of motivation in particular.
--- Content provided by FirstRanker.com ---
b)
Physical Conditions of work (Work Environment) : The importance
--- Content provided by FirstRanker.com ---
of a proper work environment and physical conditions on the job hasbeen emphasized at length by industrial psychologists and human
engineers. It is important that the work environment ensures the greatest
--- Content provided by FirstRanker.com ---
95
ease at work through better ventilation, better lighting, improved safety
--- Content provided by FirstRanker.com ---
devices, reduction in noise, etc. equally important is the need for making
the workday reasonable in length, and for introducing suitable rest
--- Content provided by FirstRanker.com ---
pauses to enable the men to recoup their energy lost in continuous work.The Hawthorne experiments showed that physical conditions of work
were not directly and necessarily related to output. What really matters is
--- Content provided by FirstRanker.com ---
the attitude of the employees toward these conditions. At the same time,
certain studies made in England show that when the temperature gets
--- Content provided by FirstRanker.com ---
beyond reasonable limits, this did tend to affect output even when theworkers had high ability and high motivation. In any case, the
management cannot run away from its obligation for providing the most
--- Content provided by FirstRanker.com ---
congenial possible working conditions to the employees. Improvement in
productivity brings the following advantages to the firm and the
--- Content provided by FirstRanker.com ---
community at large :a)
--- Content provided by FirstRanker.com ---
Reduction in the cost of raw materials (through increase in
the productivity of raw materials)
--- Content provided by FirstRanker.com ---
b)Reduction in labour cost per unit of output.
c)
--- Content provided by FirstRanker.com ---
Reduction in overheads and power costs per unit of output.
d)
--- Content provided by FirstRanker.com ---
Reduction in the price of goods.e)
Increase in wages and salaries (through schemes for sharing
--- Content provided by FirstRanker.com ---
the gains of productivity).
f)
--- Content provided by FirstRanker.com ---
Increase in the reserve fund that can be utilized for expansionand modernization.
g)
--- Content provided by FirstRanker.com ---
Better standards of living for people through increase in their
incomes and improvement in the quality of goods that can be
--- Content provided by FirstRanker.com ---
made available at cheaper prices.96
--- Content provided by FirstRanker.com ---
h)Increase in the competitive strength of the country in export
market through reduction in cost of production and
--- Content provided by FirstRanker.com ---
improvement in quality of output.
--- Content provided by FirstRanker.com ---
2.7
HUMAN RESOURCE ACCOUNTING:
--- Content provided by FirstRanker.com ---
Human element is the most valuable input in an organization. A team of
competent, devoted and motivated persons can convert a sick concern into a
--- Content provided by FirstRanker.com ---
successful one. On the other hand, incompetent and disinclined personnel maysquander away the existing physical and financial resources, leading the concern
to collapse. The accounting profession until approximately 1965 largely ignored
--- Content provided by FirstRanker.com ---
the obvious importance of people in organizations and as productive resources.
Now, there appears to be wide spread awakening and growing interest for
--- Content provided by FirstRanker.com ---
human resource accounting.2.7.1 The Concept of Human Resource Accounting:
--- Content provided by FirstRanker.com ---
The productivity of a companys investment is known from the rate of return it
gives. So far, these rates of productiveness considered in respect of Physical
--- Content provided by FirstRanker.com ---
assets only. To find out the productivity of investment on human beings in anyorganization human resource accounting emerged as a supporting tool. The
Human Resource Accounting is a scatting tool that generates and reports
--- Content provided by FirstRanker.com ---
quantitative control information about the contribution of human resource for
promontory industrial productivity.
--- Content provided by FirstRanker.com ---
There are two major reasons why Human Resources Accounting has beenreceiving so much attention in the recent years. First, there is genuine need for
reliable and complete management of human resources.
--- Content provided by FirstRanker.com ---
Secondly, a traditional framework of Accounting is in the process to include a
much broader set of measurement than was possible in the past. The people are
--- Content provided by FirstRanker.com ---
97
the most important assets of an organization and yet the value of this asset does
--- Content provided by FirstRanker.com ---
not appear in financial statements. This information does not get included inmanagement information systems. Conventional accounting of human resources
outlay consists of taking note of all expenses of Human capital formation which
--- Content provided by FirstRanker.com ---
does not seem either to be correct or meeting the actual needs.
--- Content provided by FirstRanker.com ---
In simple terms, Human Resource Accounting means accounting for people asthe organizational resource. The American Accounting Association (AAA)
Committee on HRA defined human resource accounting as following: HRA is
--- Content provided by FirstRanker.com ---
the process of identifying and measuring data about human resources and
communicating this information to interested parties.
--- Content provided by FirstRanker.com ---
Stephen Knauf defined HRA as : The measurement and quantification of humanorganizational inputs, such as recruiting, training, experience, and commitment.
Eric Flameouts explained human resource accounting as accounting for people
--- Content provided by FirstRanker.com ---
as organizational resources. It is the measurement of the cost and value of
people for the organization. To quote Deirdre, "Human Resource Accounting in
--- Content provided by FirstRanker.com ---
the measurement of cost and value, is a term used to describe a variety ofproposals that seek to report and emphasis the importance of Human resources
knowledgeable, trained and loyal employees in a company's earning proceeds
--- Content provided by FirstRanker.com ---
and total assets."
In the words of R.L. Woodruff Jr. vice President, R.G. Barry corporation the
--- Content provided by FirstRanker.com ---
company which undertake pioneering work (1960s) in developing humanresources accounting "HR Accounting is an attempt to identify and report
investment mode in resources of the organization that are not presently
--- Content provided by FirstRanker.com ---
accounted for under conventional accounting practice." Basically it is an
information system that informs the management about the changes that are
--- Content provided by FirstRanker.com ---
occurring to the human resources of the business.98
--- Content provided by FirstRanker.com ---
One may not find unanimity on what human resource accounting is from theaforesaid definitions . But the importance of information is evident. Human
resource accounting system requires and produces a pool of information for
--- Content provided by FirstRanker.com ---
effective decision-making concerning the human assets. It is an information
system that tells management what changes over time are occurring to the
--- Content provided by FirstRanker.com ---
human resources of the business.Following are the Limitations of human resource
--- Content provided by FirstRanker.com ---
accounting:
1. Absence of clear cut procedures or guidelines.
--- Content provided by FirstRanker.com ---
2. Period of existence is uncertain and valuing uncertainly seems tobe unrealistic.
3. It may dehumanise & manipulate employees.
--- Content provided by FirstRanker.com ---
4. Empirical evidence is yet to be found that HRA is a management
tool.
--- Content provided by FirstRanker.com ---
5. These is no consensus in accounting profession.6. Problem of management to treat them as assets as they are not
capable of being owned, retained and utilised like physical
--- Content provided by FirstRanker.com ---
assets.
7. Fear of question from trade unions.
--- Content provided by FirstRanker.com ---
8. Problem in amortisation9. Tax laws do not recognize human beings assets.
10. No universally accepted method of HR valuation.
--- Content provided by FirstRanker.com ---
2.8 Measurement of Human Value addition into Money Value:
HRA aims at converting human data into money value. Human data as such ha
--- Content provided by FirstRanker.com ---
not been accounted for since it is not like a physical asset which has a directmoney value whether it is being represented by historical cost or replacement
cost or onversion process of human data into money value: Human data has to
--- Content provided by FirstRanker.com ---
99
be identified as the value of the production capacity etc., of the people at work
--- Content provided by FirstRanker.com ---
should result in the growth of the organization and in turn the profit and thevalue of the firm. There are of course different approaches to human resources
which work out the human capital into money value. It does not merely into
--- Content provided by FirstRanker.com ---
account the present human asset as such but it takes into account the growth of
the human asset with reference to the future needs of the organization with the
--- Content provided by FirstRanker.com ---
various policy elements and action plan introduced and implemented by theorganization. As it has been rightly referred to earlier, it aims to measure the
cost and value of people in the (human resources) organization.
--- Content provided by FirstRanker.com ---
One f the management scientists, Likert cautioned that "the non accounting of
human resources and the change occurring therein, of an organization may
--- Content provided by FirstRanker.com ---
provide a poor picture of the profits and profitability of the organization."Johnson & Kapila that "accounting systems treat many cash outlays as expenses
of the period in which they are made even through these outlays will benefit
--- Content provided by FirstRanker.com ---
future periods. Discretionary cash outlays for employee training and morale can
produce substantial cash inflow for the future. Manages under pressure to meet
--- Content provided by FirstRanker.com ---
short term profit goals can on occasions, achieve these goals by reducing theirexpenditure on such discretionary investments."
This led to the development of a new field of enquiry in accounting namely
--- Content provided by FirstRanker.com ---
,,Human Resource Accounting.
--- Content provided by FirstRanker.com ---
2.9 Objectives of HRA.Considering the Definition of HRA as the process of identifying and measuring
data about human resources and communicating this information to interested
--- Content provided by FirstRanker.com ---
parties, the following three objectives are implied :
a)
--- Content provided by FirstRanker.com ---
Identification of Human resource valueb)
Measurement of cost and value of the people to organization.
--- Content provided by FirstRanker.com ---
100
c)
--- Content provided by FirstRanker.com ---
Investigation of the cognitive and behavioral impact of such
information.
--- Content provided by FirstRanker.com ---
In is basically adopted to treat human resources as assets to generate humandata about human resources, to assign value to human resources and to
present human assets in the balance sheet.
--- Content provided by FirstRanker.com ---
The following model contemplates the aims and objective of HRA :
--- Content provided by FirstRanker.com ---
Better HR
--- Content provided by FirstRanker.com ---
Erasing longer
Better decision
--- Content provided by FirstRanker.com ---
planning
time horizon
--- Content provided by FirstRanker.com ---
about people.
for planning
--- Content provided by FirstRanker.com ---
and budgeting
--- Content provided by FirstRanker.com ---
HRA
--- Content provided by FirstRanker.com ---
Greater
Objectives
--- Content provided by FirstRanker.com ---
Increased
accountability
--- Content provided by FirstRanker.com ---
managerialfor HR
--- Content provided by FirstRanker.com ---
awareness of
--- Content provided by FirstRanker.com ---
Effective manthe HR value.
--- Content provided by FirstRanker.com ---
power
utilization
--- Content provided by FirstRanker.com ---
The system aims at furnishing cost value information for making proper and
effective management decisions about acquiring, allocating, developing and
--- Content provided by FirstRanker.com ---
maintain human resources in order to achieve cost effective organizational
objectives further, it is to help the organization in decision making in the
--- Content provided by FirstRanker.com ---
following areas :a) Direct Recruitment Vs Promotion.
b) Transform Vs. Retention
--- Content provided by FirstRanker.com ---
c) Retrenchment Vs. Retention.
d) Usefulness of cost reduction programme in view of their possible impact
--- Content provided by FirstRanker.com ---
on human resources.101
--- Content provided by FirstRanker.com ---
e) Impact of budgetary control on human resources and organizationalbehaviors.
f) Decision on relocating plants, closing down existing units, developing
--- Content provided by FirstRanker.com ---
overseas subsidiaries etc.
According to S.A. muscove "A well developed HRA system can theoretically
--- Content provided by FirstRanker.com ---
aid managers in becoming more effective and efficient in managing theresources that are available to them".
--- Content provided by FirstRanker.com ---
2.10 Approaches to Human Resource Accounting:
There are several approaches for the valuation of human resources.
--- Content provided by FirstRanker.com ---
There are two basis issues.1. How human resources assets should be valued, i.e, should historical cost
or replacement value of present value methods be used?
--- Content provided by FirstRanker.com ---
2. The implications of capitalized human resources, once they are recorded,
i.e., how should human resources be amortized? What are the tax
--- Content provided by FirstRanker.com ---
implication of human resource amortization? What are the implication ofhuman resource accounting on internal and external auditing?
Once it is accepted that human resources are an asset, the question of
--- Content provided by FirstRanker.com ---
measuring the cost of this asset arises. The monetary approaches to
measurement of human assets are broadly based either upon cost or
--- Content provided by FirstRanker.com ---
economic value. The cost approaches involve computation of the cost ofhuman resources to the organization. The cost are capitalized and amortized
over the useful life of the asset.
--- Content provided by FirstRanker.com ---
On scanning through literature, the approaches to HRA can be broadly
classified as follows:
--- Content provided by FirstRanker.com ---
Historical cost
--- Content provided by FirstRanker.com ---
Replacement Cost
Opportunity cost
--- Content provided by FirstRanker.com ---
Cost Based
Standard Cost
--- Content provided by FirstRanker.com ---
Current Purchasing Power
--- Content provided by FirstRanker.com ---
Monetary102
Hermansons Adjusted Discount Future earnings
--- Content provided by FirstRanker.com ---
Value
Likerts Socio
--- Content provided by FirstRanker.com ---
Hermansons Unpurchased Good willbased
Psychological
--- Content provided by FirstRanker.com ---
HR
Non-
--- Content provided by FirstRanker.com ---
ModelValuation
Monetary
--- Content provided by FirstRanker.com ---
Pekin Ogans
Model
L
--- Content provided by FirstRanker.com ---
Ja e
g v
--- Content provided by FirstRanker.com ---
gi && L aSc
u h
--- Content provided by FirstRanker.com ---
mo w
del ar
--- Content provided by FirstRanker.com ---
of tzHR pr
Va e
--- Content provided by FirstRanker.com ---
luatse
ion nt
--- Content provided by FirstRanker.com ---
value of
Models
--- Content provided by FirstRanker.com ---
Chakrabortys
--- Content provided by FirstRanker.com ---
futurRobbinse
o
--- Content provided by FirstRanker.com ---
n e
s ar
--- Content provided by FirstRanker.com ---
Hu ningsman Asse t Multiplier Method
Composite
--- Content provided by FirstRanker.com ---
Model of HR
Valuation
D. Watsons Return on Effort Employed
--- Content provided by FirstRanker.com ---
Fried man & Levs measure for firms investment in HR
--- Content provided by FirstRanker.com ---
Flamholtzs Stochastic
Statistical
--- Content provided by FirstRanker.com ---
rewards valuation
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
Some of the approaches are described below.2.10.1 Monetary Approaches:
A. Cost Based Approaches
--- Content provided by FirstRanker.com ---
(a) Historical cost approaches: In this method, the basic contributing
factors for developing the human resource of the organization has been
--- Content provided by FirstRanker.com ---
equated to the actual cost incurred. This approach was originallydeveloped by William (Pyle & R. G Barry Corporation. A leisure
footware manufacturer in Columbia (U.S.A) and was assisted by
--- Content provided by FirstRanker.com ---
Brummet & Eric G. Flamholtz.
--- Content provided by FirstRanker.com ---
In this approach, the actual costs of recruiting, selecting hiring, training,placing and developing the employees of an organization are capitalized
and amortized over the expected useful life of the asset concerned. If the
--- Content provided by FirstRanker.com ---
asset is liquidated prematurely, losses are recorded, and if an asset has a
longer life than estimates, revisions are made in the amortization
--- Content provided by FirstRanker.com ---
schedule.This approach relies primarily on accounting techniques which have
been in common use for many years. It is easy to develop and operate
--- Content provided by FirstRanker.com ---
these systems. Management also has little difficulty in interpreting the
--- Content provided by FirstRanker.com ---
103meaning and the information supplied by cost based systems since the
underlying concepts are consistent with those of the conventional
--- Content provided by FirstRanker.com ---
accounting data. It simply involves an extension of the concept of propermatching of costs with revenue. Historical cost of human resources is
treated very much like the cost of fixed assets. The same principles of
--- Content provided by FirstRanker.com ---
capitalization and amortization are applied.
--- Content provided by FirstRanker.com ---
The main advantage of this method is that
--- Content provided by FirstRanker.com ---
a. It is quite simple to understand and can be easily worked out.
b. It satisfies the traditional accounting concept of relating cost
--- Content provided by FirstRanker.com ---
revenue.c. It provides a basis for evaluating the company`s returns on
investment in human resources.
--- Content provided by FirstRanker.com ---
This approach has the following limitations:
a. It takes into account only a part of the employees acquisition cost
--- Content provided by FirstRanker.com ---
and ignores the aggregate value of their potential services.b. It is not easy or it may not be possible to estimate the number of
year over which the capitalized expenditure is to be amortised.
--- Content provided by FirstRanker.com ---
c. Because of the above problem, it will be difficult to determine a
precise rate of amortization. A question may arise as to whether
--- Content provided by FirstRanker.com ---
it should constant, increasing or decreasing.d. One fact to be considered is that gaining experience economic
value of human resources increase. But under this method the
--- Content provided by FirstRanker.com ---
capital cost decreases, with amortization. The question arises as
to how the difference could be reconciled.
--- Content provided by FirstRanker.com ---
104
(b) Replacement cost approach: The approach was propounded first by
--- Content provided by FirstRanker.com ---
Rensis Likert and was further developed by Eric G. Flamholtz. This ismainly based on the concept of Replacement cost. This is a measure the
cost to replace a firm`s human resource. Rensis Likert had suggested
--- Content provided by FirstRanker.com ---
determination of the value of total human organization on the basis of
the assumption that a new similar organization has to be created from
--- Content provided by FirstRanker.com ---
scratch. He says Suppose that tomorrow, your firm had all of itspresent facilities but no personnel except the Chairman and he had to
rebuild the human organization back to its present effectiveness. How
--- Content provided by FirstRanker.com ---
much would t cost? All costs would be included which are involved in
the recurting, hiring, training the developing the replacement to the
--- Content provided by FirstRanker.com ---
present level of proficiency and familiarity with the organization. Thisshould serve a the basis of valuation of human resources of the
organization from time to time.
--- Content provided by FirstRanker.com ---
This approach incorporates the current value of the company`s human
resources. It takes into account the fluctuations of the job market and
--- Content provided by FirstRanker.com ---
the general rise in price level. Replacement costs have the advantage ofbeing present oriented. This method is regeard as as good surrogate
for the economic value of the asset in the sense that market
--- Content provided by FirstRanker.com ---
considerations are essential in reaching a final figure. Such a final figure
is also generally intended to be conceptually equivalent to a notion of a
--- Content provided by FirstRanker.com ---
person`s economic value.A disadvantage of replacement cost is that it may not always be possible to
obtain such a measure for a particular employee. It is difficult to fit
--- Content provided by FirstRanker.com ---
identical replacement of the existing human resources in actual practice.
Replacement cost does not necessarily reflect the knowledge, competence
--- Content provided by FirstRanker.com ---
and loyalties concerning an organization that an individual can build overtime. Further, the managers asked to estimate the cost of completely
--- Content provided by FirstRanker.com ---
105
replacing their human organization may have difficulty doing so, and
different managers may arrive at quite different estimates.
--- Content provided by FirstRanker.com ---
(c) Opportunity cost Model: To meet the deficiencies of the Replacement cost,
Hekimain and jones have suggested the use of Opportunity Cost Concept.
--- Content provided by FirstRanker.com ---
For capital esuqipment and assets Joel Dean has defines Opportunity Costas The most profitable alternative use ... that is foregone by putting it to
present use. Under this method the value of an employee in his alternative
--- Content provided by FirstRanker.com ---
use is determines that value is taken as the basis for estimating. If
employees can be hired early eaternally there is no opportunity cost for
--- Content provided by FirstRanker.com ---
them. Hekimian and Jones have suggested a competitive bidding processfor the scarce employee in a organization.
Under this method, the investment center managers will bid for the scare
--- Content provided by FirstRanker.com ---
employee they to recruit. These scare` employees come from within the
firm and include only those who are the subjects of recruitment request
--- Content provided by FirstRanker.com ---
made by an investment center manager. In other words, employees notconsidered scare` are not included in the human asset base of the
organization.
--- Content provided by FirstRanker.com ---
In this approach, the divisional of investment center manager may bid for
the services of the various personnel here quires. This bid price is then
--- Content provided by FirstRanker.com ---
included in the investment base. The maximum bid price may go to theextent of the capitalized value of the extra profits likely to be generated by
the ability and competence of the executive.
--- Content provided by FirstRanker.com ---
For example, assume that a company has a capital base of Rs. 20,00,000 and
it earned profits of the amount of Rs. 2,00,000. the return on investment
--- Content provided by FirstRanker.com ---
(ROI) of the particular industry of which the company belongs is 12%. Ifthe services of a particular executive are required, it is expected that the
profits will increase by Rs. 60,000 over and above the target profit
--- Content provided by FirstRanker.com ---
106
If we capitalize Rs. 60,000 at 12% rate of return, it works to Rs. 5,00,000.
--- Content provided by FirstRanker.com ---
The company may bid upto Rs. 5,00,000 for the executive. However the
maximum bid can go upto the capitalized value of Rs. 1,00,000, the actual
--- Content provided by FirstRanker.com ---
excess profit expected to be generated by the executive, i.e Rs. 8,33,333.Hekimian and Jones believe that this approach provides for more optimal
allocation of personnel and sets the quantitative base for planning,
--- Content provided by FirstRanker.com ---
evaluating and developing the human assets of the firm.
However, this approach has narrowed down the concept of opportunity cost
--- Content provided by FirstRanker.com ---
by restricting in to the next best use of the employees within the sameorganization. The main drawbacks of this method is:
The method does not show the true cost of human resources in an
--- Content provided by FirstRanker.com ---
organization because it excludes from its purview the employees who are
not being bid by other departments of investment centers.
--- Content provided by FirstRanker.com ---
The method provides only a partial solutions as the employees of the typethat can easily be hired from outside are not assets under this approach.
To determine the bid price for an employee, a Manager must make a
--- Content provided by FirstRanker.com ---
judgmental estimate of that employee`s value. Hence a low degree of
objectivity can be expected form the opportunity cost.
--- Content provided by FirstRanker.com ---
(d) Standard Cost Method: To avoid complication of calculation under thereplacement cost, standard cost or recruiting, hiring, training and
developing per grade of employees are developed and established and made
--- Content provided by FirstRanker.com ---
up-to-date every year. The standard cost so arrived at for all human beings
are treated as value of human resources for accounting purposes. In case of
--- Content provided by FirstRanker.com ---
new entrants the total standard costs would be increased by standard costrelating to that entrant.
(e) Current Purchasing Power Method: Under this method, instead of taking
--- Content provided by FirstRanker.com ---
the replacement cost to capitalize, the capitalized historic cost of investment
in human resources is converted is converted into current purchasing
--- Content provided by FirstRanker.com ---
107
power of money with the help of index numbers. If there is an increase in
--- Content provided by FirstRanker.com ---
the index number, it will result in a corresponding increase in the value ofhuman resources.
The standard cost method and the current purchasing power method also
--- Content provided by FirstRanker.com ---
suffers from all drawbacks of the replacement cost except they are simpler
calculation.
--- Content provided by FirstRanker.com ---
B. Value-based Models: Under this approach, value of human resources of
an organization can be found out by discounting the future salaries and
--- Content provided by FirstRanker.com ---
other capital costs by a certain rate of discount or by discounting the future
earning of the organization at a certain date by suitable rate and allocating
--- Content provided by FirstRanker.com ---
a part f the present value of earnings to human resources.The valuation models developed under this approach are as under.
--- Content provided by FirstRanker.com ---
a. Hermansons Adjusted Discounted Future Earnings Model:
--- Content provided by FirstRanker.com ---
Hermanson (1964) proposed this method in this pioneering work atMichigan State University (USA). Hermanson suggested the discounting of
wage payments to people as a measure of a person`s value to an
--- Content provided by FirstRanker.com ---
organization. However he suggests the adjustment of his discounted future
wage stream by an efficiency factor. To calculate Efficiency Ratio, he makes
--- Content provided by FirstRanker.com ---
use of weighted average of firm`s net income during the past five years. Theweights are assigned in a reverse order ? highest to the current year, i.e., 5
and 1 to the preceding 4th year. The formula given ahead is used for
--- Content provided by FirstRanker.com ---
calculating Efficiency Ratio.
--- Content provided by FirstRanker.com ---
R
F
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
0
--- Content provided by FirstRanker.com ---
R
--- Content provided by FirstRanker.com ---
F
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
1
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
R
F
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
2
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
R
F
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
3
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
R
F
--- Content provided by FirstRanker.com ---
4
5
--- Content provided by FirstRanker.com ---
-
-
--- Content provided by FirstRanker.com ---
-
-
--- Content provided by FirstRanker.com ---
--
-
--- Content provided by FirstRanker.com ---
+
--- Content provided by FirstRanker.com ---
4-
--- Content provided by FirstRanker.com ---
-
-
--- Content provided by FirstRanker.com ---
--
-
--- Content provided by FirstRanker.com ---
+
--- Content provided by FirstRanker.com ---
3-
--- Content provided by FirstRanker.com ---
-
-
--- Content provided by FirstRanker.com ---
--
-
--- Content provided by FirstRanker.com ---
-
--- Content provided by FirstRanker.com ---
+2
--- Content provided by FirstRanker.com ---
-
-
--- Content provided by FirstRanker.com ---
--
-
--- Content provided by FirstRanker.com ---
-
-
--- Content provided by FirstRanker.com ---
+
--- Content provided by FirstRanker.com ---
-
--- Content provided by FirstRanker.com ---
--
-
--- Content provided by FirstRanker.com ---
-
-
--- Content provided by FirstRanker.com ---
-Efficiency Ration=
R
--- Content provided by FirstRanker.com ---
F
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
0
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
R
F
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
1--- Content provided by FirstRanker.com ---
R
--- Content provided by FirstRanker.com ---
F--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
2
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
R
--- Content provided by FirstRanker.com ---
F
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
3
--- Content provided by FirstRanker.com ---
R
--- Content provided by FirstRanker.com ---
F
4
--- Content provided by FirstRanker.com ---
108
--- Content provided by FirstRanker.com ---
RF0
--- Content provided by FirstRanker.com ---
=
The rate of accounting income on owned assets of the
--- Content provided by FirstRanker.com ---
firm for the current year,RE0
=
--- Content provided by FirstRanker.com ---
The average rate of accounting income on owned assets
for all firms in the economy for the current year,
--- Content provided by FirstRanker.com ---
RF0=
Rate of accounting income on owned assets for the firm
--- Content provided by FirstRanker.com ---
for the fourth preceding year,
RE4
--- Content provided by FirstRanker.com ---
=The average rate of accounting income on owned assets
for all firms in the economy for the fourth preceding
--- Content provided by FirstRanker.com ---
year.
Hermanson has suggested the following the Journal Entry to reflect the
--- Content provided by FirstRanker.com ---
human asset value.Human Resources
Dr
--- Content provided by FirstRanker.com ---
To Future wages payable
To excess worth crated by
--- Content provided by FirstRanker.com ---
Relatively efficient human resources.This method has been criticized on the following grounds:
(1) The Efficiency Ration is subjective,
--- Content provided by FirstRanker.com ---
(2) The weighting scheme used in computing the ratio has no theoretical
or empirical justification but it is purely arbitrary,
--- Content provided by FirstRanker.com ---
(3) Valuation period of 5 years is also without justification.b. Lev and Schwartz Present Value of Future Earnings Model
--- Content provided by FirstRanker.com ---
This Model is also as the Compensation Model. Given the uncertainty
and the difficulty associated with determination of the value of human
--- Content provided by FirstRanker.com ---
capital, Baruch Lev ad Aba Schwartz suggested the use of an individualemployee`s future compensation as a surrogate of his value. According
--- Content provided by FirstRanker.com ---
109
to them, the value of human compensational as a surrogate of his
--- Content provided by FirstRanker.com ---
value. According to them, the value of human capital embodied in a
person of age x is the present value of his remaining earning from
--- Content provided by FirstRanker.com ---
employment.25 This value for a discrete income stream is:--- Content provided by FirstRanker.com ---
Where
--- Content provided by FirstRanker.com ---
vx = the human capital value of a person x years oldI(1) ? the person`s annual earnings up to retirement
R= a discount rate specific t the person and
--- Content provided by FirstRanker.com ---
T= retirement age.Because Vx is an ex-post value, given that I(1) is obtained only after
retirement, and Vx ignores the possibility of death occurring prior to
--- Content provided by FirstRanker.com ---
retirement age, the authors have refined the valuation model afterincorporating Px (1) the probability f a person dying at age t in the
following manner:
--- Content provided by FirstRanker.com ---
Where
--- Content provided by FirstRanker.com ---
Ii = future annual earnings
--- Content provided by FirstRanker.com ---
Px(t) = the probability of a person dying at age t and
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
(v1x) = the expected value of a person`shuman capital
The firm`s labour force will be divided into homogeneous group of
--- Content provided by FirstRanker.com ---
employees, such as unskilled, semi-skilled, and skilled employed.
Engineers of different kinds,
--- Content provided by FirstRanker.com ---
Lev, B. and Schwartz, A., On the Use of the Economic Concept ofHuman Capital in Financial Statements, Accounting Review, January
--- Content provided by FirstRanker.com ---
110
1971. PP. ?103-112, salesman, managerial staff, etc. Average earning
profits, based on census data, will be constructed for each group and the
--- Content provided by FirstRanker.com ---
present value of human capital calculated. The sum of present values
over the various employee groups will provide the total human capital
--- Content provided by FirstRanker.com ---
value associated with the firm`26For example, assume that the total number of unskilled employees in the
age group 15-34 in a manufacturing concern in 500, and that the future
--- Content provided by FirstRanker.com ---
average earnings per year per employee is expected to be as follows:
--- Content provided by FirstRanker.com ---
Age (YearsAverage Annual Earnings
Per Employee
--- Content provided by FirstRanker.com ---
Rs.
25-34
--- Content provided by FirstRanker.com ---
4,00035-44
5,000
--- Content provided by FirstRanker.com ---
45-54
6,000
--- Content provided by FirstRanker.com ---
55-645,000
Further, assume that the discount rate is 10%. The value of human
--- Content provided by FirstRanker.com ---
capital of the unskilled employees under study will be calculated in the
following manner:
--- Content provided by FirstRanker.com ---
Assume, for the sake of simplicity that all 500 employees are 25 yearsold. Each person will earn per year on an average I the following way:
Rs. 4,000 a year for the next 10 years
--- Content provided by FirstRanker.com ---
Rs. 5,000 a year for the years 11-20 years
Rs. 6,000 a year for the years 21-30 years
--- Content provided by FirstRanker.com ---
Rs. 5,000 a year for the years 31-40 yearsThe present value of this series of 40 numbers multiplied by 500
(number of unskilled employees) is equal to Rs. 2,18,31,500 being the
--- Content provided by FirstRanker.com ---
value of human capital of this group.
--- Content provided by FirstRanker.com ---
111The working is shown below:
--- Content provided by FirstRanker.com ---
Calculation of present value--
Rs.
--- Content provided by FirstRanker.com ---
P. V. Factor
--- Content provided by FirstRanker.com ---
Rs.
4,000
--- Content provided by FirstRanker.com ---
X
6.145*
--- Content provided by FirstRanker.com ---
(1-10 Years)=
124,580
--- Content provided by FirstRanker.com ---
5,000
X
--- Content provided by FirstRanker.com ---
2.369 +(11-20 Years)
=
--- Content provided by FirstRanker.com ---
11,845
6,000
--- Content provided by FirstRanker.com ---
X0.913 +
(21-30 Years)
--- Content provided by FirstRanker.com ---
=
5,478
--- Content provided by FirstRanker.com ---
5,000X
0.532 (+)
--- Content provided by FirstRanker.com ---
(31-40 Years)
=
--- Content provided by FirstRanker.com ---
43,663Total P.V for an employee
(See P.V. of annuity of Re 1 table)
--- Content provided by FirstRanker.com ---
* From the table at 10 years and 10% rate = 6.145
+ 8.514 ? 6.145 = 2.369
--- Content provided by FirstRanker.com ---
+ 9.427 ? 8.514 = 0.913(+) 9.779 ? 9.427 = 0.352
Rs. 43,663 x 500 ? Rs 2,18,31,500
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
The model suffers from the following limitations:(a) Earnings do not represent true limitations.
(b) A person`s value to an organization is not determined entirely by the
--- Content provided by FirstRanker.com ---
person`s inherent qualities, skill and traits but also by the
organizational role in which the individual is placed. His expertise
--- Content provided by FirstRanker.com ---
may be in one field and many not be required in another. Further,thee individual`s skill and knowledge are not valuable to an
organization in an abstract form. They become valuable only when
--- Content provided by FirstRanker.com ---
they are applied to achieve the end results of the organization.
(c) The model also does take into account the possibility and probability
--- Content provided by FirstRanker.com ---
of an individual leaving the organization for reasons other thandeath or retirement.
--- Content provided by FirstRanker.com ---
112
(d) The assumption I this model that people will not make role changes
during their career with the organization is not realistic. Their role
--- Content provided by FirstRanker.com ---
changes when they are transferred n promotion.
(e) Earnings (salary) is an expense. How can the capitalized value of
--- Content provided by FirstRanker.com ---
expenses to be incurred I future be an set? It should be the value ofthe benefit expected to accrue that should be capitalized and not the
amount to e spent for the use of the asset.
--- Content provided by FirstRanker.com ---
(f) It fails t evaluate correctly the team work involved. Team works
definitely more that the sum of the values of the individuals. The
--- Content provided by FirstRanker.com ---
valuation is not reflecting the contribution of the team as a whole.(g) This approach ignores security, bargaining capacity, skill,
experience of the persons which will affect the payment f higher
--- Content provided by FirstRanker.com ---
scale of pay.
(c) Rewards valuation model: According to this model, the ultimate measure
--- Content provided by FirstRanker.com ---
of an individual`s value to an organization is the expected realizable value.The model has been suggested by Flamholtz. Here, it tries to identify the
major variables that determine an individual`s value to an organization.
--- Content provided by FirstRanker.com ---
The expected realizable value of an individual is the present worth of the
future services expected to be provided during the period he is expected to
--- Content provided by FirstRanker.com ---
continue to serve in the organization. This is based on the assumption thathuman beings, like all other assets, are capable of providing future services
that have economic value, It is presumed that a person`s value to an
--- Content provided by FirstRanker.com ---
organization depends upon the positions to be occupied by him in his
organization. As people move from one organizational role to another, or
--- Content provided by FirstRanker.com ---
occupy different organizational roles, they render service (i.e., reward) tothe organization. The roles they will occupy in future will have to be
determined probabilistically for each individual.
--- Content provided by FirstRanker.com ---
113
--- Content provided by FirstRanker.com ---
Where,
E(Rv) = A person`s expected realizable value.
--- Content provided by FirstRanker.com ---
Ri = Value R` to be derived by the organization foreach position i.
P(Ri) = Probability that an individual would occupy
--- Content provided by FirstRanker.com ---
position i.
T = Time of retirement.
--- Content provided by FirstRanker.com ---
M = state of exitR = Discount rate.
The model suggests a five step approach for assessing the value of
--- Content provided by FirstRanker.com ---
the organization:
(i)
--- Content provided by FirstRanker.com ---
First of all, forecast as to how long (period) a person willremain and continue in the organization, i.e., his expected
service life in the organization.
--- Content provided by FirstRanker.com ---
(ii)
Identifying the service states i.e., roles that he might
--- Content provided by FirstRanker.com ---
occupy till he is likely to leave the organization.(iii)
Thirdly, estimate the value derived by the organization
--- Content provided by FirstRanker.com ---
when a person occupies a particular position for a
specified period.
--- Content provided by FirstRanker.com ---
(iv)Fourth, estimate the probability of occupying each
possible mutually exclusive state at specified future times.
--- Content provided by FirstRanker.com ---
(v)
Finally, discount (at a specified pre ? determined rate to
--- Content provided by FirstRanker.com ---
get the present value of human resources.114
--- Content provided by FirstRanker.com ---
The approach is considered to be an improvement over Lev &Schwartz model in two aspects:
a. it takes into account factors relating to the possibility and
--- Content provided by FirstRanker.com ---
probability of employees career (different role) movement.
b. Of their quitting the organization for reasons than retirement
--- Content provided by FirstRanker.com ---
or death.Limitations:
i.
--- Content provided by FirstRanker.com ---
On examining the operational capacity, the
approach falls short of practical value in as much
--- Content provided by FirstRanker.com ---
as that probabilities will be have to bedetermined for each individual occupying
various services states and these probabilities
--- Content provided by FirstRanker.com ---
have to be determined for all employees for n`
period on individual basis.
--- Content provided by FirstRanker.com ---
ii.It will also be very expensive and time consuming
to predict career movements or exit probabilities
--- Content provided by FirstRanker.com ---
on an individual basis.
iii.
--- Content provided by FirstRanker.com ---
The data developed on the basis may involvelarge variance which reduce usefulness of the
model.
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
(d) Jaggi and Lau Model for Human Resource ValuationThe valuation of human resources on a group basis was suggested by the
authors of this model s remedy to the problem of predicting the
--- Content provided by FirstRanker.com ---
expected tenure of promotion chance of employees on an individual
basis. By` group` is meant a homogeneous group of Employees who
--- Content provided by FirstRanker.com ---
may not necessarily be working in the same department. It might be115
--- Content provided by FirstRanker.com ---
difficult to predict and individual`s expected service tenure in theorganization or at a particular level or position, but on a group basis, it
is easier to ascertain the percentage of people in a particular group like
--- Content provided by FirstRanker.com ---
either to leave the firm during each of the forthcoming periods, or the
promoted to higher levels. Since this concept assumes that the pattern of
--- Content provided by FirstRanker.com ---
movement is likely to remain constant overtime, the probabilitiesdetermined for one period are extended to future periods.
Besides the abovementioned monetary measures many non-monetary
--- Content provided by FirstRanker.com ---
measures have also been used from time to time. The frequently used
non-monetary measure of human value is derived from the Likert-
--- Content provided by FirstRanker.com ---
Bowers model of the variables that determine the effectiveness of afirm`s organization. 32 Other measures of attitudes, inventory of skills
and capabilities of individuals have also been used.
--- Content provided by FirstRanker.com ---
(e) Net benefit model:
--- Content provided by FirstRanker.com ---
This approach was suggested by Morse (1973). Under this model, thevalue of human resources is equivalent to the present value of the net
benefits derived by the organization from the services of its employees.
--- Content provided by FirstRanker.com ---
The following steps are involved in this approach:
a. To ascertain the gross value of the services to be
--- Content provided by FirstRanker.com ---
rendered in future by the employees in their individualand collective capacity.
b. The value direct and indirect future payment to the
--- Content provided by FirstRanker.com ---
employees is to be determined.
c. The difference or the excess of the value of future
--- Content provided by FirstRanker.com ---
human resources (as per) (a) above over the value offuture payments as per (b) is ascertained. This will
--- Content provided by FirstRanker.com ---
116
represent the net benefit to the enterprises because of
human resources.
--- Content provided by FirstRanker.com ---
d. On applying a predetermined discount rate (e.g., the
cost of capital to the net benefit the present value is
--- Content provided by FirstRanker.com ---
determined. This amount represents the value of humanresources to the enterprise.
--- Content provided by FirstRanker.com ---
2.10.2 NON-MONETARY VALUE-BASED APPROACHES:
(a) Certainty equivalent net benefit model : Pekin Ogan suggested this
--- Content provided by FirstRanker.com ---
approach which is a further extension of net benefit model as developed byMorse. In this approach, the value of human resource is determined in
future for the enterprise. Under this method, the following steps are
--- Content provided by FirstRanker.com ---
involved :
(a) Ascertainment of Net benefit from each employee (as
--- Content provided by FirstRanker.com ---
determined previous approach).(b) Certainty factors at which the benefit will be
available in future.
--- Content provided by FirstRanker.com ---
(c) The certainty equivalent benefit will be calculated by
multiplying the certainty factor with the net benefits
--- Content provided by FirstRanker.com ---
from all the employees. This equated as the value ofhuman resources to the enterprise.
--- Content provided by FirstRanker.com ---
(b) Aggregate payment approach :
This is the model envisaged by the Indian author Prof. S. K. Chakraborty
--- Content provided by FirstRanker.com ---
in 1976, on the human resources. He has valued the human resources inaggregate and not on an individual basis. However he suggested that
managerial and non managerial manpower can be evaluated separately.
--- Content provided by FirstRanker.com ---
The value of human resource on a collective or group basis can be found
--- Content provided by FirstRanker.com ---
117and by multiplying the average tenure of employment of the employees in
that group and shown as investment in the position statement. The average
--- Content provided by FirstRanker.com ---
annual salary grade structure and promotion schemes of the enterprise.He has further stated that recruitment, including selection development and
training costs of each employee could be records separately and these could
--- Content provided by FirstRanker.com ---
be attributed as deferred revenue expenditure to be written off over the
expected average tenure of the employee in the organization. The deferred
--- Content provided by FirstRanker.com ---
portion should be shown in the position statement of the organization. Ifthere is permanent exit on account of that year attributable to that person
should be written off against the income in the year of exit itself.
--- Content provided by FirstRanker.com ---
The discount rate for the purpose of finding the present value of estimated
payments in the future should be taken as the expected average after tax
--- Content provided by FirstRanker.com ---
return on capital employed over the average tenure period. He opines thatthe adoption of such a long term rate to avoid fluctuation in human asset
valuation from year to year is simply due to changing rates of returns.
--- Content provided by FirstRanker.com ---
As for disclosure of accounting information on human resources as an asset,
--- Content provided by FirstRanker.com ---
he has suggested that it would be most appropriate to include human assetsunder investments in the position statement of the ogranisation prepared
at the year end. He does not favour this to be taken under the head fixed
--- Content provided by FirstRanker.com ---
assets as it will cause problems of depreciation, capital gains or losses upon
exit etc., neither it could be taken as current asset as it will not be in
--- Content provided by FirstRanker.com ---
conformity with the general meaning of the term.--- Content provided by FirstRanker.com ---
2.10.3 EMERGING ISSUES :
Human resources accounting clearly encompasses such elements as :
--- Content provided by FirstRanker.com ---
118
1. The composition of employees in different grades for five
--- Content provided by FirstRanker.com ---
years.2. Productivity of human resources for five years.
3. Programmes for employee development.
--- Content provided by FirstRanker.com ---
4. Personnel payments to the employees and expenses on social
welfare per employee.
--- Content provided by FirstRanker.com ---
5. Human assets valuation.6. Human assets vis-?-vis total assets.
7. Value of human assets in an organization.
--- Content provided by FirstRanker.com ---
In India, human resources accounting unit now has not been introduced as
a system. So far as the statutory requirement is concerned, the Companies
--- Content provided by FirstRanker.com ---
Act., 1956 does not require furnishing of any significant information abouthuman resources in the financial statements of companies. The Institute of
Chartered Accountants of India, too, have not issued an value of human
--- Content provided by FirstRanker.com ---
resources of an organization, However, the existing accounting standards,
in the absence of any negative directive, may be seen to support the
--- Content provided by FirstRanker.com ---
adoption of human resources accounting by an organization for the purposeof meeting its own requirements. As a result. HRA has become a sparingly
implemented practice in the corporate sector in India. The result of non-
--- Content provided by FirstRanker.com ---
disclosure of human resources cost and value information in financial
statements of business enterprises has been that financial statements for no
--- Content provided by FirstRanker.com ---
reveal any quantitative information on huaman resources and the state ofaffairs is improperly reported to different authorities.
--- Content provided by FirstRanker.com ---
The dichotomy in accounting between human and non-human capital is
rather fundamental, while the latter is recognized as an asset and recorded
--- Content provided by FirstRanker.com ---
as such in the financial statement, the former is totally ignored. With theaccelerated growth in science and technology, the value of human capital is
--- Content provided by FirstRanker.com ---
119
gradually increasing and hence it is essential for a company to reflect the
investment in human resources. In the absence of HRA, the management
--- Content provided by FirstRanker.com ---
may not realize the negative effects of certain programmes aimed at
improving profits in the shortrun. Such programmes may result in
--- Content provided by FirstRanker.com ---
decreased value of human assets due to fall in productivity levels, highlabour turnover and low morale.
--- Content provided by FirstRanker.com ---
2.10.4 HUMAN RESOURCE ACCOUNTING IN INDIA :
An increasing trend towards the measurement and reporting of human
--- Content provided by FirstRanker.com ---
assets, particularly in the public sector, is noticeable during the past 20years. The companies, who are presently reporting human-asset valuations,
include:
--- Content provided by FirstRanker.com ---
1.
Bharat Heavy Electricals Ltd. (BHEL).
--- Content provided by FirstRanker.com ---
2.Cement Corporation of India Ltd. (CCI).
3.
--- Content provided by FirstRanker.com ---
Projects and Equipment Corporation of India Ltd. (PEC).
4.
--- Content provided by FirstRanker.com ---
Engineers India Ltd. (EIL).5.
The Minerals and Metals Trading Corporation of India Ltd.
--- Content provided by FirstRanker.com ---
(MMTC).
6.
--- Content provided by FirstRanker.com ---
Electronics India Ltd.7.
Infosys Technologies Ltd.
--- Content provided by FirstRanker.com ---
2.10.5 Prospects
--- Content provided by FirstRanker.com ---
Human asset accounting still remains a voluntary disclosure on the part ofbusiness entities and as yet no expose draft has been issued for such a
specialized report. Unless this minimum initiative is taken by the
--- Content provided by FirstRanker.com ---
accounting bodies such as Indian Accounting Standards Board and also the
International Accounting Standards Committee outlining the format.
--- Content provided by FirstRanker.com ---
Provisions and guidelines. A real push to this additional information can120
--- Content provided by FirstRanker.com ---
scarcely be expected. One has to reckon that, accounting for people asorganizational resources, through it has a high relevance evaluation, has a
low objectivity evaluation.
--- Content provided by FirstRanker.com ---
Reference Books
--- Content provided by FirstRanker.com ---
1. Human Resource Accounting: Advance in Concepts, Methods andApplications (Hardcover), Eric G. Flamholtz, Springer; 3 edition,
ISBN: 0792382676
--- Content provided by FirstRanker.com ---
2. How to Measure Human Resource Management (Hardcover), Jac
Fitz-enz, et al, Mc-Graw Hill),
--- Content provided by FirstRanker.com ---
3. Accounting for Human Resources: Rakesh Chandra Katiyar, UKPublishing House.
4. Human Resource Accounting: M. Saeed, D. K. Kulshestha, Anmol
--- Content provided by FirstRanker.com ---
Publication.
5. Human Resource Accounting: D. Prabakara Roa. Inter India
--- Content provided by FirstRanker.com ---
Publication.--- Content provided by FirstRanker.com ---
QUESTIONS
--- Content provided by FirstRanker.com ---
1. What is Human Resource Planning? Briefly discuss the steps
involved in HR planning or an industrial enterprise?
--- Content provided by FirstRanker.com ---
2. What is Human resource accounting what are its objectives? How is
it relevant in today`s context.
--- Content provided by FirstRanker.com ---
3. Describe the Lev-Schwartz model human resource accounting. Whatare its limitation.
--- Content provided by FirstRanker.com ---
121
4. Write a brief note on the various approaches to human resource
accounting.
--- Content provided by FirstRanker.com ---
5. Define training. Explain the advantage of training to the employees
and the organization.
--- Content provided by FirstRanker.com ---
6. How will you determine the training needs of an organization?Discuss.
7. What is productivity? Write about the factors affecting productivity
--- Content provided by FirstRanker.com ---
with a special reference to the human capital.
8. Briefly state the areas to be focused for effective human capital
--- Content provided by FirstRanker.com ---
investment.9. Write a note on Measurement of Human Value addition into Money
Value.
--- Content provided by FirstRanker.com ---
10. Write notes on: (a) Cost based approaches of HR valuation.
(b) Limitations to HR accounting.
--- Content provided by FirstRanker.com ---
(c) Effective HR planning.(d) Measures to evaluate Human Capital
(e) Human Capital
--- Content provided by FirstRanker.com ---
122
UNIT ? III
--- Content provided by FirstRanker.com ---
Objectives of the Study
* Human Resource as an asset
--- Content provided by FirstRanker.com ---
* Investment in human resources* Rate of return on human resources
* Parameters for calculating return on investment in human resources
--- Content provided by FirstRanker.com ---
* Human Resource Cost Analysis
* Organizational behaviour vs. Turnover
--- Content provided by FirstRanker.com ---
* Wastage of human resources labour turnover, idle time, and absenteeism* Organizational Climate Approach.
* Cost Reduction
--- Content provided by FirstRanker.com ---
* Future Performance
--- Content provided by FirstRanker.com ---
IntroductionHuman resources comprise one of the most valuable assets and it is a
better source of capital and can give continuity to any organization. The human
--- Content provided by FirstRanker.com ---
beings co-ordinate the machines, men and money to the optimum advantage of
the organization. Computers with sophisticated technology may challenge the
--- Content provided by FirstRanker.com ---
human resources with massive substitution of human resources in doing thework, but even such computers ought to be installed and operated in the right
perspective to get the desired benefits only by the human resources. It may even
--- Content provided by FirstRanker.com ---
substitute the labour of thousands of employees. But when the operator of that
computer is not equipped with the proper calibre and knowledge to operate it in
--- Content provided by FirstRanker.com ---
the right way, then the work of thousands of workers get spoiled and thus,human resource ultimately outweighs computer. Accounting for such human
resources is very vital for the organization to find out the inventory at the current
--- Content provided by FirstRanker.com ---
level and to increase or decrease it as needed according to the prevailing
atmosphere of the organization.
--- Content provided by FirstRanker.com ---
123
Controversy among the accountants continues as to whether the human
--- Content provided by FirstRanker.com ---
resources of an organization can be considered as an asset and treatedaccordingly in the accounting system in vogue. To consider something as an
asset, it should have legally enforceable claim and to be owned by the entity
--- Content provided by FirstRanker.com ---
with an objective to derive service from it in future. There is a very strong case
for assetisation of human resources; the major-premise being that they are
--- Content provided by FirstRanker.com ---
valuable resources to an organization. Investments in such asset will helpcorporate decision makers.
Investment Approach to Hunan Resources
--- Content provided by FirstRanker.com ---
Since human resources are considered as asset, any expenditure in the
acquisition and accumulation of human resources will be treated as an
--- Content provided by FirstRanker.com ---
investment. Historical cost of human resources represents sacrifice that willhave to be incurred today to acquire and develop people.
Historical Cost of Human Resources
--- Content provided by FirstRanker.com ---
The elements comprising historical human costs at three levels of
classification:
--- Content provided by FirstRanker.com ---
A) Natural cost classification which refers to the primary objects ofexpenditures such as salaries, advertising, agency fees etc.
B) Costs of specific personnel management functions such as recruitment,
--- Content provided by FirstRanker.com ---
selection and training.
C) Costs of the basic human resource management functions involved in
--- Content provided by FirstRanker.com ---
historical cost of human resources - acquisition and development cost.CATEGORIES OF HISTORICAL COST
Historical cost of human resources is the investment in human resources
--- Content provided by FirstRanker.com ---
which has expense and asset components. Various cost items representing
human resource investment subsystem can be categorized under four groups of
--- Content provided by FirstRanker.com ---
input variables as under:(l) Acquisition Cost
--- Content provided by FirstRanker.com ---
124
(2) Development cost
(3) Welfare Cost
--- Content provided by FirstRanker.com ---
(4) Other Costs
--- Content provided by FirstRanker.com ---
RATE OF RETURN ON HUMAN RESOURCESHuman beings constitute an important asset for organizational success.
Without human resources, the physical and financial resources can't be
--- Content provided by FirstRanker.com ---
operationally effective. The investment in such human resource variables and
the calculation of the rate of return on human resources is vital. When large
--- Content provided by FirstRanker.com ---
amount of investment is made on human resource building, by not capitalizingsuch expenditure, the profits of the organization are understated during such
build up periods and profit. Rate of return can be used as a very good
--- Content provided by FirstRanker.com ---
performance measure, the index of which can be calculated as follows.
Conventional profit + Changes in human resources
--- Content provided by FirstRanker.com ---
Conventional assets + Human assetsParameters for Calculating Return on Investment in Hunan Resources
The rate of return can be calculated on the basis of the following premises:
--- Content provided by FirstRanker.com ---
a) Measurement of return on organization building.
b) Measurement of return on organizational utilization.
--- Content provided by FirstRanker.com ---
Measurement of return on organization building: In order to calculate returnon investment, the changes in human resources must be calculated and recorded.
To find out the changes in human resources, the total investment in human
--- Content provided by FirstRanker.com ---
resources must be calculated.
Measurement of Human resources Investment
--- Content provided by FirstRanker.com ---
|Individual and group of individuals
|
--- Content provided by FirstRanker.com ---
Measurement of Human resources Investment
|
--- Content provided by FirstRanker.com ---
Recruitment, Training, Experience building|
--- Content provided by FirstRanker.com ---
125
Measurement of Return on Organization building.
--- Content provided by FirstRanker.com ---
When such investment is made it is both for the purpose of organization
building and organization utilization. In regard to human resources investment
--- Content provided by FirstRanker.com ---
for building the organization, the recruiting and training costs of an individualand group of individuals must be calculated.
Also the orientation cost of building the personnel must be taken into account
--- Content provided by FirstRanker.com ---
while making such calculations.
Measurement of Return on Organization utilization:
--- Content provided by FirstRanker.com ---
For this purpose, the measurement of benefits obtained throughutilization of human resources must be done. Along with it, nonetheless, the
fulfillment of objectives by the utilization of human resources must also be
--- Content provided by FirstRanker.com ---
taken into account for the measurement of utilization.
Measurement of benefits, objectives fulfillment
--- Content provided by FirstRanker.com ---
|Identified objectives using expanded and conventional
|
--- Content provided by FirstRanker.com ---
Measurement of return on organizational utilization
--- Content provided by FirstRanker.com ---
The clubbed result of measurement of organization building and ofhuman resources will provide return on Investment
Measurement of return on organization building
--- Content provided by FirstRanker.com ---
+
Measurement of return on organizational utilization
--- Content provided by FirstRanker.com ---
=Return on Investment
HR Cost Analysis
--- Content provided by FirstRanker.com ---
HR cost analysis is the study of behaviour of cost in relation to one or
more HR criteria. Controlling manpower costs has now become important for
--- Content provided by FirstRanker.com ---
126
organisations, particularly when we are required to look within for cost savings
--- Content provided by FirstRanker.com ---
to sustain organizational growth and profitability. To enforce control on HRcosts, it is essential to develop a check.list at the outset. This requires grouping
of activities under different cost heads and then Identifying the individual cost
--- Content provided by FirstRanker.com ---
elements under each head. By developing an HR costs spreadsheet, we can
understand the magnitude of HR costs in an organisation. Element-wise cost
--- Content provided by FirstRanker.com ---
trend over the years facilitates regular monitoring and operational control. At themacro-level, net value added per employee is an indicator of cost efficiency. We
have given an example of such computation for a public sector undertaking over
--- Content provided by FirstRanker.com ---
a six-year period, from the published data of Comptroller and Auditor Gencral
(CAG), 1999.
--- Content provided by FirstRanker.com ---
Developing an HR Costs ChecklistBramham (1998) developed an indicative checklist for HR costs.
However, this checklist varies from organization to organization due to obvious
--- Content provided by FirstRanker.com ---
differences in their practices. Here we have mentioned about those cost elements
which are common in practice. .
--- Content provided by FirstRanker.com ---
RemunerationRemuneration costs include basic pay, dearness allowance, city
compensatory allowance, house rent allowance, conveyance allowance, etc.
--- Content provided by FirstRanker.com ---
However, these are paid remuneration costs. Organizations are also required to
cater for deferred benefits to employees, which we have referred as NWLC
--- Content provided by FirstRanker.com ---
earlier. Certain statutory payments to employees are also accounted under thishead, like, contribution to provident fund, pension fund, medical benefits,
payment for holiday, sickness, bonus, etc. To retain and attract talent,
--- Content provided by FirstRanker.com ---
organizations may also give various fringe benefits to their employees. Even the
latest practice to provide stock options to employees involves certain
--- Content provided by FirstRanker.com ---
opportunity cost to the organization. The best practice is to delineate such costelements and arrange the same in the form of a spread sheet. Element-wise cost
--- Content provided by FirstRanker.com ---
127
trends then can be studied over the years and also can be benchmarked with
other comparable organizations to understand the nature of variance and to
--- Content provided by FirstRanker.com ---
enforce control, wherever necessary. Some organizations prefer to increase the
paid wage cost by reducing the NWLC burden. Such strategy is very effective in
--- Content provided by FirstRanker.com ---
cases, where employees are mostly in their exploratory age group (less than 35).This in one way helps the organization to reduce their cost burden and at the
same time to retain young and talented employees. Cost savings certain statutory
--- Content provided by FirstRanker.com ---
payments is also possible by participating in Group Gratuity Scheme, Group
Medical Insurance Scheme, Group Pension Scheme, etc., of public finance
--- Content provided by FirstRanker.com ---
institutions, like, Life Insurance Corporation, etc.Recruitment
Recruitment cost is also another major cost head for HR. Right from
--- Content provided by FirstRanker.com ---
developing job specifications to describing job requirements, it includes costs of
recruitment, promotion (through advertising), head hunting, evaluation,
--- Content provided by FirstRanker.com ---
interviewing, induction and orientation. A well defined job specificationminimizes the search for the right fit and consequent costs. If recruitment plans
are to meet short-tern-requirements, it may be better to outsource than go in for
--- Content provided by FirstRanker.com ---
direct recruitment:
There are many specialized manpower agencies, which make people
--- Content provided by FirstRanker.com ---
with required skill sets available on contractual terms. Similarly, internal hiringalso needs to be explored vis-d-vis external hiring. Internal hiring involves
restructuring and relocation costs, a clear policy on 'promotion from within'
--- Content provided by FirstRanker.com ---
(wherever recruitment is made for the higher posts), etc. A detailed study on
cost of hiring is necessary to explore an alternative recruitment process.
--- Content provided by FirstRanker.com ---
Training CostsCordon's (2000) 9-step analysis of ROI on Human Capital has already be
discussed in earlier chapter on 'Skills and multi-skilling'. In fact this 9-step
--- Content provided by FirstRanker.com ---
model considers all aspects of training cost and its benefits. To be more specific,
--- Content provided by FirstRanker.com ---
128training costs include, cost for induction period, cost of remuneration for the
trainee and trainer, cost of travel for the trainee and the trainer, if any, cost of
--- Content provided by FirstRanker.com ---
training materials, imputed cost of machines and equipments, used during thetraining, cost for development of training modules, cost of training evaluation,
cost of material wastage during training, if any, cost of production loss for the
--- Content provided by FirstRanker.com ---
trainee and the trainer (if he is within the organization, for in-house training),
etc. To accurately ascertain cost of training, it is necessary to develop a checklist
--- Content provided by FirstRanker.com ---
or a worksheet, delineating all direct and indirect costs of training. There arevarious methods of training delivery, which we have discussed in chapter on
'Training and Development'. Relative benefits and costs of each such method
--- Content provided by FirstRanker.com ---
also need to be weighed to understand the most cost-efficient system. Any
training on skill renewal needs to be weighed in terms of expanded skill cycle of
--- Content provided by FirstRanker.com ---
the trainees. If the trainees are in the higher age bracket or due to retire within ashort span, then offering them voluntary retirement (VR) may be more cost-
effective than putting them on training for skill renewal and skill change.
--- Content provided by FirstRanker.com ---
Relocation Costs
--- Content provided by FirstRanker.com ---
Many organizations have their policies on periodic relocation ofemployees as part of their restructuring exercise. This is more appropriate for
those who have their units in multiple locations. Such decisions from
--- Content provided by FirstRanker.com ---
organizational point of view, involve cost related to disturbance allowance, cost
of possible litigation, cost of housing, cost of travel, etc. Many departmental
--- Content provided by FirstRanker.com ---
undertakings and public sector units thoughtlessly relocate their employeesadding costs to the exchequer. For example, in one of the published reports, it
was evident that Indian ordnance Factories spent in one year Rs. 40 crore for
--- Content provided by FirstRanker.com ---
relocation of their employees. Hence relocation decisions must be cost effective
or else this will defeat the purpose, straining organizational viability.
--- Content provided by FirstRanker.com ---
Separation Costs129
--- Content provided by FirstRanker.com ---
Relocation also induces separation. There may be other reasons forseparation, which may be either for organizational initiative or for individual
employees reasons. Since separation requires replacement, immediate cost-
--- Content provided by FirstRanker.com ---
effect is on loss of production. Other costs of separation are redundancy benefits
(if separation is organization induced), ex-gratia payments (if any), etc. Since
--- Content provided by FirstRanker.com ---
separation follows immediate liquidation of fringe benefits, savings of theorganization on this course also need to be considered to compute the actual
costs. Indian organizations have now replicated global practices, to go for large-
--- Content provided by FirstRanker.com ---
scale redundancy. Offering VRS in PSU banks to 99,425 employed at a cost of
Rs. 10,073 crore is an example. While this may prove to be effective for obvious
--- Content provided by FirstRanker.com ---
reasons of savings on manpower (redundant) cost, it may also have the ill effectof skill mismatch (particularly business skills) with new recruits, which will
further add to the cost of separation.
--- Content provided by FirstRanker.com ---
Support Costs
--- Content provided by FirstRanker.com ---
Some of the employee support services are statutory, while others are offeredvoluntarily by the organizations. For computing support costs, therefore, it is
necessary to distribute these under two different heads and then study their
--- Content provided by FirstRanker.com ---
impact. Medical welfare, canteens, safety, security, insurance (medi-claim, etc.),
death benefits, parking space costs, etc. are some of the statutory costs for
--- Content provided by FirstRanker.com ---
employee support services. While house journal, club membership, music atworkplace, long service awards, suggestion schemes, library services, holiday
homes, etc., are examples of voluntary support services for employees. Since,
--- Content provided by FirstRanker.com ---
employee support services have direct effect on employee motivation, cost
curtailment decisions must have reference to this aspect.
--- Content provided by FirstRanker.com ---
Personal Overhead CostsPersonnel overhead costs spread over personnel record keeping, costs for
maintaining Human Resources Information Systems (HRIS), cost of personnel
--- Content provided by FirstRanker.com ---
130
decisions and overall costs for maintaining personnel department (salary of the
--- Content provided by FirstRanker.com ---
people working in this department). Outsourcing personnel services to a great
extent can reduce such cost burden. However, its relative merits and demerits
--- Content provided by FirstRanker.com ---
need to be studied.To enforce control over human resource costs, it is necessary to develop
worksheets on each cost element, duly grouping these under different cost
--- Content provided by FirstRanker.com ---
heads. Decisions on cost control need to be weighed in terms of lost opportunity
for employee motivation and consequent loss of productivity. To understand the
--- Content provided by FirstRanker.com ---
trend of HR costs, ratio analysis can be done from the data collected from thespreadsheet.
--- Content provided by FirstRanker.com ---
Organizational Behaviour
--- Content provided by FirstRanker.com ---
Organizational behaviour is the study and application of knowledgeabout human behaviour related to other elements of the organization such as
structure, technology and social system. Basically, organizational behaviour is
--- Content provided by FirstRanker.com ---
concerned with that aspect of human behaviour which is relevant for
organizational performance. It studies human behaviour at individual level,
--- Content provided by FirstRanker.com ---
group level and organizational level. A study of organizational behaviourinvolves the integration of the behavioural sciences into the study of people's
behaviour within the organizations. Thus, organizational behaviour is an
--- Content provided by FirstRanker.com ---
academic discipline concerned with understanding and describing human
behaviour in an organizational environment.
--- Content provided by FirstRanker.com ---
Features of Organizational Behaviourl) Organizational behaviour is not a discipline but it is a field of study in which
endeavour is made to synthesise principles, concepts, and processes. But a
--- Content provided by FirstRanker.com ---
discipline is an accepted science with a theoretical foundation.
--- Content provided by FirstRanker.com ---
1312) Since the study of organizational behaviour integrates the relevant knowledge
drawn from different disciplines for some specific purpose, it is an
--- Content provided by FirstRanker.com ---
interdisciplinary approach. It draws heavily from psychology, sociology andanthropology.
3) Organizational behaviour study makes application of various researches to
--- Content provided by FirstRanker.com ---
solve the organizational problems particularly related to human behaviour
aspect. It concentrates on applied research.
--- Content provided by FirstRanker.com ---
4. The organizational behaviour is a normative science. A normative scienceprescribes how the various findings of the researches can be applied to get
organizational results which are acceptable to the societ5r.
--- Content provided by FirstRanker.com ---
5. The attention of organizational behaviour is focused on people from
humanistic point of view.
--- Content provided by FirstRanker.com ---
6. Organizational behaviour is oriented towards organizational objectives.Further organizational behaviour focuses on both organizational and individual
objectives.
--- Content provided by FirstRanker.com ---
7. Organizational behaviour study is total systems approach which integrates all
the variables affecting organizational functioning.
--- Content provided by FirstRanker.com ---
ORGANIZATIONAL BEHAVIOUR VS. TURNOVERIndividual Behaviour
Turnover in an organization may also be based on the organizational behaviour
--- Content provided by FirstRanker.com ---
of the employees. Turnover may be a factor caused by individual decisions or
group decisions. As far as an individual worker or personnel is concerned, the
--- Content provided by FirstRanker.com ---
following may be the reasons for leaving the job:a) The individual may feel that the pay that he receives is unfair, inequitable and
not commensurate for his standard of living.
--- Content provided by FirstRanker.com ---
b) Individual may sustain work dissatisfaction due to the disturbances caused by
people in the supervisory cadre.
--- Content provided by FirstRanker.com ---
132
c) Individual may feel that his ego is hurt both by the top management and the
--- Content provided by FirstRanker.com ---
people in the supervisory cadre.d) He may leave the job, feeling that there is no recognition for his work.
e) For want of promotion, a person may leave his work. In flatter organizations
--- Content provided by FirstRanker.com ---
there may be little chance for promotion. Some people may find wide
discrepancies between pre-employment expectations and actual job experiences.
--- Content provided by FirstRanker.com ---
f) Employee's morale and motivation may not be tuned by the on-going jobconditions.
h) Resignations and turnover may increase if people are not trained properly or
--- Content provided by FirstRanker.com ---
feel that demands are being made upon them which they can't reasonably be
expected to fulfill without proper training.
--- Content provided by FirstRanker.com ---
The above said are the normal reasons for which employees may leavethe organisation. But there are people who continue even after sustaining
dissatisfaction for which, reasons could be found out only by analyzing the
--- Content provided by FirstRanker.com ---
psychological views of them.
There are certain reasons which are very apparent for which the
--- Content provided by FirstRanker.com ---
employees quit their jobs and sometimes the incumbent's behaviour of leavingthe organization is mysterious and beyond analysis.
Group Behaviour
--- Content provided by FirstRanker.com ---
Sometimes the employees may leave the organization in a group. This
massive turnover, sometimes, paralyze the organization and even it may lead to
--- Content provided by FirstRanker.com ---
its temporary closure. Especially this type of turnover is more among thecategory of unskilled, and semi-skilled workers who are mostly illiterate.
They are guided by their informal leader who directs them and some-
--- Content provided by FirstRanker.com ---
times dominate the formal union leader. Organizational behaviour of' the
informal leader may be both positive and negative to his group workers.
--- Content provided by FirstRanker.com ---
When he institutes a move in which he rationalizes the quit purely for thewelfare of the employees, it is well and good: but when he makes the move to
--- Content provided by FirstRanker.com ---
133
quit for threatening the top level management to achieve his personal ends, it is
not good both for the employer and the group. Even though some of the workers
--- Content provided by FirstRanker.com ---
in the group have dissatisfaction over the behaviour of the informal leader, they
go on with him just to keep the team spirit.
--- Content provided by FirstRanker.com ---
Turnover like this could be done only when the group is sure of gettingalternative employment immediately without disturbing their earnings. In some
cases, turnover of employees as a group is done mainly on the gimmicks played
--- Content provided by FirstRanker.com ---
by another employer in the same industry to attract labourers for his unit. He
may bribe the informal leader and make him to direct his group for leaving the
--- Content provided by FirstRanker.com ---
current employer. Since there is no problem in getting employment, the groupmembers may give consent based on their vicious leader's command. The main
reason for the success of the informal leader is that it is very easy to strike a
--- Content provided by FirstRanker.com ---
harmony among the illiterate and little educated 'workers
Group Behaviour and Educated Personnel
--- Content provided by FirstRanker.com ---
In case of educated personnel. quitting the job as a group is not feasiblesince each incumbent has his own idea and behaviour towards his job. It is a
herculean task to strike a harmony among such personnel since they are
--- Content provided by FirstRanker.com ---
educated. Personality clash is very common among educated personnel and
informal leadership may not be a viable concept among them. Power politics
--- Content provided by FirstRanker.com ---
among them to attain the favour of the employer will erode their union anddecision on collective strength to quit the job may not be a possible one. Even
though they form a group, they will see that there is no damage to their ego
--- Content provided by FirstRanker.com ---
because of any action of others in the group.
WASTAGE OF HUMAN RESOURCES
--- Content provided by FirstRanker.com ---
The term wastage is the loss of employees other than by redundancy.Redundancy points out the position of the employee as no longer needed for any
available job and therefore liable to dismissal. In an organisation, the wastage is
--- Content provided by FirstRanker.com ---
caused by-
--- Content provided by FirstRanker.com ---
134(a) Labour turnover
(b) Idle Time
--- Content provided by FirstRanker.com ---
(c) Absenteeisma) Labour Turnover
The change in workforce is known as labour turnover. It is the rate of
--- Content provided by FirstRanker.com ---
change in the composition of the labour force in the organization. Whenever an
employee leaves the organisation, the management, has to sustain loss and
--- Content provided by FirstRanker.com ---
wastage arising from the replacement of the leaving incumbent, byinexperienced new labour force. This replacement cost also includes cost of
recruitment, selection and training of new employees. Loss of output due to the
--- Content provided by FirstRanker.com ---
gap in obtaining new workers, loss due to inefficiency of new workers, cost of
accidents due to lack of experience of new workers and cost of scrap and
--- Content provided by FirstRanker.com ---
defective work of new workers are the replacement cost involved in labourturnover. In order to keep the workforce satisfied and to prevent or discourage
them from leaving the organization the management incurs the following costs:
--- Content provided by FirstRanker.com ---
(a) Cost of welfare activities
(b) Cost of medical services
--- Content provided by FirstRanker.com ---
(c) Pension Schemes(d) Extra bonus
In spite of the preventive measures, if there is higher labour turnover
--- Content provided by FirstRanker.com ---
then it will deplete the stock of human resources and also lead to its wastage.
For example in a company an executive officer is appointed and sent abroad to
--- Content provided by FirstRanker.com ---
get special training on the work method. The cost of giving him the training isRs.6 lakhs. Unfortunately he leaves the job (no contractual liability or bond) and
the company has to replace another incumbent with the same training and
--- Content provided by FirstRanker.com ---
additionally it has to spend another 6 lakhs for making the new incumbent fit for
the job. Human resources at a cost of Rs.6 lakh is wasted due to the turnover. In
--- Content provided by FirstRanker.com ---
order to avoid wastage, by turnover the m ulagement should take the followingsteps:
--- Content provided by FirstRanker.com ---
135
1) Suitable and satisfactory wage policy:
--- Content provided by FirstRanker.com ---
When the management is suitably rewarding the labour by devising a
satisfactory wage policy, the turnover may be low.
--- Content provided by FirstRanker.com ---
2) Proper work conditions:The management should see that the workers are provided proper
working conditions to ensure their health and safety.
--- Content provided by FirstRanker.com ---
3) Sympathetic attitude of personnel department:
To prevent turnover, the personnel department should have positive and
--- Content provided by FirstRanker.com ---
sympathetic attitude towards the workers and motivate them in the rightperspective.
4) Financial and non financial incentive plans:
--- Content provided by FirstRanker.com ---
To recognize both efficient and normal work, the management must
frame both financial and non financial incentive plans.
--- Content provided by FirstRanker.com ---
5) Promotion opportunities:Majority of the workers will be on the look-out for an opportunity to quit
the organization when there is no scope or little scope for promotion in spite of
--- Content provided by FirstRanker.com ---
satisfactory remuneration. When the opportunities for promotion are more, the
turnover may be low.
--- Content provided by FirstRanker.com ---
6) Labour participation in management:This is one of the recognized ways of recognizing labour, since it gives
the worker a sense of involvement in management and his participation in
--- Content provided by FirstRanker.com ---
managerial affairs will give him the sense of responsibility and he will not think
of leaving the organisation.
--- Content provided by FirstRanker.com ---
7) Effective grievance procedures:The workers must be given explicit and vivid procedures to represent
their grievances so that the grievances could be redressed immediately and
--- Content provided by FirstRanker.com ---
136
reduce the depression of workers. Consequently, his idea to quit on this reason
--- Content provided by FirstRanker.com ---
may be dropped by him.
8) Welfare measures:
--- Content provided by FirstRanker.com ---
Strengthening the welfare measures in general will improve the moraleand motivation of the workers and will reduce turnover.
B) Idle Tine
--- Content provided by FirstRanker.com ---
When the work is measured on the basis of the time spent by the labourer, the
concept of idle time has to be given significance, since it is a factor that affects
--- Content provided by FirstRanker.com ---
the cost of production to a greater extent. Idle time represents time lost by 'timeworkers'. When workers are paid on time basis, there may arise a difference
between the time for which they are paid and that which they actually spend on
--- Content provided by FirstRanker.com ---
production. The difference between the time they spend on the work and the
time for which they are paid represents idle time.
--- Content provided by FirstRanker.com ---
Example:( l) Time lost between the mill' or factory gate to the production department.
(2) Tea breaks
--- Content provided by FirstRanker.com ---
(3) Machine maintenance.
Production causes of idle time: The human resources are wasted to a greater
--- Content provided by FirstRanker.com ---
level at the production point, due to many reasons. When there is a breakdownof machine, then there is idle time of workers for which they are paid. Power
failure is also another reason for idle time in which the wastage is caused by
--- Content provided by FirstRanker.com ---
frequent power failure. This problem could be managed by installing electric
power generators. Sometimes the workers have to be idle for want of
--- Content provided by FirstRanker.com ---
instructions from the foreman or factory engineer. They may also wait for toolsor for the arrival of raw materials. Idle time can be reduced by the strict
supervision and proper maintenance of plant and machinery.
--- Content provided by FirstRanker.com ---
Administrative causes: Idle time may also be caused by administrative
decisions. When there is a surplus capacity of plant and machinery which the
--- Content provided by FirstRanker.com ---
137
management decides not to utilize there may be idle time due to administrative
--- Content provided by FirstRanker.com ---
reason. This will happen during depression period in which some machines areused below capacity and the regular workers are paid full amount of wages. This
type of idle time arises out of abnormal situations and is generally not
--- Content provided by FirstRanker.com ---
controllable by the management.
Economic causes: Idle time may also be caused when there is a fall in demand
--- Content provided by FirstRanker.com ---
for the product, seasonal nature of certain industries etc., in which productioncan't be engaged, and the surplus labour (permanent) ought to be utilised for
doing some other jobs. If the management is not utilizing the manpower in
--- Content provided by FirstRanker.com ---
alternative employment, then there will be idle time.
Types of Idle Time
--- Content provided by FirstRanker.com ---
Normal idle time: Here the wastage of human resources cannot be avoided andhas to be borne by the employer. For example, when the engineering department
takes time for setting the machine when it goes out of order, the labourers have
--- Content provided by FirstRanker.com ---
to wait for which time they have to be paid. As a first method of treating idle
time, it may be charged to factory overhead. Wage rate may be inflated so as to
--- Content provided by FirstRanker.com ---
make allowance for normal loss of labour time.Abnormal idle time: Here the idle time arises due to reasons which are beyond
the control of management. Time lost due to breakdown of machineries, time
--- Content provided by FirstRanker.com ---
lost in waiting for raw materials and tools and accidents are some of the
examples of abnormal idle time and it is adjusted through costing profit and loss
--- Content provided by FirstRanker.com ---
account. The following table is the specimen of an idle time card useful inaccounting for idle time.
Control of idle time:
--- Content provided by FirstRanker.com ---
1. Controllable causes for idle time should be properly analyzed and
responsibility should be fixed on appropriate individuals.
--- Content provided by FirstRanker.com ---
2. Production ought to be planned in proper manner so that imbalances inproduction are avoided or reduced.
--- Content provided by FirstRanker.com ---
138
3. Repairs and maintenance of plant and machinery should be regularly
undertaken to avoid their breakdown.
--- Content provided by FirstRanker.com ---
4. There should not be any interruption in the supply of raw materials.
5. Right tools along with work instruction at the right time will avoid idle time.
--- Content provided by FirstRanker.com ---
6. There must be rigid control and strict supervisory measures to make the workto move without idle time.
C) Absenteeism
--- Content provided by FirstRanker.com ---
Absenteeism is another way in which human resources are wasted. It is a major
concern in most organisations. Employees may be absent from work for several
--- Content provided by FirstRanker.com ---
reasons illness, death in the family, or personal reasons which are unavoidableand understandable. Number of employers have sick policies that allow
employees to take paid absences, a certain number of days per year. The formula
--- Content provided by FirstRanker.com ---
suggested by U.S Department of Labour for computing absenteeism rate is as
follows:
--- Content provided by FirstRanker.com ---
Number of person days lost through job absence during period
--------------------------------------------------------------------------- x IOO
--- Content provided by FirstRanker.com ---
Average number of employees x Number of work days
--- Content provided by FirstRanker.com ---
Reasonable absenteeism: When a labourer or personnel absents him withproper reasons, (illness, death of relatives, urgent personal work, etc.) then the
employer could bear with such absenteeism.
--- Content provided by FirstRanker.com ---
Unreasonable absenteeism: When a labourer or personnel absents himself from
work without genuine reasons, then it is called unreasonable absenteeism' For
--- Content provided by FirstRanker.com ---
example, medical leave may be applied for, by a worker for completing hispersonal works. Perhaps it may be called as .medical leave on non-medical
ground'. Similarly employees may avail casual leave to stretch the week-end on
--- Content provided by FirstRanker.com ---
Friday and Monday.
--- Content provided by FirstRanker.com ---
139Steps to achieve effective absence control:
l) There must be commitment on the part of management to reduce the cost of
--- Content provided by FirstRanker.com ---
absenteeism.2) Another controlling measure of absenteeism is to trust the employees and
provide sickness benefits on the strength of this trust. Yet they should not accept
--- Content provided by FirstRanker.com ---
claims of sickness benefit when the level of sickness absence is unacceptable.
3) Computerized information system is necessary for the successful functioning
--- Content provided by FirstRanker.com ---
of the 'trust' system.4) Absenteeism must be accepted on the basis of a documented attendance
policy.
--- Content provided by FirstRanker.com ---
5) In order to increase the responsibility of the managers and team leaders to
deal with the problem of absenteeism, regular and proper training must be given.
--- Content provided by FirstRanker.com ---
6) Counselling facilities must be given to employees on attendance problems.ORGANIZATIONAL CLIMATE APPROACH
--- Content provided by FirstRanker.com ---
Organizations are social systems. Organizations combine science and
people, technology and humanity. It is not possible for every organization to
--- Content provided by FirstRanker.com ---
have the same type of technology and people and so the organizations differ intheir characteristics and internal environment. The internal environment of an
organization may be called the organizational climate. organizational climate, a
--- Content provided by FirstRanker.com ---
guide for dealing with people serves as a major influence on motivation and
productivity of individuals and total work force. Organizational climate may be
--- Content provided by FirstRanker.com ---
noted as the 'personality' of an organization as conceived by its employees. Theorganizational climate usually has a major influence on motivation, productivity
and job satisfaction. The organizational climate is the major motivating factor
--- Content provided by FirstRanker.com ---
responsible for satisfaction and dissatisfaction of employees in an organization
and affects the quantum of employees' turnover and satisfaction. It refers to the
--- Content provided by FirstRanker.com ---
entire social system of a working group.140
--- Content provided by FirstRanker.com ---
DefinitionsFrench (1985) defined organizational climate as "the relatively persistent set of
perceptions held by organization members concerning the characteristics and
--- Content provided by FirstRanker.com ---
quality of organizational culture."
Keith Davis defines organizational climate as the "the human environment
--- Content provided by FirstRanker.com ---
within which an organizations employees do their work".Campbell defines organizational climate as a "set of attributes specific to a
particular organization that may be deduced from the way that the organization
--- Content provided by FirstRanker.com ---
deals with its members and its environment".
Robert L. Mathis defines it as "composite view of characteristics of an
--- Content provided by FirstRanker.com ---
organization as seen by employees".The gist of the above definitions states that organizational climate is the
perceptional environment prevailing in an organization based on which
--- Content provided by FirstRanker.com ---
employees do their work. It will have a major impact on the smooth flow in the
management of an organisation.
--- Content provided by FirstRanker.com ---
Factors Affecting Organizational ClimateStalwarts in organizational climate concept have used data relating to individual
perception of organization properties in identifying organizational climate.
--- Content provided by FirstRanker.com ---
Litwin and Stringer state six factors which affect organizational climate:
1. Organization Structure: Ideas on the extent of organizational constraints, rules
--- Content provided by FirstRanker.com ---
and regulations.2. Individual responsibility: Having a sense of autonomy of being one's own
boss.
--- Content provided by FirstRanker.com ---
3. Rewards commensurate rewards to recognize performance.
4. Risk and risk taking: The degree of challenge and risk to be sustained by the
--- Content provided by FirstRanker.com ---
incumbent.5. Warmth and support Feelings of general good fellowship and helpfulness
prevailing in work settings.
--- Content provided by FirstRanker.com ---
141
6. Tolerance and conflict. Degree of confidence that the climate can tolerate
--- Content provided by FirstRanker.com ---
differing opinions.
Schneider and Bastlett caption six items that should be included in determining
--- Content provided by FirstRanker.com ---
organizational climate as follows:1. Managerial support,
2. Managerial structure,
--- Content provided by FirstRanker.com ---
3. Concern for new employees,
4. Inter-agency conflict,
--- Content provided by FirstRanker.com ---
5. Agent's dependence and6. General dissatisfaction.
It is very tough to generalize the basic contents of organization climate
--- Content provided by FirstRanker.com ---
based on these studies.
SIGNIFICANCE OF ORGANIZATIONAL CLIMATE
--- Content provided by FirstRanker.com ---
Influence on human performance: When the organizational climate is viable,the incumbent gets motivated and his performance is upto the expectation of the
management. Consequently, he gets job satisfaction that reduces turnover.
--- Content provided by FirstRanker.com ---
Organizational climate provides a type of work environment in which an
individual feels satisfied or dissatisfied. Since satisfaction of individual
--- Content provided by FirstRanker.com ---
determines his efficiency, organizational climate can be said to be directlyrelated to his performance in the organisation. Organisatibnal climate affects
performance, satisfaction and attitudes of people in the organisation. A sound
--- Content provided by FirstRanker.com ---
climate is a long run proposition. Managers need to take an assets approach to
climate, meaning that they take the long run view of climate as an organizational
--- Content provided by FirstRanker.com ---
asset.Performance was more predictable for subjects who worked in a
consistent climate than those who had to work in an inconsistent environmental
--- Content provided by FirstRanker.com ---
climate. Inconsistent climate was having negative impact on productivity. The
organizational climate may be one of trust and confidence or one of fear and
--- Content provided by FirstRanker.com ---
142
reprisal. Various organizational climates have different impacts on individual
--- Content provided by FirstRanker.com ---
motivation, satisfaction and attitudes.The climate of an organization derives originally from the philosophy
and goals of those who join together to create it. The philosophy and goals of
--- Content provided by FirstRanker.com ---
people are implemented by leadership working through formal and informal
organisation. Formal and informal organization provide the structure to bind the
--- Content provided by FirstRanker.com ---
institution together into a working team.All organizations influence their members by means of a control system
that reflects a combination by communication and group processes. The systems
--- Content provided by FirstRanker.com ---
of control in an organization interacts with employee's attitudes and with
situational factors to produce a specific motivation for each employee at a
--- Content provided by FirstRanker.com ---
certain time.The effect of an effective organizational behaviour system is to produce
motivation. Such motivation builds two way relationships. It means that
--- Content provided by FirstRanker.com ---
management and employees are jointly benefited without manipulation of one
party by the other. Each type of employee is in need of a particular climate. In
--- Content provided by FirstRanker.com ---
order to build up a sound climate, executives must understand their people in theorganisation. The significant factor is that what motivates job performance in
general and in building an overall climate conducive to motivation. The
--- Content provided by FirstRanker.com ---
individual differences suggest that there can't be any all purpose organizational
climate. The following are the three models of organizational behaviour based
--- Content provided by FirstRanker.com ---
on which the organizational climate ought to be fixed. Keith Davis identifies thefollowing three models of organizational behaviour.
Models of Organizational Behaviour
--- Content provided by FirstRanker.com ---
1. Autocratic,
2. Custodial,
--- Content provided by FirstRanker.com ---
3. Supportive and4. Collegial
--- Content provided by FirstRanker.com ---
143
1. Autocratic Model
Deep rooted in history, this model claims 'power' as its managerial
--- Content provided by FirstRanker.com ---
orientation. The people who are in command must have the power to demand.
Authority is the only tool by which the manager gets things done. The
--- Content provided by FirstRanker.com ---
employees have to follow the order and have to depend highly on boss attitudefor work climate. McGregor's theory states that human beings are inherently
distasteful to work and try to avoid responsibility. The autocratic model is based
--- Content provided by FirstRanker.com ---
on McGregor's theory. Better performance is ensured through fear, threats,
punishment and occasional rewards. Communication is mostly one way i.e.,
--- Content provided by FirstRanker.com ---
downward (communication flowing from the superior to the subordinate) andthere is little interaction between managers and employees. This model is useful
for accomplishing work where the employees can be motivated through
--- Content provided by FirstRanker.com ---
physiological needs.
Custodial Model
--- Content provided by FirstRanker.com ---
This approach depends on economic resources. If an organization doesnot have the wealth to provide pensions and pay other benefits, it can't follow a
custodial approach. The resulting managerial orientation is towards money to
--- Content provided by FirstRanker.com ---
pay the cost of benefits. Since the employee's physical needs are already
satisfied, he looks to second level security needs as a motivating force. The
--- Content provided by FirstRanker.com ---
employee's dependence on the organization is prominent in custodial approach.since the employees are safe for their bread, they now look for welfare measures
from their employer. Their organizational dependence is augmented and
--- Content provided by FirstRanker.com ---
personal dependence on boss gets reduced to a considerable extent. Especially in
case of senior employees, they can't quit even if the grass looks greener
--- Content provided by FirstRanker.com ---
somewhere else. In a custodial environment, the employees are maintained,happy and contented but they are not strongly motivated. The result is that they
extend only passive co-operation. The employer can't erase the reservations of
--- Content provided by FirstRanker.com ---
the employees over his boss attitude by the perks he gives then and there.
--- Content provided by FirstRanker.com ---
144Though satisfied and feel secure, most employees are not producing anywhere
near their capacities and they are not motivated to work to greater capacity of
--- Content provided by FirstRanker.com ---
which they are capable. The employees are happy but they do not feel fulfilledor self actualized. Thus, custodial approach though looks for economic resources
of keeping the employees happy with perks; it also met with fiasco in bringing
--- Content provided by FirstRanker.com ---
about a self-actualized work force with motivation to achieve the desired result.
Supportive Model
--- Content provided by FirstRanker.com ---
The supportive model of organizational behaviour depends onmanagerial leadership than its dependence on power or money. The focal point
of this model is on participation making process. This model is based on the
--- Content provided by FirstRanker.com ---
assumption that workers move to the maturity level and they expect supportive
measures like communication, leadership, decision-making interaction, control
--- Content provided by FirstRanker.com ---
and influence to fulfill their higher order needs such as, esteem and selfactualization. Supportive model which gives more importance to human aspects
rather than economic resources of the organization crystallizes the role of
--- Content provided by FirstRanker.com ---
managers to help employees to achieve their work rather than supervising them
very closely. Institutions with sophisticated technology and employing
--- Content provided by FirstRanker.com ---
professional people can also apply this model for getting the best out of theirhuman resources. This model best suits for managerial levels rather than
operative levels.
--- Content provided by FirstRanker.com ---
The Collegial Model
It is an extension of the supportive model. This concept is based on team
--- Content provided by FirstRanker.com ---
work that relates to a body of persons having a common purpose. This modeltends to be more useful with unprogrammed work and intellectual environment
and considerable job freedom. The management, under this model should
--- Content provided by FirstRanker.com ---
develop a feeling of partnership with the employees. Managers contribute rather
than extending an autocratic boss attitude. Since team work is the main motto of
--- Content provided by FirstRanker.com ---
this model it brings both the management and workers under a single roof with145
--- Content provided by FirstRanker.com ---
mutual trust. The employees produce with quality, not because of their fear ofthe inspector or the management's word to do so but out of their in-built
obligation to produce goods with quality. With high responsibility, employees
--- Content provided by FirstRanker.com ---
discipline themselves for performance and feel some degree of fulfillment and
self actualization which will lead to moderate enthusiasm in performance. As far
--- Content provided by FirstRanker.com ---
as supportive model is concerned, the maintenance cost of human resource willgradually come down. Since the worker gets the optimistic feeling to work for
his organization with pleasure, there is no need for any additional expenditure
--- Content provided by FirstRanker.com ---
on keeping the morale of the workers.
IMPROVEMENT AIYD DETERIORATION OF ORGANIZATIONAL
--- Content provided by FirstRanker.com ---
CLIMATEAutocratic Model
The first model of organizational behaviour creates a climate in which
--- Content provided by FirstRanker.com ---
the feelings of the workers are suppressed and they have to just be obedient and
tolerative with the autocratic behaviour of the employer. The personal
--- Content provided by FirstRanker.com ---
relationship between the employer and the employee is not upto the mark. Thelabour turnover will be considerable when there is high dissatisfaction of the
employees with their boss since they have no other alternative except to leave
--- Content provided by FirstRanker.com ---
the job. In case of bottleneck in production or marketing, the employees simply
keep mum and they never come out with suggestions for solving the problem.
--- Content provided by FirstRanker.com ---
When the worker leaves his Job, he will burst out with his boss withthick words coming from his soul and he will never have an idea to re-enter the
service. As far as autocratic model is concerned the workers sustain a tight
--- Content provided by FirstRanker.com ---
organizational climate and they continue in the firm only for satiating their
physical needs and they have no peaceful organizational climate. In toto under
--- Content provided by FirstRanker.com ---
autocratic model, there is little chance for the improvement of the climate andthere are more chances for the
deterioration of the existing climate.
--- Content provided by FirstRanker.com ---
146
Custodial Model
--- Content provided by FirstRanker.com ---
In custodial model of organizational behaviour, as the employee already
satisfies his physiological needs, he looks up to his boss for some second line
--- Content provided by FirstRanker.com ---
benefits. In this climate ample chances are there to increase the climate byoffering second line benefits like pension benefit. Since these benefits are
guaranteeing welfare measures both for himself and his family, it creates viable
--- Content provided by FirstRanker.com ---
and improved climate under which the worker comes forward with voluntary
endeavour to work for the organization with involvement.
--- Content provided by FirstRanker.com ---
But once the benefits awarded to the workers is withdrawn by theemployer as their custodian, he has to eat the crow because the workers will lose
their confidence and morale and look at the employer will suspicion and now the
--- Content provided by FirstRanker.com ---
climate will deteriorate and ultimately workers will be pushed to the tight corner
of seeking the trade union mode to get back the benefits they have enjoyed
--- Content provided by FirstRanker.com ---
earlier. But the labour turnover will not be more because they enjoy goodclimate with their work and their main aim is to look for welfare measures for
their family. They will work and raise routine voices for the benefits they have
--- Content provided by FirstRanker.com ---
lost earlier. In this custodial behaviour system, the climate will be improved a
lot and little chances are there for deterioration. Since the workers will adopt
--- Content provided by FirstRanker.com ---
"stay and fight" strategy for regaining their facilities enjoyed earlier, the labourturnover will be less.
Supportive Model
--- Content provided by FirstRanker.com ---
In supportive model, since democratic attitudes are more in the
behaviour of the employer, there will be a lot of improvement in the
--- Content provided by FirstRanker.com ---
organizational climate instead of creating a climate through authority as in thecase of autocratic model or through economic resources in case of custodial
model. The employer creates a super organizational climate by his supportive
--- Content provided by FirstRanker.com ---
role as a leader. Under this behaviour system, the workers have the inclination to
improve their performance since they have enough Job satisfaction and further
--- Content provided by FirstRanker.com ---
147
scope of improving themselves in the organisation. There will be mutual trust
--- Content provided by FirstRanker.com ---
between the employer and the employee. The employee will start thinking of thewelfare of the organisation. He will come out from the tight shell of distrust and
grudge with his employer and ready even to participate in the management.
--- Content provided by FirstRanker.com ---
Chances for deterioration of the good organizational climate are less.
Since the employees' needs are met in a higher order, they voluntarily opt
--- Content provided by FirstRanker.com ---
themselves for higher performance and contingencies sustained by themanagement will be shouldered by the employees also. As a result, the employer
and employees will have a fine convergence and the improved organizational
--- Content provided by FirstRanker.com ---
climate will be at its maximum and deterioration would be a rare factor.
HUMAN RESOURCES ACCOUNTING AND ORGANIZATIONAL
--- Content provided by FirstRanker.com ---
CLIMATEIn the case of autocratic model, due to unviable organizational climate,
there will be increase in the cost of recruitment for filling the vacancies caused
--- Content provided by FirstRanker.com ---
by the labour turnover. Since the workers will be up to the expectation of
employer only out of their fear of losing employment they will follow "work to
--- Content provided by FirstRanker.com ---
rule" attitude. The autocratic model will tempt the workers to increase the costof production. This could be possible even by efficient workers as illustrated
below. In a textile mill, for a worker at the spinning point, 2 percent of the input
--- Content provided by FirstRanker.com ---
is allowed as wastage. For example for 100 kg of raw cotton, he should give an
output of 98 kg of yarn. An efficient worker who is capable of giving 100
--- Content provided by FirstRanker.com ---
percent output without wastage may voluntarily go in for utilizing the gap ofwasting 2 percent of the output since it may be one of the outlets for expressing
his discontent over the autocratic behaviour of the employer and the bad
--- Content provided by FirstRanker.com ---
organizational climate he sustains with him.
As far as the custodial system of organizational behaviour is concerned,
--- Content provided by FirstRanker.com ---
the employer has to spend additionally on maintaining the human resources.148
--- Content provided by FirstRanker.com ---
Since the employer is spending more on welfare measures, the cost will be morebut it may be compensated by the increased productivity and reduced wastages.
DETERMINATION OF CHANGES IN HUMAN RESOURCES
--- Content provided by FirstRanker.com ---
VARIABLES:
The human resources planning is the systematic and continuing process
--- Content provided by FirstRanker.com ---
of analyzing an organizations human resource needs under changing conditionsand developing personnel policies appropriate to the longer-term effectiveness
of the organisation. It is an inner part of corporate planning and budgeting
--- Content provided by FirstRanker.com ---
procedures. One of the main objectives of human resource planning is to
anticipate the changes in human resources variables i.e., potential surplus or
--- Content provided by FirstRanker.com ---
deficit of people. The human resources variables can be classified into twocategories:
a) Casual Variables
--- Content provided by FirstRanker.com ---
These variables incorporate occasional changes, but any change done so
will lead to a major change in the organizational culture and future trend (eg.,
--- Content provided by FirstRanker.com ---
organizational structure, management policies, plans, business strategies,leadership, skills, behaviour etc.
b) Intervening Variables
--- Content provided by FirstRanker.com ---
These variables reflect the internal health of the enterprise. They include
loyalties,
--- Content provided by FirstRanker.com ---
attitudes,motivations,
morale,
--- Content provided by FirstRanker.com ---
interpersonal
interaction,
--- Content provided by FirstRanker.com ---
communication, decision making etc., These are controllable variables whichcould be kept under the control of the employer by taking consistent effort to
maintain the morale, motivation, loyalties and attitude of the employees by
--- Content provided by FirstRanker.com ---
various measures. Right decision with proper communication will keep these
intervening variables at the equilibrium point. Changes in these variables are
--- Content provided by FirstRanker.com ---
very common and it leads to changes in the number of people and hours of workavailable, the capacity of employees to do the work and their productivity.
--- Content provided by FirstRanker.com ---
149
The changes in human resource variable arise mainly due to the
following reasons:
--- Content provided by FirstRanker.com ---
a) Potential changes to existing resources through internal promotions.
b) Potential losses to existing resources through employee wastage.
--- Content provided by FirstRanker.com ---
c) Effect of changing conditions of work and absenteeism.d) Age distribution of employees which may lead to a sudden rise in retirement.
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
Causes of Employee TurnoverEmployee wastage is a main factor that causes changes in the human
resources variable. The various reasons causing labour wastage or turnover are
--- Content provided by FirstRanker.com ---
listed below:
Pay: Problems in regard to pay arises because of uncompetitive, inequitable or
--- Content provided by FirstRanker.com ---
unfair pay systems. The following actions may revive the bottleneck caused bypay:
l) Reviewing pay levels on the basis of market surveys.
--- Content provided by FirstRanker.com ---
2) Introducing job evaluation or improving an existing scheme to provide for
equitable grading decisions.
--- Content provided by FirstRanker.com ---
3) Ensuring that employees understand the link between performance andreward.
4) Reviewing performance related pay schemes to ensure that they operate
--- Content provided by FirstRanker.com ---
fairly.
5) Adopting payment by results systems to ensure that employees are not
--- Content provided by FirstRanker.com ---
penalized when they are engaged only on short runs.6) Tailoring benefits to individual requirements and preferences.
7) Involving employees in developing and operating job evaluation and
--- Content provided by FirstRanker.com ---
performance related pay systems.
--- Content provided by FirstRanker.com ---
150Jobs: Dissatisfaction results when jobs are unrewarding in themselves. Jobs
should be designed to maximize skill variety, task significance, autonomy and
--- Content provided by FirstRanker.com ---
feedback and they should provide opportunities for learning and growth.Performance. Employees can be de-motivated if they are unclear about their
responsibilities or performance standards or uninformed about how well they are
--- Content provided by FirstRanker.com ---
doing or feel that their performance assessments are unfair.
The following solutions are recommended:
--- Content provided by FirstRanker.com ---
l) To express performance requirements in terms of hard but attainable goals.2) To get employees and managers to agree on those goals and the steps required
to achieve them.
--- Content provided by FirstRanker.com ---
3) To encourage managers to praise employees for good performance but also
get them to provide regular information and easily interpreted feedback.
--- Content provided by FirstRanker.com ---
4) To train managers in performance review techniques such as counselling.5) To brief the employees on how the management system works and obtain
feedback from them on how it has been applied.
--- Content provided by FirstRanker.com ---
Training: More resignations and turnover will be there if people are not
properly trained or feel that demands are being made upon them which they
--- Content provided by FirstRanker.com ---
can't reasonably be expected to fulfill without proper training. Trainingprogrammes and training schemes should be developed so that employees get
competence and confidence to achieve expected performance standards. The
--- Content provided by FirstRanker.com ---
training programme should be designed to acquire new skills and competence.
Career development: Dissatisfaction with career prospects is a major cause of
--- Content provided by FirstRanker.com ---
turnover. The idea of providing 'cradle to grave' careers is no longer relevant inthe more changeable job markets of today. Individuals as incumbents possess
'portfolio' of skills and may consciously change direction several times during
--- Content provided by FirstRanker.com ---
their careers. For maintaining a stable workforce employers should plan to
provide career opportunities by providing more promotion opportunities and
--- Content provided by FirstRanker.com ---
equitable promotion procedures.151
--- Content provided by FirstRanker.com ---
Commitment. The following are the ways to increase the commitment of theemployees towards the achievement of the goals of the organization:
l) To explain the organizations mission, values and strategies and encouraging
--- Content provided by FirstRanker.com ---
employees to discuss and comment on them.
2) To seek and take into account the views of people at work.
--- Content provided by FirstRanker.com ---
3) To introduce job changes only after consultation and discussion.4) To provide opportunities for employees to contribute their ideas on improving
work systems.
--- Content provided by FirstRanker.com ---
Lack of group cohesion: The employees of an organization can feel isolated
and unhappy if they are not part of a cohesive team or if they are bedevilled by
--- Content provided by FirstRanker.com ---
disruptive power politics. To solve this problem, autonomous work groups mustbe established and rewarding people for working effectively as members of
teams and developing team work skills.
--- Content provided by FirstRanker.com ---
Dissatisfaction and conflict with managers and supervisors: The
management in general or the individual manager may unfairly treat the
--- Content provided by FirstRanker.com ---
employees which may cause turnover and this problem should be remedied byselecting managers and team leaders with well developed leadership qualities.
Another way is to introduce better procedures for handling grievances and
--- Content provided by FirstRanker.com ---
disciplinary problems.
Recruitment, selection and promotion: Rapid turnover can result simply from
--- Content provided by FirstRanker.com ---
poor selection or promotion decisions. It is essential to ensure that selection andpromotion procedures match the capacities of individuals to the demands of the
work they have to do.
--- Content provided by FirstRanker.com ---
COST REDUCTION
Cost reduction is defined as the achievement of real and permanent
--- Content provided by FirstRanker.com ---
reduction in the unit cost of goods manufactured or services rendered withoutimpairing their suitability for use intended. Cost reduction must be real and
--- Content provided by FirstRanker.com ---
152
increase productivity. It must be permanent and should not impair the suitability
of products or services for the intended use.
--- Content provided by FirstRanker.com ---
Scope and Areas of Cost Reduction
The scope of cost reduction is wide and it could be applied to wherever
--- Content provided by FirstRanker.com ---
cost is incurred. In many organizations the cost of human resources is very high.The top management should find ways by which the cost of human resources is
reasonably reduced. Any abnormal reduction of cost in this regard may lead to
--- Content provided by FirstRanker.com ---
unfavourable climate. In autocratic type of climate the human resources cost will
be reduced since the employer is not so particular about keeping the morale of
--- Content provided by FirstRanker.com ---
the employees high and to motivate them for higher productivity. Since betterperformance is ensured through fear, threat, punishment and occasional rewards,
there is no need for spending on welfare cost.
--- Content provided by FirstRanker.com ---
In custodial model, over and above their normal salary and wages the
workers look out for welfare measures for which the management has to spend
--- Content provided by FirstRanker.com ---
additional amount. So cost reduction is not fully possible here. In supportivemodel of organizational behaviour, the management extends leadership and
support to the employees for job performance. Here the employees' needs are
--- Content provided by FirstRanker.com ---
met in High Order. So it may lead to increased cost. But their future
performance may be high which may lead to increased productivity and
--- Content provided by FirstRanker.com ---
ultimately lead to cost reductions.Future Performance
The human resources cost will increase when custodial and supportive
--- Content provided by FirstRanker.com ---
model of organizational systems are in vogue. The consequent result will be
increased work performance and productivity.. When productivity increases it
--- Content provided by FirstRanker.com ---
will reduce ultimate cost of production. In toto, the concepts of increased costand cost reduction are changing frequently in regard to the cost incurred on
human resources. The future performance of the human resources depends upon
--- Content provided by FirstRanker.com ---
the organizational climate. In autocratic model, of course, the employer can
--- Content provided by FirstRanker.com ---
153reduce cost by suppressing the human resources. But such cost reduction is a
temporary one. The workers, who are dissatisfied with work, wait for the apt
--- Content provided by FirstRanker.com ---
time to quit the job which may lead to labour turnover and subsequent increasein cost due to new recruitment and less productivity. Even workers, who
continue, may not perform up to expectations. In concluding remarks, the human
--- Content provided by FirstRanker.com ---
resources, could be stated as a variable factor which causes both increase in cost
and cost reduction which are the factors dominantly affecting the future
--- Content provided by FirstRanker.com ---
performance of the human resource structure of the organization.Books for further study:
1. Theodre W. Schultz, "Investment in Human Capital", The Americal
--- Content provided by FirstRanker.com ---
Reviwe, Vol. I.
2. Caplan E. H. and Landekich, S., "Human Resource Accounting: Past,
--- Content provided by FirstRanker.com ---
Present and Future"Questions:
--- Content provided by FirstRanker.com ---
1. How to determine rate of return on investment in human resource?
2. Explain the factors affecting the organizational climate.
--- Content provided by FirstRanker.com ---
3. Explain the organizational behaviour with a suitable diagram.4. Explain the various models of organizational behaviour.
5. How the organizational climate improves and deteriorates under various
--- Content provided by FirstRanker.com ---
models of organizational behaviour?
6. What are the various reasons that cause the wastage of human resources?
--- Content provided by FirstRanker.com ---
7. Explain the salient features which treat human resources as an asset.8. Explain the ingredients of historical cost of human resources.
9. Explain the various categories of investment in human resources.
--- Content provided by FirstRanker.com ---
10. Explain the impact of organizational behaviour in labour turnover.
11. Explain the cause of labour turnover.
--- Content provided by FirstRanker.com ---
154
12. Explain the various ways how human resources are lost and what are the
--- Content provided by FirstRanker.com ---
measures you suggest to prevent labour turnover.13. What is Cost reduction in human resources?
14. State the areas of Cost reduction in human resource
--- Content provided by FirstRanker.com ---
15. What is relationship between cost reduction and future performance
16. What is Training Cost?
--- Content provided by FirstRanker.com ---
17. What is Relocation Cost?18. What is Separation Cost?
19. What is Support Cost?
--- Content provided by FirstRanker.com ---
20. What is Personal Overhead Cost?
--- Content provided by FirstRanker.com ---
155
Responsibility Accounting
--- Content provided by FirstRanker.com ---
Introduction:
--- Content provided by FirstRanker.com ---
The systems of costing like standard costing and budgetary control are
--- Content provided by FirstRanker.com ---
useful to management for controlling the costs. In those systems the emphasis ison the devices of control and not on those who use such devices. Responsibility
accounting is a system of control where responsibility is assigned for the control
--- Content provided by FirstRanker.com ---
of costs. The persons are made responsible for the control of costs.
Responsibility accounting implies a system of accounting whereby the
--- Content provided by FirstRanker.com ---
performance of various people is judged by assessing how far they haveachieved the predetermined targets set for the divisions, departments or sections
for which they are responsible. each person is responsible for his area of
--- Content provided by FirstRanker.com ---
operation. Responsibility accounting is similar to any other system of cost such
as standard costing or budgetary control but with greater emphasis towards
--- Content provided by FirstRanker.com ---
fixing of the responsibility of the persons entrusted with the execution ofspecific job. For example, if Mr. X has prepared the cost budget of his
department, he will be made responsible for keeping the costs under control.
--- Content provided by FirstRanker.com ---
Mr. X will be supplied with detailed information of actual costs incurred by his
department. In case the costs are more than budgeted costs, then A will try to
--- Content provided by FirstRanker.com ---
find out the reasons and take corrective measures. X will be personallyresponsible for the performance of his department.
--- Content provided by FirstRanker.com ---
Definition
--- Content provided by FirstRanker.com ---
Responsibility accounting is a system under which managers are given
decision-making authority and responsibility for each activity occurring within a
--- Content provided by FirstRanker.com ---
specific area of the company. Under this system managers are made responsible
156
--- Content provided by FirstRanker.com ---
for the activities of segments. These segments may be called departments ordivisions.
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
1
--- Content provided by FirstRanker.com ---
Eric Kohier defines responsibility accounting as "a method of accounting
in which costs are identified with persons assumed to be capable of controlling
--- Content provided by FirstRanker.com ---
them, rather than with products or functions. It differs from activity accounting,in that it does not in itself require an organizational grouping by activities and
sub-activities or provide a systematic criterion of system design."
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
Charles T. Horngreen defines "Responsibility accounting is a system ofaccounting that recognizes various responsibility centers throughout the
organization and reflects the plans and actions of each of these centers by
--- Content provided by FirstRanker.com ---
assigning particular revenues and costs to the one having the pertinent
responsibility. It is also called profitability accounting and activity accounting".
--- Content provided by FirstRanker.com ---
The following inferences can be made from the above definitions:
--- Content provided by FirstRanker.com ---
(1) Responsibility accounting stresses on communication of information
--- Content provided by FirstRanker.com ---
ingeneral and accounting information in particular to various decisional
--- Content provided by FirstRanker.com ---
centers.
--- Content provided by FirstRanker.com ---
(2) Responsibility accounting lays greater emphasis on persons (humanfactor
management)
--- Content provided by FirstRanker.com ---
(3) Responsibility accounting is tailored to the organizational structure
--- Content provided by FirstRanker.com ---
so that the157
--- Content provided by FirstRanker.com ---
process of communication of information follows principles oforganization.
--- Content provided by FirstRanker.com ---
(4) It is an accounting system which collects and report both planned
and actual
--- Content provided by FirstRanker.com ---
accounting data in terms of sub-units which are
recognized as responsibility
--- Content provided by FirstRanker.com ---
centers.
--- Content provided by FirstRanker.com ---
Steps Involved in Responsibility Accounting--- Content provided by FirstRanker.com ---
Responsibility accounting is used as a control device. Following steps
are necessary to effect control through the responsibility accounting:
--- Content provided by FirstRanker.com ---
(1) The organization is divided into various responsibility centers. Eachresponsibility centre is put under the charge of a responsibility
manager.
--- Content provided by FirstRanker.com ---
2
--- Content provided by FirstRanker.com ---
(2) The targets or budgets of each responsibility centre are set inconsultation with the manager of responsibility centre so that he may
be able to give full information about his department. The manager
--- Content provided by FirstRanker.com ---
of responsibility centre should know as what is expected of him ?
each centre should have a clear set of goals. The responsibility and
--- Content provided by FirstRanker.com ---
authority of each centre should be well defined.(3) Managers are charged with the items and responsibility over which
they can exercise a significant degree of direct control.
--- Content provided by FirstRanker.com ---
(4) Goals defined for each area of responsibility should be attainable
with efficient and effective performance.
--- Content provided by FirstRanker.com ---
(5) The actual performance is communicated to the managers concerned.If it falls short of the standards, the variances are conveyed to the top
--- Content provided by FirstRanker.com ---
158
management. The names of persons responsible for the variances
are also conveyed so that responsibility may be fixed.
--- Content provided by FirstRanker.com ---
(6) The performance reports for each centre should be prepared
highlighting the variances and items requiring managements
--- Content provided by FirstRanker.com ---
attention. the corrective measures are suggested or taken andcommunicated to the concerned managers of the centers.
--- Content provided by FirstRanker.com ---
Responsibility centers
--- Content provided by FirstRanker.com ---
Responsibility accounting focuses attention on responsibility centers. A
responsibility centre is a sub-unit of an organization under the supervision of a
--- Content provided by FirstRanker.com ---
manager who has the responsibility for the activities of that responsibility centre.
Each sub-unit has certain activities to perform and its manager is assigned the
--- Content provided by FirstRanker.com ---
responsibility and / or authority to carry out those activities. responsibilitycentre is the segment of business with reference to which information will be
communicated to pin point responsibilities. In the words of Anthony and Races,
--- Content provided by FirstRanker.com ---
"A responsibility centre is like an engine in that it has inputs, which are physical
quantities of material, hours of various types of labor, and a variety of services;
--- Content provided by FirstRanker.com ---
it works with these resources usually; working capital and fixed3
assets are also required. As a result of this work, it produces output, which are
--- Content provided by FirstRanker.com ---
classified either as goods, it they are tangible or as services, if they are
intangible. These goods or services go either to other responsibility centers
--- Content provided by FirstRanker.com ---
within the company or to customers in the outside would." Responsibilitycentres, for panning and control purposes, is classified into the following cases:
--- Content provided by FirstRanker.com ---
(A) Expense Centre: An expense centre is a responsibility centre in
which inputs, but not outputs, are measured in monetary terms.
--- Content provided by FirstRanker.com ---
159
Expense or cost centre is a segment of an organization in which the
--- Content provided by FirstRanker.com ---
managers are held responsible for the costs incurred in that segment.Responsibility accounting is based on financial information relating
to input (costs) and outputs (Revenues). In an expense centre of
--- Content provided by FirstRanker.com ---
responsibility, the accounting system records only the cost incurred
in/by the centre or unit but revenues earned (output) are excluded.
--- Content provided by FirstRanker.com ---
In case of certain responsibility centres, it is neither possible nornecessary to measure the output in terms of monetary units. Most of
the service departments come in this category.
--- Content provided by FirstRanker.com ---
(B) Revenue Centre: A revenue centre is a segment of the
organization which is primarily responsible for generating sales
--- Content provided by FirstRanker.com ---
revenue. A revenue centre manager does not possess control overcost, investment in assets, but usually has control over some of the
expenses of the marketing department. The performance of a
--- Content provided by FirstRanker.com ---
revenue centre is evaluated by comparing the actual revenue with
budgeted revenue. The marketing manager of a product line, or an
--- Content provided by FirstRanker.com ---
individual sales representative are example of revenue centers.(C) Profit Centre: A responsibility centre is called a profit centre
when the manager is held responsible for both costs (inputs) and
--- Content provided by FirstRanker.com ---
revenues (outputs) and thus for profit. A profit centre is a big
segment of activity for which both revenues and costs are
--- Content provided by FirstRanker.com ---
accumulated. A centre whose performance is measured in terms ofboth ? the expense it incurs and revenue it earns, is termed as a
profit centre. The output of a responsibility centre may either be
--- Content provided by FirstRanker.com ---
meant for internal consumption or for outside customers. In the
latter case the revenue is realized when the sales are made. That is,
--- Content provided by FirstRanker.com ---
when the output is meant for outsider4 s , then the revenue will be
measured from the price charged from customers. If the output is
--- Content provided by FirstRanker.com ---
160
meant for other responsibility centre, then management takes a
--- Content provided by FirstRanker.com ---
decision whether to treat the centre as profit centre or not. In fact,
any responsibility centre can be turned into a profit centre by
--- Content provided by FirstRanker.com ---
determining a selling price for its outputs. For instance, in case of aprocess industry, the output of one process may be transferred to
another process at a profit by taking into account the market price.
--- Content provided by FirstRanker.com ---
Such transfers will give some profit to that responsibility centre.
although such transfers do not increase the Companys assets, they
--- Content provided by FirstRanker.com ---
help in management control process.(D) Investment Centre: It is defined as a responsibility centre in
which inputs are measured in terms of cost/expenses and outputs are
--- Content provided by FirstRanker.com ---
measured in terms of revenues and in which assets employed are
also measured. A responsibility centre is called an investment
--- Content provided by FirstRanker.com ---
centre, when its manager is responsible for costs and revenues aswell as for the investment in assets used by his centre. He is
responsible for maintaining a satisfactory return on investment i.e.
--- Content provided by FirstRanker.com ---
revenues, expenses and the amounts invested in the centers assets.
The manager of an investment centre is required to earn a
--- Content provided by FirstRanker.com ---
satisfactory return. Thus, return on investment (ROI) is used as theperformance evaluation criterion in an investment centre.
--- Content provided by FirstRanker.com ---
Advantages of Responsibility Accounting
--- Content provided by FirstRanker.com ---
The following are some of the advantages of responsibility accounting:
--- Content provided by FirstRanker.com ---
1. It introduces sound system of control ? a system of closer
control.
--- Content provided by FirstRanker.com ---
161
2. Each and every individual in the organization is assigned
--- Content provided by FirstRanker.com ---
some responsibility and they are accountable for their work.3. Everybody knows what is expected of him. Nobody can shift
responsibility to anybody else if something goes wrong.
--- Content provided by FirstRanker.com ---
5
--- Content provided by FirstRanker.com ---
4. It is effective tool of cost control and cost reduction appliedwith budgetary control and standard costing.
5. It facilitates the management to set realistic plans and
--- Content provided by FirstRanker.com ---
budgets.
6. It is not only a control device but also facilitates
--- Content provided by FirstRanker.com ---
decentralization of decision-making.7. It measures the performance of individuals in an objective
manner.
--- Content provided by FirstRanker.com ---
8. It fosters a sense of cost-consciousness among managers and
their subordinates.
--- Content provided by FirstRanker.com ---
9. It helps the management to make an effective delegation ofauthority and required responsibility as well.
10. Under the system of responsibility accounting, detailed
--- Content provided by FirstRanker.com ---
information is collected about costs and revenues, on a
continuous basis and the data is helpful in planning for future
--- Content provided by FirstRanker.com ---
costs and revenues.11. Timely corrective action can be taken and better control over
costs can be achieved.
--- Content provided by FirstRanker.com ---
Cost centers vs. Responsibility centers
--- Content provided by FirstRanker.com ---
162
--- Content provided by FirstRanker.com ---
A cost center is "a location, person or item of equipment (or group of
these) for which costs may be ascertained and used for purposes of cost control".
--- Content provided by FirstRanker.com ---
Thus, cost center is used as a means of assembling items of cost, so that they can
be assigned to goods and services. In the case of cost centre, emphasis is not on
--- Content provided by FirstRanker.com ---
the persons who may be managing a level or product or process.Responsibility centers, on the other hand, are established on the basis of
--- Content provided by FirstRanker.com ---
responsibility delegated to responsible personnel of the organization with a view
to identify costs which can be controlled by each one of them. However, cost
--- Content provided by FirstRanker.com ---
centres sometimes may be used as responsibility centers too. In that case costreports are prepared both cost centre-wise and responsibility-centre-wise.
--- Content provided by FirstRanker.com ---
6
--- Content provided by FirstRanker.com ---
Transfer Prices--- Content provided by FirstRanker.com ---
The measurement of profit in a profit centre type of responsibility
accounting is also complicated by the problem of transfer prices. A transfer
--- Content provided by FirstRanker.com ---
price is a price used to measure the value of goods/services furnished by a profitcentre to other responsibility center within a company. That is, when internal
exchange of goods and services take place between the different divisions of a
--- Content provided by FirstRanker.com ---
firm, they have to be expressed in monetary terms. The monetary amount for
these inter-divisional exchanges/transfers is called the transfer price. While
--- Content provided by FirstRanker.com ---
determining transfer prices a number of criteria should be carefully considered:1. Transfer prices should help in the accurate measurement of divisional
--- Content provided by FirstRanker.com ---
performance (profitability) measurement.
--- Content provided by FirstRanker.com ---
1632. Transfer prices should motivate the divisional managers into
maximizing the profitability of their divisions and making decisions
--- Content provided by FirstRanker.com ---
that are in the best interest of the organization as a whole.3. Transfer prices should ensure that divisional autonomy and authority
is preserved.
--- Content provided by FirstRanker.com ---
4. Transfer prices should allow goal congruence to take place, which in
effect means that the objectives of divisional managers are
--- Content provided by FirstRanker.com ---
compatible with the objectives of overall company.--- Content provided by FirstRanker.com ---
Transfer price policies refer to the selection of policies/methods that
would govern the calculations of such prices under various circumstances. The
--- Content provided by FirstRanker.com ---
concern of transfer price policies is with developing a transfer pricing systemthat (i) allows a measure of performance to reflect the use of resources by a
division, and (ii) allows the optimal allocation of the firms resources. In other
--- Content provided by FirstRanker.com ---
words, suitable transfer prices should be related to (a) management performance
assessment, and (b) decision-optimization.
--- Content provided by FirstRanker.com ---
7
--- Content provided by FirstRanker.com ---
Chiefly there are two methods of transfer pricing ? cost based and
--- Content provided by FirstRanker.com ---
market based. Based or, these, there are many types of transfer pricing ? costprice, marginal cost price,
standard cost price, cost plus fixed margin, market price, negotiated price,
--- Content provided by FirstRanker.com ---
opportunity cost price etc. Each type of transfer pricing have advantages and
disadvantages too.
--- Content provided by FirstRanker.com ---
COST CONTROL THROUGH RESPONSIBILITY ACCOUNTING
--- Content provided by FirstRanker.com ---
164
--- Content provided by FirstRanker.com ---
The essence of responsibility accounting, as discussed above, is the
collection of costs according to responsibility centers in order that variances
--- Content provided by FirstRanker.com ---
from standard costs and budgets can be identified with persons, and based on thecauses of variances, corrective actions may be initiated. Reports are prepared to
inform a responsibility centre manager how well he has performed in terms of
--- Content provided by FirstRanker.com ---
costs. The purpose is not to indicate failure or to find fault. To be effective,
control must be conceived as a means of locating those activities and people in
--- Content provided by FirstRanker.com ---
the organization in need of help so that assistance can be rendered and the scarceresources of the firm more effectively utilised.8
--- Content provided by FirstRanker.com ---
Controllable and Non-controllable Costs
--- Content provided by FirstRanker.com ---
For each responsibility centre costs should be classified as controllable
and non-controllable.9 Responsibility accounting is based on the notion that a
--- Content provided by FirstRanker.com ---
responsibility centre manager should be help accountable for controllable costs.
Since we have already discussed the concepts of controllable and non-
--- Content provided by FirstRanker.com ---
controllable costs earlier. We focus on important points here. A cost is said tobe controllable when it may be regulated by a person at a given level of
responsibility during a specified time period. Non-controllable costs are those
--- Content provided by FirstRanker.com ---
costs over which a person, at a given level of authority and during a specified
time period, has no control. Level of responsibility and time are the two factors
--- Content provided by FirstRanker.com ---
which demarcate between controllable and non-controllable costs. Costs whichare not controllable at one level of responsibility would always be controllable at
another level.
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
8165
--- Content provided by FirstRanker.com ---
For example, factory rent may be non-controllable by the plant superintendentbut would be controllable by the plant manager or by some higher authority.
Time also has an effect on controllability. A cost non-controllable in the short
--- Content provided by FirstRanker.com ---
run would be controllable in the long run. For example, if management has
committed to a contract for a period, then it is not controllable for that period.
--- Content provided by FirstRanker.com ---
However, it can be controlled by management at the time when contract comesup for renewal.
--- Content provided by FirstRanker.com ---
Responsibility Reporting
--- Content provided by FirstRanker.com ---
Responsibility reporting is the crucial phase of responsibility accounting.
Responsibility reporting requires grouping and defining responsibility within an
--- Content provided by FirstRanker.com ---
organization structure, determining and assigning costs to appropriate levels andactivities and placing a strong emphasis on cost controllability. Reports
prepared under responsibility accounting may be known as performance
--- Content provided by FirstRanker.com ---
reports.10 These reports are prepared with the purpose of:
--- Content provided by FirstRanker.com ---
1. informing each manager of his achievement in controlling costs of
his centre;
--- Content provided by FirstRanker.com ---
2. pointing out each managers accountability for costs incurred; and
3. presenting cost information in such a way that motivates each
--- Content provided by FirstRanker.com ---
manager to take remedial action for improved future performance.--- Content provided by FirstRanker.com ---
In preparing performance reports, management should focus attention on
three aspects: (a) frequency of reporting; (b) details to be presented in reports;
--- Content provided by FirstRanker.com ---
(c) format of reports. The amount of details and frequency of reports depend onthe management level
--- Content provided by FirstRanker.com ---
166
For which reports are being made. First line supervisors, for instance, would
need reports more frequently with considerable details, expressed in physical as
--- Content provided by FirstRanker.com ---
well as financial terms. Management at higher level, on the other hand, would
need condensed reports, containing only that information that needs their
--- Content provided by FirstRanker.com ---
attention and action. Reporting to higher levels of management would not betoo frequent. What is important is that reporting should be timely; that is,
information should be made available to management
--- Content provided by FirstRanker.com ---
9
when it needs. As regards the format, reports should be comprehensive. They
--- Content provided by FirstRanker.com ---
should clearly indicate activities controllable by the manager. Both actual andbudgeted performance with variances should be given. It is also desirable that
explanations, whenever possible, for the occurrence of variances and the
--- Content provided by FirstRanker.com ---
remedial action taken or to be taken may also be given. The criterion to decide
about contents of reports should be the usefulness of information for indicating
--- Content provided by FirstRanker.com ---
accountability and controlling cost. Reports should not be presented in highlytechnical and complicated manner. They should be easily understood even by
non-accounting managers.
--- Content provided by FirstRanker.com ---
HUMAN RESOURCE ACCOUNTING
--- Content provided by FirstRanker.com ---
INTRODUCTION AND DEVELOPMENT
--- Content provided by FirstRanker.com ---
Merits. According to the authors of this approach, a bidding process,
--- Content provided by FirstRanker.com ---
such as this, is a promising approach towards (a) more optimal allocation ofpersonnel and (b) a quantitative base for planning, evaluating and developing
human assets of the firm.
--- Content provided by FirstRanker.com ---
Limitations. This approach has several limitations:
--- Content provided by FirstRanker.com ---
167(i)
It has narrowed down the concept of opportunity cost by
--- Content provided by FirstRanker.com ---
restricting it to the next best use of the employee within the sameorganization.
(ii)
--- Content provided by FirstRanker.com ---
It has specifically excluded from its purview those employees
who are not scarce or are not being bid by other department. This
--- Content provided by FirstRanker.com ---
is likely to result in lowering morale and productivity of theemployees, who are not covered by the competitive bidding
process.
--- Content provided by FirstRanker.com ---
(iii)
The total valuation of human resources base on this method may
--- Content provided by FirstRanker.com ---
be misleading and inaccurate. This is because a person may be anexpert in a particular area and therefore may be useful for one
department but useless for another department. Thus, he may be
--- Content provided by FirstRanker.com ---
a valuable person for the department he is working and command
a high value. However, he may have a lower price in the bid by
--- Content provided by FirstRanker.com ---
the other department where his services are not at all required.Standard Cost Approach
--- Content provided by FirstRanker.com ---
10
--- Content provided by FirstRanker.com ---
This approach has been suggested by David Watson. According to the is
approach, standard costs of recruiting, hiring, training and developing per grade
--- Content provided by FirstRanker.com ---
of employees are determined year after year. The standard cost so arrived at for
all human beings employed in the organization is the value of human resources
--- Content provided by FirstRanker.com ---
for accounting purposes.The approach in easy to explain and can work as a suitable basis for
--- Content provided by FirstRanker.com ---
control purposes through the technique of variance analysis. However,
determination of the standard cost for each grade of employee is a ticklish
--- Content provided by FirstRanker.com ---
process.--- Content provided by FirstRanker.com ---
168
Present Value of Approach
--- Content provided by FirstRanker.com ---
According to this approach, the value of human resources of an
--- Content provided by FirstRanker.com ---
organization is determined according to their present value to the organization.For determination of the present value, a number of valuation models have been
developed. Some of the important models are as follows:
--- Content provided by FirstRanker.com ---
Present Value of future Earnings Model
--- Content provided by FirstRanker.com ---
This model had been developed by Lav and Schwartz (1971). According
--- Content provided by FirstRanker.com ---
to this model, the value of human resources is ascertained as follows:
(i)
--- Content provided by FirstRanker.com ---
All employees are classified in specific groups according to theirage and skill.
(ii)
--- Content provided by FirstRanker.com ---
Average annual earnings is determined for various ranges of age.
(iii)
--- Content provided by FirstRanker.com ---
The total earnings which each group will get upto retirement ageare calculated.
--- Content provided by FirstRanker.com ---
11
(iv)
--- Content provided by FirstRanker.com ---
The total earnings calculated as above are discounted at the rateof cost of capita. The value thus arrived at will be the value of
human resources/assets.
--- Content provided by FirstRanker.com ---
(v)
The following formula has been suggested for calculating the
--- Content provided by FirstRanker.com ---
value of an employee according to this model.--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
T
--- Content provided by FirstRanker.com ---
I t
( )
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
Vr =
--- Content provided by FirstRanker.com ---
t rtr
1
--- Content provided by FirstRanker.com ---
( R)
--- Content provided by FirstRanker.com ---
Where
Vr = the value of an individual r years old.
--- Content provided by FirstRanker.com ---
169
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
I(t) = the individuals annual earnings upto theretirement.
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
t = retirement age--- Content provided by FirstRanker.com ---
r = present age of the employee
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
R = discount rate
--- Content provided by FirstRanker.com ---
Limitations. The method suffers from several limitations:(1) A persons value to an organization is not entirely determined by the salary
--- Content provided by FirstRanker.com ---
paid to him. A person may like to work at a salary which is less than what he
actually deserves. Moreover, salary does not remain constant over a period of
--- Content provided by FirstRanker.com ---
time. They tend to change in response to social, political and economicconditions. Hence, they cannot be predicted with precision and accuracy.
(2) The model ignores the possibility that an individual may leave the
--- Content provided by FirstRanker.com ---
organisation for reasons other than death or retirement. Thus, it overstates an
employees expected service life and his future earnings.
--- Content provided by FirstRanker.com ---
(3) The model does not take into account the changes which people make duringtheir career, from one role to another, at one or more times within the
organization itself. This may result in the changes in their expected future
--- Content provided by FirstRanker.com ---
earnings and ultimately the value of human resources.
--- Content provided by FirstRanker.com ---
12(4) The model also ignores other considerations such as seniority, bargaining
capacity, skill experience, etc., which may result in payment of higher or lower
--- Content provided by FirstRanker.com ---
salaries to employees. Thus, the salaries paid to employees may not really
represent the employees real worth to the organization.
--- Content provided by FirstRanker.com ---
Reward valuation model
--- Content provided by FirstRanker.com ---
170
--- Content provided by FirstRanker.com ---
This model has been suggested by Flamholtz (1971). This is animprovement on ,,present value of future earnings model since it takes into
consideration the possibility or probability or an employees movement form
--- Content provided by FirstRanker.com ---
one role to another in his career and also of his leaving the firm earlier, than his
death or retirement. According to this model, the ultimate measure of an
--- Content provided by FirstRanker.com ---
individuals value to an organization is his expected realisable value. Therealizable value is estimated on the basis of the present worth of the set of future
services he is expected to provide during the period he is likely to remain with
--- Content provided by FirstRanker.com ---
the organization. The model suggests a five step approach for this purpose.
--- Content provided by FirstRanker.com ---
1. Determination of the period for which a person is expected to servethe organization.
2. Identification of ,,service states (i.e. roles or posts) that the employee
--- Content provided by FirstRanker.com ---
might occupy during his service career including the possibility of
his quitting the organization.
--- Content provided by FirstRanker.com ---
3. Estimation of the probable period for which a person will occupyeach possible ,,service state (posts or roles) in future in the
organization.
--- Content provided by FirstRanker.com ---
4. Estimation of the value derived by the organization when a person
occupies a particular position, i.e. a service state for the specific time
--- Content provided by FirstRanker.com ---
period. Such value can be determined either by multiplying the priceof the services (articles) with the quantity of the services (articles) to
be rendered (produced) or the income expected to be derived from
--- Content provided by FirstRanker.com ---
the services to be rendered.
--- Content provided by FirstRanker.com ---
135. The total value of the services derived by the organization by
different employees or group of employees is determined. The value
--- Content provided by FirstRanker.com ---
171
thus arrived is discounted at a pre-determined rate to get the present
--- Content provided by FirstRanker.com ---
value of human resources.
--- Content provided by FirstRanker.com ---
Limitations. The model suffers from nearly all the drawbacks fromwhich the present value of future earnings model suffers. Moreover, it is
difficult to obtain reliable data for determining the value derived by an
--- Content provided by FirstRanker.com ---
organization during the period a person occupies a particular position.
The model also ignores the fact that individuals operating in a group may
--- Content provided by FirstRanker.com ---
have a higher value for the organization as compared to individualsworking independently.
--- Content provided by FirstRanker.com ---
Net Benefit Model
--- Content provided by FirstRanker.com ---
This approach has been suggested by Morse (1973). Accordingto this approach, the value of human resources is equivalent to the
present value of net benefits derived by the organization from the service
--- Content provided by FirstRanker.com ---
of its employees. The method involves the following steps.
--- Content provided by FirstRanker.com ---
1. The gross value of services to be rendered in future by theemployees in their individual as well as their collective
capacity is determined.
--- Content provided by FirstRanker.com ---
2. The value of future payments(both direct and indirect) to the
employees is determined.
--- Content provided by FirstRanker.com ---
3. The excess of the value of future human resources (as per 1above) over the value of future payments (as per 2 above) is
ascertained. This, as a matter of fact, represents the net
--- Content provided by FirstRanker.com ---
benefit to the organization on account of human resources.
4. The present value of the net benefit is determined by applying
--- Content provided by FirstRanker.com ---
a pre-determined discount rate (generally the cost of capital).172
--- Content provided by FirstRanker.com ---
This amount represents the value of human resources to theorganization.
--- Content provided by FirstRanker.com ---
14
Certainty Equivalent Net Benefit Model
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
This approach has been suggested by Pekin Ogan (1976). This, as a
matter of fact, is an extension of "net benefit approach" as suggested by Morse.
--- Content provided by FirstRanker.com ---
According to this approach, the certainty with which the net benefits in futurewill accrue should also be taken into account, while determining the value of
human resources. The approach requires determination of the following:
--- Content provided by FirstRanker.com ---
1. Net benefit from each employee as explained under ,,net benefit
approach above.
--- Content provided by FirstRanker.com ---
2. Certainty factor at which the benefits will be available.3. The net benefits from all employees multiplied by their certainty
factor will give certainty-equivalent net benefits. This will be the
--- Content provided by FirstRanker.com ---
value of human resources of the organization.
--- Content provided by FirstRanker.com ---
Aggregate payment Approach--- Content provided by FirstRanker.com ---
This approach has been suggested by Prof. S.K. Chakraborty (1976). As
a matter of fact, he is the first Indian to suggest a model for valuation of human
--- Content provided by FirstRanker.com ---
resources of an organization. According to his model, the human resources areto be valued as a group and not on individual basis.
--- Content provided by FirstRanker.com ---
Professor Chakrabortys model for valuation of human resources
--- Content provided by FirstRanker.com ---
involves the following steps:173
--- Content provided by FirstRanker.com ---
1. All the employees of an organization are divided in two groups,managerial and non-managerial.
2. The average tenure of the employment of the employees in the group
--- Content provided by FirstRanker.com ---
is estimated on the basis of past experience.
3. The average salary of the group is determined on the basis of the
--- Content provided by FirstRanker.com ---
salary/wage structure prevalent in the organization.15
--- Content provided by FirstRanker.com ---
4. The value of human resources is now determined by multiplying the
average salary of the group with the average tenure of the employees
--- Content provided by FirstRanker.com ---
in that group.5. The value determined under ,,4 above, is discounted at the expected
average after tax return on capital employed over the average tenure
--- Content provided by FirstRanker.com ---
period, to ascertain the present value of the estimated future payment.
Dr. chakraborty suggests that the adoption of such a long-term rate
--- Content provided by FirstRanker.com ---
will avoid fluctuations in the value of "human asset" from year toyear simply due to changing annual rates of return.
--- Content provided by FirstRanker.com ---
Professor Chakraborty has also suggested that the recruitment, hiring,
selection, development and training cost of each employee should be
--- Content provided by FirstRanker.com ---
recorded separately. This should be treated as deferred revenueexpenditure and may be written off over the expected average stay of the
employee in the organization. The deferred portion, not writer off,
--- Content provided by FirstRanker.com ---
should be shown in the Balance Sheet of the organization. If there is
pre-mature exit of an employee on account of death, retirement, etc., the
--- Content provided by FirstRanker.com ---
balance of the deferred revenue expenditure attributable to that personshould be written off against the income of the year of exit itself.
--- Content provided by FirstRanker.com ---
174
As regards disclosure of accounting information relating to
--- Content provided by FirstRanker.com ---
human resource, Professor chakraborty has suggested that ,,human
assets should be shown under the heading "Investments in the Balance
--- Content provided by FirstRanker.com ---
Sheet of an organization. He has not favored its inclusion under theheading fixed assets since it would cause problem of depreciation,
capital gains and losses, in the event of their exit, Similarly, he has not
--- Content provided by FirstRanker.com ---
favored their inclusion in current assets on the ground that this will not
be in conformity with the general meaning of the term.
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
16
Total Cost Concept
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
This approach has been suggested by Prof. N. Dasgupta (1978).According to him the various approaches suggested in the previous pages
take into account only those persons, who are employed and ignore those
--- Content provided by FirstRanker.com ---
who are unemployed. In case the value of human resources of the nation
is to be determined, it should be done in a manner that it brings in its
--- Content provided by FirstRanker.com ---
purview both employed and unemployed persons. The system should besuch that it fits in preparation of a balance sheet, showing the human
resources not only of a firm but also of the whole nation.
--- Content provided by FirstRanker.com ---
According to Prof. Dasgupta; the total cost incurred by the
--- Content provided by FirstRanker.com ---
individual, the state and the organization in bringing the individual up tothat position in the organization (in case of a nation making him fit for
--- Content provided by FirstRanker.com ---
175
appropriate employment) should be taken as the value of a person on the
day, he starts serving the organization or becomes fit for appropriate
--- Content provided by FirstRanker.com ---
employment. It will include his education, training expenses which he
and the state have incurred. The value should be further adjusted by the
--- Content provided by FirstRanker.com ---
amount of intelligence (higher or lower which he has). the amount spentby the organization on recruitment , training, familiarizing and
developing human beings employed in the organization should be
--- Content provided by FirstRanker.com ---
considered separately. However, it should also be treated as a cost
increasing the value of human beings. In case the number is large, the
--- Content provided by FirstRanker.com ---
valuation can be done group-wise.the value determined on the aforesaid manner should be adjusted
--- Content provided by FirstRanker.com ---
at the end of each year by the organization on the basis of his age,
seniority, status, performance, experience, leadership managerial
--- Content provided by FirstRanker.com ---
capabilities, etc. The measurement can be done with the help ofpsychologists and other concerned experts. the revised value would be
the value of the employee at the end of the year.
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
17
--- Content provided by FirstRanker.com ---
Prof. Dasguptas model seems to be sound theoretically.
However, its
--- Content provided by FirstRanker.com ---
practical application may be difficult since it willinvolve a number of abstract factors, which may not be capable of being
expressed in monetary terms precisely and objectively.
--- Content provided by FirstRanker.com ---
RECORDING
--- Content provided by FirstRanker.com ---
ANDDISCLOSURE
IN
--- Content provided by FirstRanker.com ---
FINANCIAL
STATEMENTS
--- Content provided by FirstRanker.com ---
In the preceding pages, we have explained the various models
--- Content provided by FirstRanker.com ---
dealing with the mode of valuation of human resources as an asset. The
--- Content provided by FirstRanker.com ---
176"present value of future earnings" model, as suggested by Law and
Schwartz, has been found to be most popular model on account of
--- Content provided by FirstRanker.com ---
convenience and objectivity. The exponents of human resourcevaluation models in most cases have not dealt, with the mode of
recording and disclosure of the accounting information relating to human
--- Content provided by FirstRanker.com ---
resources in the books of account or financial statements of the
organization. This has been left to the discretion of the accounting
--- Content provided by FirstRanker.com ---
bodies who have yet to develop a generally accepted basis for valuation,recording and disclosure of human resource accounting information in
the financial statements of an organization. In most cases, the human
--- Content provided by FirstRanker.com ---
resource accounting information is given in the form of supplementary
information attached to the financial statements.
--- Content provided by FirstRanker.com ---
Prof. N. Dasgupta has suggested in his total cost approach
(explained earlier) the following mode for disclosure of human resources
--- Content provided by FirstRanker.com ---
in the balance sheet of an organization.
--- Content provided by FirstRanker.com ---
According to him, the human resources valued as per his modelshould be shown both on the "assets" as well as "liabilities" sides of the
balance sheet. On the assets side, it should be shown after the fixed
--- Content provided by FirstRanker.com ---
assets as Human Assets classified into two parts ? (i) value of
individuals, (ii) value of firms investment. On the "liabilities" side, it
--- Content provided by FirstRanker.com ---
should be shown after the capital as Human Assets Capital by thatamount at which it has been shown on the asset side against ,,value of
individuals. He has given the following example to clarify his point.
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
18Example. A firm has started its business with a capital of Rs.1,00,000.
It has purchased fixed assets worth Rs.50,000 in cash. It has kept
--- Content provided by FirstRanker.com ---
Rs.26,000 as working capital and incurred Rs.24,000 on recruitment
--- Content provided by FirstRanker.com ---
177training and developing the engineers and a few workers. The value of
engineers and a few workers. The value of engineers and workers is
--- Content provided by FirstRanker.com ---
assessed at Rs.80,000.The items will be shown in the balance sheet as follows:
--- Content provided by FirstRanker.com ---
BALANCE SHEET
--- Content provided by FirstRanker.com ---
(INVLUDING HUMAN RESOURCES)Liabilities
--- Content provided by FirstRanker.com ---
Rs.
--- Content provided by FirstRanker.com ---
Assets
--- Content provided by FirstRanker.com ---
Rs.
--- Content provided by FirstRanker.com ---
Capital
--- Content provided by FirstRanker.com ---
1,00,000
--- Content provided by FirstRanker.com ---
Fixed Assets--- Content provided by FirstRanker.com ---
50,000
Human Assets Capital
--- Content provided by FirstRanker.com ---
80,000Human Assets:
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
(i) IndividualsValue80,000
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
(ii) Value of Firms Investment
--- Content provided by FirstRanker.com ---
24,000--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
Cuttent Assets
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
26,0001,80,000
1,80,000
--- Content provided by FirstRanker.com ---
IMPORTANCE OF HUMAN RESOURCE ASSOUNTING
--- Content provided by FirstRanker.com ---
Human Resource Accounting Provides useful information to the
--- Content provided by FirstRanker.com ---
management, financial analysts and employees, as shown below:
--- Content provided by FirstRanker.com ---
178
1. Human Resource Accounting helps the management in the decision-
--- Content provided by FirstRanker.com ---
making process relating to the following matters.(a) Employment, locating and utilization of human resources.
(b) Transfers, promotion, training and retrenchment of human
--- Content provided by FirstRanker.com ---
resources.
(c) Planning of physical assets vis-?-vis human resources.
--- Content provided by FirstRanker.com ---
19
(d) Evaluating the expenditure incurred for imparting further
--- Content provided by FirstRanker.com ---
education and training to employees in terms of the benefits
derived by the firm.
--- Content provided by FirstRanker.com ---
(e) Identifying the causes of high labor turnover at various levels andtaking preventive measures to contain it.
(f) Locating the real cause of low return on investment, that is
--- Content provided by FirstRanker.com ---
whether it is due to improper or under-utilization of physical
assets or human resource or both.
--- Content provided by FirstRanker.com ---
2. A financial analyst is interested in understanding and assessing the innerstrength of firm. Such inner strength does not merely depend on the
physical assets owned and possessed by the firm. IT also depends upon
--- Content provided by FirstRanker.com ---
the type of human resources available to the firm. The vigilant, dynamic
and responsible management can steer the company well through most
--- Content provided by FirstRanker.com ---
adverse and unfavorable circumstances. In case the human resources,specially the managerial resources at the disposal of the firm are
impartially and systematically valued and disclosed in the financial
--- Content provided by FirstRanker.com ---
statements, it will be a valuable information for persons interested in
making long-term investment in the firm.
--- Content provided by FirstRanker.com ---
3. The Human Resource Accounting helps individual employees inimproving their performance and bargaining power. It makes each of
--- Content provided by FirstRanker.com ---
179
them conscious of the contribution that he is making towards the
betterment of the firm vis-?-vis the expenditure incurred by the firm on
--- Content provided by FirstRanker.com ---
him.
--- Content provided by FirstRanker.com ---
OBJECTIONS AGAINST HUMAN RESOURCE ACCOUNTING--- Content provided by FirstRanker.com ---
The following are some of the common objection against Human
Resource Accounting.
--- Content provided by FirstRanker.com ---
1. Human being cannot be owned like other physical assets. They,therefore, cannot command any value.
2. Tax laws do not recognize human beings as assets. Hence, human
--- Content provided by FirstRanker.com ---
resource accounting remains merely as a theoretical concept.
--- Content provided by FirstRanker.com ---
203. There is no generally accepted model for valuation of human
resources. The mode of presentation has also yet to be codified.
--- Content provided by FirstRanker.com ---
4. The valuation of human resources depends on a large number of
abstract factors not measurable imprecise monetary terms. Hence,
--- Content provided by FirstRanker.com ---
the valuation lacks objectivity and preciseness.--- Content provided by FirstRanker.com ---
The above objections are basically because of human resource
accounting being a new concept. The opinion are still to be crystallized. It is
--- Content provided by FirstRanker.com ---
yet not less satisfying that the accountants these days have realized thatdisclosure of human resources in the financial statements "is a must" if they
have to show a true and fair view of the state of affairs of the business. In
--- Content provided by FirstRanker.com ---
course of time, proper techniques are bound to be developed for valuation of
human resources and generally acceptable formats will be evolved by the
--- Content provided by FirstRanker.com ---
180
accountants for disclosure of this vital information in the financial statements of
--- Content provided by FirstRanker.com ---
the firm.HUMAN RESOURCE ACCOUNTING IN INDIA
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
In India, the financial statements of companies have to be prepared asper the provisions of the Companies Act, 1956. The Act does not provide for
disclosure of any significant information about human resources employed in a
--- Content provided by FirstRanker.com ---
company except that the companies have to give by way of a note to the Profit
and Loss Account, particulars of employees getting remuneration of Rs.6,00,000
--- Content provided by FirstRanker.com ---
per annum or more. However, there is nothing in the Act which prevents acompany from giving details about its human resources byway of a
supplementary information attached with its financial statements.
--- Content provided by FirstRanker.com ---
In-view of the growing importance of human resource accounting, many
--- Content provided by FirstRanker.com ---
corporate enterprises in India are voluntarily giving information about theirhuman resources. They number about 15 in all and include many important
public sector enterprise viz. Bharat Heavy Electricals Ltd. (BHEL), Steel
--- Content provided by FirstRanker.com ---
Authority of India Ltd.(SAIL), Minerals and Metal Trading corporation of India
(MMTC), National Thermal Power Corporation (NTPC), Oil and Natural Gas
--- Content provided by FirstRanker.com ---
Commission (ONGC) and engineers India Ltd. (EIL). Among all the enterprisesBHEL is the pioneer in the field of human
21
--- Content provided by FirstRanker.com ---
resource accounting since mid-1970. Most of the Indian companies and
corporations have followed basically Lev and Schwartz Model for valuation of
--- Content provided by FirstRanker.com ---
human resources. The model involves valuation of human resources on thebasis of the present value of the estimated future earnings of the employees
discounted at the cost of capital rate. BHEL has incorporated certain
--- Content provided by FirstRanker.com ---
improvements in this model. The company has classified its employees into six
categories based on skill, type of work, experience and qualifications. In each
--- Content provided by FirstRanker.com ---
181
category 10 to 15 salary grades have been identified to facilitate the valuation of
human resources. The model adopted by BHEL is given below:
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
P 12 N E IHRV =
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
F
--- Content provided by FirstRanker.com ---
whereHRV = Human Resources Value of the group of employees in the particular
salary
--- Content provided by FirstRanker.com ---
grade.
--- Content provided by FirstRanker.com ---
P 12 = Annual compensation per, DA, CCA, HRA, PF contribution by
employers
--- Content provided by FirstRanker.com ---
etc.
--- Content provided by FirstRanker.com ---
N= Total number of employees in the grade.
E
--- Content provided by FirstRanker.com ---
= Efficiency Factor. The factor varies with the amount of experience.
It
--- Content provided by FirstRanker.com ---
decreases at about 5% for each accounting period of five or six years.
I
--- Content provided by FirstRanker.com ---
= Incremental Factor. It is 5% for five years period. The period of 5
years
--- Content provided by FirstRanker.com ---
has been taken as the basic in the assumption that people with fiveexperience are normally promoted to the next higher grade.
F
--- Content provided by FirstRanker.com ---
= It has been taken at 12% per annum which is the weighted average
cost of capital to the company.
--- Content provided by FirstRanker.com ---
Benefits of Human Resource Accounting
--- Content provided by FirstRanker.com ---
182
--- Content provided by FirstRanker.com ---
The concept of human resource accounting covers the people who
constitute a valuable resource of an enterprise and information on the investment
--- Content provided by FirstRanker.com ---
and value of such22
resources is useful for internal and external decision-making. Such accounting is
--- Content provided by FirstRanker.com ---
of permanent importance to the nation and also to individual organizations. The
following are the main benefits of Human Resource Accounting:
--- Content provided by FirstRanker.com ---
1. Helpful in proper interpretation of Return on Capital Employed.The human resource accounting will disclose the value of human
resources. This will help in proper interpretation of return on capital
--- Content provided by FirstRanker.com ---
employed. such information will give long-term perspective of the
business performance which could be more reliable than the return
--- Content provided by FirstRanker.com ---
on capital employed based on net profit only.2. Improves managerial decision-making. The maintenance of
detailed records relating to internal human resources (i.e.
--- Content provided by FirstRanker.com ---
employees), will improve managerial decision-making specially in
situations like direct recruitment versus promotion, transfer versus
--- Content provided by FirstRanker.com ---
retention, retrenchment or relieving versus retention, utility of costreduction programmed in view of its possible impact on human
relations and impact of budgetary control on human relations and
--- Content provided by FirstRanker.com ---
organizational behavior and decision on relocating plants, closing
down existing units, developing overseas subsidiaries etc. Thus, the
--- Content provided by FirstRanker.com ---
use of HRA will definitely improve the quality of management.3. Serves social purpose. It will serve social purpose by identification
of human resource as a valuable asset which will help in prevention
--- Content provided by FirstRanker.com ---
of misuse and under use due to thoughtless or rather reckless
transfers, demotions, lay offs and day to day maltreatment by
--- Content provided by FirstRanker.com ---
supervisors and other superiors in the administrative hierarchy;efficient allocation of resources in the economy; effecting economy
--- Content provided by FirstRanker.com ---
183
and efficiency in the use of human resources and proper
understanding of the evil effects of avoidable labor unrest/disputes
--- Content provided by FirstRanker.com ---
on the quality of the internal human resources.
4. Increases productivity. It will have the way for increasing
--- Content provided by FirstRanker.com ---
productivity of the human resources because, the fact that a monetaryvalue is attached to human resources, and that human talent, devotion
and skill are considered as valuable assets and allotted a place in the
--- Content provided by FirstRanker.com ---
financial statements of the organization, would boost the morale,
loyalty and initiative of the employees, creating in their mind a sense
--- Content provided by FirstRanker.com ---
23of belonging towards the organization and would act as a great
incentive, giving rise to increased productivity.
--- Content provided by FirstRanker.com ---
5. Invaluable contribution to humanity. HRA will be an invaluable
contribution for accounting to humanity and it will lead to improve
--- Content provided by FirstRanker.com ---
human efficiency while preserving human dignity and honor. Forthis, a basic change in individual behavior, attitude and thinking is
required. HRA will help in realizing the value of human resources
--- Content provided by FirstRanker.com ---
and, thus, will influence the individual behavior, attitude and
thinking in the desired direction.
--- Content provided by FirstRanker.com ---
6. Essential where the human element is the prime factor. HRA isabsolutely essential in such organizations where human element is
the prime factor, e.g., a professional accounting firm, a drama
--- Content provided by FirstRanker.com ---
company, a solicitor and attorney firm, an educational institution etc.
7. Helps in investment decisions. The value of a firms human
--- Content provided by FirstRanker.com ---
resources is helpful to potential investors and other users in makinglong-term investment decisions.
8. Completes MIS. Human resource data would create a more
--- Content provided by FirstRanker.com ---
complete management information system as it can provide
information of vital importance for both short-term and long-term
--- Content provided by FirstRanker.com ---
184
decision-making as well as performance measurement. It will
--- Content provided by FirstRanker.com ---
provide adequate basis for decision on allocation of resources e.g.budgeting, capital expenditure decisions and better measurement of
resources of an organization. Performance measurement helps in
--- Content provided by FirstRanker.com ---
assessing the strengths and shortcomings of an organization and
helps in making better promotion policies.
--- Content provided by FirstRanker.com ---
9. For successful operation of an organization. The success of anorganization very much depends on the build up of quality work
force at all levels. The success stories of BHEL, ITC, Hindustan
--- Content provided by FirstRanker.com ---
Lever, Larsen & Toubro and several other enterprises are largely due
to the emphasis on human resource development. IF this vital asset
--- Content provided by FirstRanker.com ---
is not shown in the balance sheet, to that extent the public andinvestors are handicapped.
--- Content provided by FirstRanker.com ---
24
Problems and Limitation of HRA
--- Content provided by FirstRanker.com ---
No doubt HRA can provide valuable information both for management
--- Content provided by FirstRanker.com ---
and outsiders, yet its development and application in different industries and
organizations has not been very encouraging. This accounting concept is not
--- Content provided by FirstRanker.com ---
popular like social accounting because it may not result in providing immediateand tangible benefits and on account of the fact of lack of consensus among
accountants and other concerned about the basis of measurement of the value of
--- Content provided by FirstRanker.com ---
human resources. The reluctance on the part of the organization to introduce the
HRA system can be attributed to the following:
--- Content provided by FirstRanker.com ---
1. There are no specific and clear-cut guidelines for finding cost and,,value of human resources of an organization. The existing
valuation systems suffer from many drawbacks.
--- Content provided by FirstRanker.com ---
185
2. The life of human resources is uncertain and therefore, valuing them
--- Content provided by FirstRanker.com ---
under uncertainty seems unrealistic.
3. There is a possibility that HRA may lead to dehumanizing and
--- Content provided by FirstRanker.com ---
manipulations in employees. For example, a person having a lowvalue may feel discouraged and thus, in itself, may affect his
competency in work.
--- Content provided by FirstRanker.com ---
4. The much needed empirical evidence is yet to be found to support the
hypothesis that HRA, as a managerial tool, facilitates better and
--- Content provided by FirstRanker.com ---
effective management of human resources.5. Human resources, unlike physical assets, are not capable of being
owned, retained and utilized at the pleasure of the organization.
--- Content provided by FirstRanker.com ---
Hence, treating them as ,,asset in the strict sense of the term, could
not be appropriate.
--- Content provided by FirstRanker.com ---
6. There is a constant fear of opposition from the trade union. Placingthe value on employees would prompt them to seek rewards and
compensation based on such valuation.
--- Content provided by FirstRanker.com ---
7. In what form and manner, should their value be included in the
financial statements? Is another question on which there is no
--- Content provided by FirstRanker.com ---
consensus in the accounting profession.25
--- Content provided by FirstRanker.com ---
8. If a valuation has to be placed on human resources, how should it be
amortized? Should the rate of amortization be decreasing, constant
--- Content provided by FirstRanker.com ---
or increasing? Should it be the same or different for differentcategories of personnel?
9. Tax laws do not recognize human beings as assets. So human
--- Content provided by FirstRanker.com ---
resource accounting has been reduced to a merely theoretical
concept.
--- Content provided by FirstRanker.com ---
186
--- Content provided by FirstRanker.com ---
CAPITALISATION OF SALARY--- Content provided by FirstRanker.com ---
This method is based on the value of the firms employee force by
aggregating and averaging the earning profiles of homogeneous groups of
--- Content provided by FirstRanker.com ---
employees. The age factor is important as it affects the increase and decreaseand the productivity of human earnings. Hence, the value of human capital,
embodied in a person of age, r, is the present value of its remaining future
--- Content provided by FirstRanker.com ---
earnings from employment calculated as below:
--- Content provided by FirstRanker.com ---
TI t
( )
--- Content provided by FirstRanker.com ---
Vr =
--- Content provided by FirstRanker.com ---
t r 1( r t
) r
--- Content provided by FirstRanker.com ---
Where,
--- Content provided by FirstRanker.com ---
Vr
=
--- Content provided by FirstRanker.com ---
human capital value of a person r years old,
--- Content provided by FirstRanker.com ---
I(t)=
personnel earnings up to retirement represented by
--- Content provided by FirstRanker.com ---
earnings profile;
--- Content provided by FirstRanker.com ---
r=
a discount rate specific to each person. It is the cost of
--- Content provided by FirstRanker.com ---
capital in
--- Content provided by FirstRanker.com ---
capital budgeting;
--- Content provided by FirstRanker.com ---
T
--- Content provided by FirstRanker.com ---
=retirement age.
--- Content provided by FirstRanker.com ---
The method adopts a cost based approach to the valuation of human
capital.
--- Content provided by FirstRanker.com ---
The firms human capital value obtained by the application of the
aforesaid equation in this manner allows the development of a net set of ratios
--- Content provided by FirstRanker.com ---
like the ratio of human to non-human capital value, showing the degree of labor
intensiveness in an organization. But the non-human assets values are not based
--- Content provided by FirstRanker.com ---
upon the earning profile of26
--- Content provided by FirstRanker.com ---
187
the assets while the human assets values are based on the earning profile of
employees, so both cannot be matched together as they have no common base.
--- Content provided by FirstRanker.com ---
We can also know the changes in the structure of labor forces through
--- Content provided by FirstRanker.com ---
this approach. The method also reports ,,general and ,,specific value of humancapital reflecting firm recruitment and wage policy.
--- Content provided by FirstRanker.com ---
THE ECONOMIC VALUE METHOD
--- Content provided by FirstRanker.com ---
The economic value of an individual to an organization is the present
worth of future services he is expected to provide during his productive life, i.e.
--- Content provided by FirstRanker.com ---
till retirement. In considering the state of future services, the different roles
likely to be assigned during the service period (productive life) and the total
--- Content provided by FirstRanker.com ---
values of different roles are to be considered. The theory takes intoconsideration only individual economic value and not the added value/profit by
teambuilding, and group formation as such does not reflect the value of human
--- Content provided by FirstRanker.com ---
resource based on interpersonal relationship.
--- Content provided by FirstRanker.com ---
RETURN ON EFFORT EMPLOYED--- Content provided by FirstRanker.com ---
It measures the return on the quantity and quality of total effort expanded
and the contribution made by individuals in the various functions of an
--- Content provided by FirstRanker.com ---
organization varying from purchase and manufacturing to selling. It takes intoaccount the factors which distinguish quantity and quality of effort expanded.
These factors may be as below:
--- Content provided by FirstRanker.com ---
(i)
Level or grade of work done.
--- Content provided by FirstRanker.com ---
(ii)Effectiveness of individual on his job position.
(iii)
--- Content provided by FirstRanker.com ---
Experience profile.
--- Content provided by FirstRanker.com ---
188(iv)
Measurement of total effort employed in various function of the
--- Content provided by FirstRanker.com ---
organization on the basis of rating factors.--- Content provided by FirstRanker.com ---
27
--- Content provided by FirstRanker.com ---
ILLUSTRATION(1) Level on Grade of work Done
Different grades of jobs are distinguished for developing wage structures:
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
Job Grade
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
Factor
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
10 (director)--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
10--- Content provided by FirstRanker.com ---
7 (sales manager)
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
7
--- Content provided by FirstRanker.com ---
4 (salesman)
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
4
--- Content provided by FirstRanker.com ---
1 (typist)
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
1(2) Effectiveness of individual job performance
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
Personal Assessment
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
Factor
--- Content provided by FirstRanker.com ---
Very good
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
1.5
--- Content provided by FirstRanker.com ---
Satisfactory
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
1.0
--- Content provided by FirstRanker.com ---
(3) Experience which increases, up to a point, the efficiency of job performance
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
Years of Experience
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
Factor
--- Content provided by FirstRanker.com ---
0-1
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
1.0
--- Content provided by FirstRanker.com ---
189--- Content provided by FirstRanker.com ---
1-2
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
1.1
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
2-3
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
1.2
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
3-4
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
1.3
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
4-5
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
1.4
--- Content provided by FirstRanker.com ---
Over 5
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
1.5
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
The above factors are multiplied together in measuring the effortemployed by each individual. Say, a good sales manager with 5 years
experience would be: 7 (job grade) 1.5 (personal assessment) 1.5 (job
--- Content provided by FirstRanker.com ---
experience) = 15.75 for effort employed by a good sales manager.
28
--- Content provided by FirstRanker.com ---
When all the calculations for every other individual are aggregated, we
obtain a figure which represents the total effort employed. We may now find
--- Content provided by FirstRanker.com ---
out the return on total effort expanded on any functional area of business.
--- Content provided by FirstRanker.com ---
HERMANSON`S ADJUSTED DISCOUNTED FUTURE WAGES MODELSteps
--- Content provided by FirstRanker.com ---
To arrive at the value of the human assets:
(i)
--- Content provided by FirstRanker.com ---
Estimate annual wages and salaries payment for five years into thefuture.
(ii)
--- Content provided by FirstRanker.com ---
Calculate the present value of the estimated wage and salary
payments by applying a discount factor equal to normal rate of return
--- Content provided by FirstRanker.com ---
in the economy.(iii)
Calculate an average efficiency ratio based on the previous five years
--- Content provided by FirstRanker.com ---
performance. This ratio is found by dividing the actual earnings of
the firm by normal earnings for each year on an average in the results.
--- Content provided by FirstRanker.com ---
190
In making the calculation, the later years receive more weightage than
--- Content provided by FirstRanker.com ---
the earlier years.(iv)
Multiply the present value of the future wage salary payments by the
--- Content provided by FirstRanker.com ---
average efficiency ratio. The resulting figure represents the estimated
present value of the human resources.
--- Content provided by FirstRanker.com ---
EMERGING ISSUES
--- Content provided by FirstRanker.com ---
Human resources accounting clearly encompasses such element as:
a) The composition of employees in different grades for five years.
--- Content provided by FirstRanker.com ---
b) Productivity of human resources for five years.c) Programmers for employee development.
d) Personnel payments to the employees and expenses on social welfare
--- Content provided by FirstRanker.com ---
per employee.
e) Human assets valuation.
--- Content provided by FirstRanker.com ---
f) Human assets vis-?-vis total assets.g) Values of human assets in an organization.
29
--- Content provided by FirstRanker.com ---
In India, human resources accounting until now has not been introduced
--- Content provided by FirstRanker.com ---
as a system. So far as the statutory requirement is concerned, the Compare Act,1956 does not require furnishing of any significant information about human
resources in the financial statements of companies. The Institute of Chartered
--- Content provided by FirstRanker.com ---
Accountants of India, too, have not issued an accounting of standard for
measurement and reporting of cost and value of human resources of an
--- Content provided by FirstRanker.com ---
organization. However, the existing accounting standards, in the absence of anynegative directive, may be seen to support the adoption of human resources
accounting by an organization for the purpose of meeting its own requirements.
--- Content provided by FirstRanker.com ---
191
As a result, HRA has become a sparingly implemented practice in the corporate
--- Content provided by FirstRanker.com ---
sector in India. The result of non-disclosure of human resources cost and value
information in financial statements of business enterprises has been that
--- Content provided by FirstRanker.com ---
financial statements do no reveal any quantitative information on humanresources and the state of affairs is improperly reported to different authorities.
The dichotomy in accounting between human and non-human capital is
--- Content provided by FirstRanker.com ---
rather fundamental, while the later is recognized as an asset and recorded as
such in the financial statement, the former is totally ignored. With the
--- Content provided by FirstRanker.com ---
accelerated growth in science and technology, the value of human capital isgradually increasing and hence it is essential for a company to reflect the
investment in human resources. In the absence of HRA, the management may
--- Content provided by FirstRanker.com ---
not realize the negative effects of certain programmers aimed at improving
profits in the short run. Such programmers may result in decreased value of
--- Content provided by FirstRanker.com ---
human assets due to fall in productivity levels, high labor turnover and lowmorale.
The success of an organization largely depends on the quality of
--- Content provided by FirstRanker.com ---
workforce at various levels. The success stories of BHEL, Hindustan Lever and
several other enterprises are largely due to their emphasis on human resources
--- Content provided by FirstRanker.com ---
development. To the extent, the vital asset is not shown in the balance sheet theinvestors are handicapped. HRA helps the investors and the public by supplying
the necessary and valuable information.
--- Content provided by FirstRanker.com ---
30
--- Content provided by FirstRanker.com ---
We may now examine some implications of human capital reporting andfinally some emerging issues in this connection. Disclosure of human capital
values by the organization will provide valuable information to the financial
--- Content provided by FirstRanker.com ---
statement users. The information is relevant as it concerns organizational
changes in its labor force. The decision makers may draw some inferences from
--- Content provided by FirstRanker.com ---
reported values of human capital.192
--- Content provided by FirstRanker.com ---
i) The determination of human capital value suggests a new set of
financial ratios. The ratio of human to non-human capital
--- Content provided by FirstRanker.com ---
indicates the degree of labor intensiveness.ii) Reported human capital provide information about the changes in
the structure of labor force.
--- Content provided by FirstRanker.com ---
iii) The difference between the general and specific values of human
capital is another source of valuable information for management
--- Content provided by FirstRanker.com ---
and the analyst.The problem of reporting human capital values in financial statements
--- Content provided by FirstRanker.com ---
has two dimensions:
--- Content provided by FirstRanker.com ---
i) The measurement of the value of the firms workforce andii) Measurement and authorization of the organizations investment
in human resources.
--- Content provided by FirstRanker.com ---
Some objectives are raised against in the corporation of human capital values in
--- Content provided by FirstRanker.com ---
accounting reports. They are:--- Content provided by FirstRanker.com ---
(a) The human cannot be purchased or owned by the firm and it would
not be
--- Content provided by FirstRanker.com ---
recognized as asset.
--- Content provided by FirstRanker.com ---
(b) The labor cannot be treated as asset since it has no service potential
--- Content provided by FirstRanker.com ---
extending after a given period.
--- Content provided by FirstRanker.com ---
31
--- Content provided by FirstRanker.com ---
193(c) Accountants objected to report it on the ground that it cannot be
objectively
--- Content provided by FirstRanker.com ---
measured.
--- Content provided by FirstRanker.com ---
The first objection is true with respect to individual employee who can
resign at will. But it is not true when firms labor force is considered as a
--- Content provided by FirstRanker.com ---
whole. Secondly, the programmers like orientation causes for new employees,training programmers, facilities for improving employees morale and
motivation creates service potential beyond the period. Thirdly, the objective in
--- Content provided by FirstRanker.com ---
human capital measurements which are based on census data is not lower than
that of many valuation in conventional accounting.
--- Content provided by FirstRanker.com ---
Through HRA enlarges the scope of accounting, some limitations remain
inherent in the models adopted for valuation of human assets. First, the models
--- Content provided by FirstRanker.com ---
scope is restricted to the nature and determinants of an individuals value to an
organization. The models treat an individuals value as an independent
--- Content provided by FirstRanker.com ---
phenomenon. But the validity depends upon several variables including thenature of the organization and the degree of interdependence of organizational
roles. IT therefore, ignores the dynamic aspect of organizational phenomena.
--- Content provided by FirstRanker.com ---
Moreover, there is no uniformity in the application of the models. As result,
subjective ness crept in the valuation which poses a real problem. Finally, the
--- Content provided by FirstRanker.com ---
use of differential discount rate by different organizations restricts thecomparability of data so generated to reflect the human resources.
These limitations suggest for further research o this complex problem.
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
Human asset accounting still remains a voluntary disclosure on
the part of business entities and as yet no exposure draft has been issued for such
--- Content provided by FirstRanker.com ---
194
a specialized report. Unless this minimum initiative is taken by the accounting
--- Content provided by FirstRanker.com ---
bodies such as Indian Accounting Standards Board and also the International
Accounting Standards Committee outlining the format, provisions and
--- Content provided by FirstRanker.com ---
guidelines, real push to this additional information can scarcely be expected.One has to reckon that, accounting for people as organizational resources,
though it has a high relevance evaluation, has a low objectivity evaluation.
--- Content provided by FirstRanker.com ---
195
UNIT ? V
--- Content provided by FirstRanker.com ---
Objectives of the study:
--- Content provided by FirstRanker.com ---
To provide a conceptual framework of Human Resource Audit.To highlight the present scenario of Human Resource Audit
To bring out the future prospects of Human Resource Audit
--- Content provided by FirstRanker.com ---
To suggest measures for betterment of Human Resource Audit
--- Content provided by FirstRanker.com ---
INTRODUCTIONA resource is defined as an object which can provide expected future
services. Hence, objects which do not have expected future service potential
--- Content provided by FirstRanker.com ---
cannot by definition, be resources. People being capable rendering future
services such potential services constitute a form of capital.
--- Content provided by FirstRanker.com ---
Certain information on the human capital can be reported by anorganization in their annual reports. In the process of developing such
information, organization can address the requirements of HRP integrating their
--- Content provided by FirstRanker.com ---
HRIS. Information pertaining to employees can be listed under the following
broad heads:
--- Content provided by FirstRanker.com ---
Basic information about human resource:
Number of employees
--- Content provided by FirstRanker.com ---
Categories
Grades
--- Content provided by FirstRanker.com ---
Total value of human resourcesValue per employee
HR Acquisition:
--- Content provided by FirstRanker.com ---
Number of employees acquired during the year
Cost of acquisition
--- Content provided by FirstRanker.com ---
196
Levels for which they were acquired
--- Content provided by FirstRanker.com ---
HR developmentAll information pertaining to HRD activities of the organization
HR maintenance
--- Content provided by FirstRanker.com ---
Cost related to HR maintenance
HR Separation
--- Content provided by FirstRanker.com ---
Cost related to HR separation, attrition rateDetails of benefits provided to the employees
However, the extent of disclosure of such information depends on the
--- Content provided by FirstRanker.com ---
respective organizational practices.
--- Content provided by FirstRanker.com ---
H R AuditLet us first try to trace out the origin of the term ,,audit. The word 'audit
is derived from the Latin word 'audire', which means to hear. In the olden days,
--- Content provided by FirstRanker.com ---
whenever the proprietors of a business concern suspected fraud, they appointed
a person to check the accounts and to hear the explanations given by the persons
--- Content provided by FirstRanker.com ---
responsible for keeping the accounts. The audit during those days was interestedin ascertaining whether the persons responsible for maintaining accounts had
properly accounted for all receipts and payments to his principal and to locate
--- Content provided by FirstRanker.com ---
frauds and errors. Then, it was merely a cash audit. The object of modern audit
is not confined to cash verification but to report on financial position of the
--- Content provided by FirstRanker.com ---
undertaking as disclosed by its Balance Sheet and the Profit and Loss Account.Now, auditing has been used as a part of control function. It can be
defined as the examination and evaluation of policies, procedures and practices
--- Content provided by FirstRanker.com ---
in all phases of a business to achieve the most effective administration of the
organization''. Let us define personnel audit.
--- Content provided by FirstRanker.com ---
Meaning and Objectives
--- Content provided by FirstRanker.com ---
197
Human resources or HRD audit is a systematic survey and analysis of
different HRD functions with a summarized statement of findings and
--- Content provided by FirstRanker.com ---
recommendations for correction of deficiencies. It examines and evaluates
policies, procedures and practices to determine the effectiveness of HRD
--- Content provided by FirstRanker.com ---
function in an organization. HRD audit ensures that sound and cost-effectivepolicies are implemented
Human resource audit refers to the checking of the performance of the
--- Content provided by FirstRanker.com ---
enterprise in its management of human resources. Human resource audit reveals
how the management is doing in getting things done through the efforts of its
--- Content provided by FirstRanker.com ---
people. It undertakes a systematic research of the effectiveness of the humanresource programme. It evaluates personnel activities of an organization. It acts
as an overall quality control, check on human resource function. During the
--- Content provided by FirstRanker.com ---
conduct of audit if any deficiency is discovered, steps are taken to remove it. It
reviews the effectiveness of management relating to the ?
--- Content provided by FirstRanker.com ---
1. Measurement of the effectiveness of human resource programmes andactivities, and
2. The determination of what should or should not be done in the future as a
--- Content provided by FirstRanker.com ---
result of such measurement.
--- Content provided by FirstRanker.com ---
Human resource audit is one, which checks the performance of itsenterprise as to the management of its human resources. Its aim is to determine
how effectively the human resource programme has been implemented. It
--- Content provided by FirstRanker.com ---
measures the performance of human resource functions, compares with the
standard and discovers the variance and takes corrective action to remove them
--- Content provided by FirstRanker.com ---
also. In short, it acts as a control mechanism as far as human resource function isconcerned.
Seybord G. in his work "Studies in Personnel Policies" says "Human
--- Content provided by FirstRanker.com ---
resource auditing refers to an examination and evaluation of policies, procedures
--- Content provided by FirstRanker.com ---
198and practices to determine the effectiveness of human resource management. It
helps the personnel department to determine what should be done and what
--- Content provided by FirstRanker.com ---
should not be done in future"."Extending the general meaning of auditing to the field of human
resource management, human resource auditing may be defined as the analysis
--- Content provided by FirstRanker.com ---
and evaluation of personnel policies, procedures and practices to determine the
effectiveness of personnel/human resource management in an organization. In
--- Content provided by FirstRanker.com ---
other words, human resource audit is a periodic review to measure theeffectiveness of personnel management and to determine the steps required for
more effective utilization of human resources.
--- Content provided by FirstRanker.com ---
According to Gray, "the primary objective of personnel audit is to know
how the various units are functioning and how they have been able to meet the
--- Content provided by FirstRanker.com ---
policies and guidelines which were agreed upon; and to assist the rest of theorganization by identifying the gaps between objectives and results, for the end
product of an evaluation should be to formulate plans for corrections of
--- Content provided by FirstRanker.com ---
adjustments."
--- Content provided by FirstRanker.com ---
Objectives of HR Audit
The important objectives of human resource audit are as follows:
--- Content provided by FirstRanker.com ---
1. To review the whole organizational system of human resource practices, i.e.,
acquiring,
--- Content provided by FirstRanker.com ---
developing, allocating and utilizing human resources in the organization.2. To analyze the factors involved in HRD and develop a statement of findings
with
--- Content provided by FirstRanker.com ---
recommendations for correcting deviations, if any, on the following issues:
a. The extent of deviation from HRD policies
--- Content provided by FirstRanker.com ---
b. To what extent objectives are spelt out199
--- Content provided by FirstRanker.com ---
c. To what extent performance standards have been established3. To seek explanations and information and answers to all such above questions
as:
--- Content provided by FirstRanker.com ---
What happened? Why did it happen?
4. To evaluate the effectiveness of various personnel policies and practices.
--- Content provided by FirstRanker.com ---
5. To evaluate the extent of implementation of policies by line managers and theoperational problems faced by them in implementing HRD policies.
6. Evaluating the personnel staff and employees.
--- Content provided by FirstRanker.com ---
5. Knowing how the various units are functioning and how they have been able
to meet
--- Content provided by FirstRanker.com ---
the policies and guidelines, which were agreed upon.6. To study the current manpower inventory and identify shortfall or excess, if
any.
--- Content provided by FirstRanker.com ---
7. To modify the existing human resource practices to meet the challenges of
personnel/human resource management.
--- Content provided by FirstRanker.com ---
8. To assist the rest of the organization by identifying the gap betweenobjectives and
results.
--- Content provided by FirstRanker.com ---
9. To formulate plans for correcting deviations if any.
Scope of HR Audit
--- Content provided by FirstRanker.com ---
Every time the scope is to be decided. The scope of human resourceaudit is very wide. It represents the encompassing approach. It assumes that the
management of human resources involves much more than the practice of
--- Content provided by FirstRanker.com ---
recruiting, hiring, retaining and firing employees. In other words, human
resource audit is interested in all the prograrnmes relating to employees
--- Content provided by FirstRanker.com ---
regardless of where they originate. In this way, the areas personnel auditincludes are recruitment, selection, job analysis, training, management
development, promotions and transfers, labour relations, morale development,
--- Content provided by FirstRanker.com ---
200
employee benefits, wage and salary administration, collective bargaining,
--- Content provided by FirstRanker.com ---
industrial relations and communication. Further, the areas like leadership,
grievances, and performance appraisal and employee mobility are also included
--- Content provided by FirstRanker.com ---
within the scope of human resource audit.For integration of personnel management with HRD functions, HRD
audit now encompasses all the areas like review and integration of corporate
--- Content provided by FirstRanker.com ---
mission, goals, policies and objectives, manpower planning, career planning and
development, and transfer policies, performance appraisal systems, training and
--- Content provided by FirstRanker.com ---
development functions, recruitment and selection, etc.Role of HR Auditor
From the above stated objectives, the job of the HRD Auditor can be
--- Content provided by FirstRanker.com ---
enumerated as follows:
1. To get the current facts.
--- Content provided by FirstRanker.com ---
2. To study the effectiveness of the present system by answering the followingissues:
a. Why was the practice introduced?
--- Content provided by FirstRanker.com ---
b. What would be the result, if the practice is discontinued?
c. What needs were intended to be fulfilled and have those been fulfilled or not?
--- Content provided by FirstRanker.com ---
d. What could be the best possible alternative for fulfilling such needs?e. What changes can improve effectiveness of the existing practice?
f. Are such intended changes economically and operationally viable?
--- Content provided by FirstRanker.com ---
g. Are such changes sustainable from the union's point of view?
h. What should be the time-frame for introducing the change?
--- Content provided by FirstRanker.com ---
Importance of HR AuditTo keep pace with the changing environment, the importance of periodic
HRD audit has increased in recent years. The recent economic restructuring
--- Content provided by FirstRanker.com ---
programme of the Government of India, as discussed earlier, prompted the need
for restructuring of the organization, which, inter alia, calls for restructuring of
--- Content provided by FirstRanker.com ---
201
production, manpower, strategies, management practices and philosophies, etc.
--- Content provided by FirstRanker.com ---
All such possible reasons for periodic HRD audit can be enumerated as follows:a. Technological changes, inter alia, are calling for renewal of knowledge and
skills of existing manpower. Training function, therefore, has assumed
--- Content provided by FirstRanker.com ---
importance. Periodic HRD audit can help to identify the changing training needs
and development of new training modules for effective utilization of manpower.
--- Content provided by FirstRanker.com ---
b. To keep pace with the environmental changes, management philosophy andpractices at the organizational level also need to be changed, like participative
management (through quality circles and value engineering team), employee
--- Content provided by FirstRanker.com ---
empowerment, total employee, involvement, etc. Need for all these can be
understood only when we periodically undertake HRD audit.
--- Content provided by FirstRanker.com ---
Similarly, changing role of trade unions (which are now more Pro-active), Government (which is now more liberal), emergence of new working
class (who are more enlightened), emergence of international quality system
--- Content provided by FirstRanker.com ---
requirements (which call for scientific documentation of different corporate
functions and infuse attitudinal changes), changing expectations of customers
--- Content provided by FirstRanker.com ---
(which call for more customer orientation), new statutory requirements(pollution control), etc., are now influencing HRD functions at the corporate
level, the effectiveness of which can only be understood by conducting periodic
--- Content provided by FirstRanker.com ---
HR audit.
Records Used for HR Audit
--- Content provided by FirstRanker.com ---
Records provide ready reference and serve as future guides and reportsdescribe an incident, event or situation. Depending upon the organization, the
following records/reports are usually checked for HR audit:-
--- Content provided by FirstRanker.com ---
(a)
Time study records and time standards,
--- Content provided by FirstRanker.com ---
(b)Cost records,
(c)
--- Content provided by FirstRanker.com ---
Records on scores obtained in tests and other examinations,
(d)
--- Content provided by FirstRanker.com ---
Medical and accident reports,202
--- Content provided by FirstRanker.com ---
(e)Attitudinal survey-reports,
(f)
--- Content provided by FirstRanker.com ---
Grievance reports,
(g)
--- Content provided by FirstRanker.com ---
Turnover reports,(h)
Data on work stoppages,
--- Content provided by FirstRanker.com ---
(i)
Performance reports,
--- Content provided by FirstRanker.com ---
(j)Pay roll data,
(k)
--- Content provided by FirstRanker.com ---
Labour costs data, etc.
PROCEDURE FOR CONDUCTING HR AUDIT
--- Content provided by FirstRanker.com ---
HR audit can be conducted by the regular staff of the personnel auditsection of the personnel department (i.e. Internal Audit) or some outsider may be
deputed to conduct HR audit (i.e. External Audit). Both systems of personnel
--- Content provided by FirstRanker.com ---
audit should be followed in the organization because external audit presents a
true and fair view of the personnel policies and programmes as the auditor has
--- Content provided by FirstRanker.com ---
no personal interest in the conduct of the business.Both quantitative and qualitative yardsticks should be used for purposes
of evaluation. They may be time standards, cost records, test scores, training
--- Content provided by FirstRanker.com ---
scores, interview records, work stoppages, medical reports, accident reports,
grievance reports, turnover reports, payroll date etc. The audit report should
--- Content provided by FirstRanker.com ---
invariably be submitted within a reasonable time after the audit work is over.HR audit can be carried out either by attitudinal survey or by interpreting
--- Content provided by FirstRanker.com ---
data. Interpretation of data can be done either by simple comparison over a
period or by ratio analysis or by graphical or pictorial displays. T.V. Rao and
--- Content provided by FirstRanker.com ---
Udai Pareek (1996), to measure the effectiveness of people management,developed a set of questions mostly to suggest linking of HRD to the corporate
objectives, goals and strategies, effectiveness of free flow of HRD information
--- Content provided by FirstRanker.com ---
down the ranks, application of knowledge of behavioural science and industrial
psychology for HRD, etc For other HRD sub-systems too, they have developed
--- Content provided by FirstRanker.com ---
203
similar sets of questionnaire, adding responses which can help an organization to
--- Content provided by FirstRanker.com ---
audit their HRD activities.According to VSP Rao, the following questions can be asked to evaluate
personnel policies, procedures and practices:
--- Content provided by FirstRanker.com ---
(i) What are they? (i. e, policies/procedures/practices).
(ii) How are they established?
--- Content provided by FirstRanker.com ---
(iii) How are they communicated to various managers and employersconcerned?
(iv) How are they understood by individual employers, supervisors and
--- Content provided by FirstRanker.com ---
managers at different levels?
(v) Are they consistent with the management's organizational philosophy and
--- Content provided by FirstRanker.com ---
human resource management philosophy?(vi) Are they consistent with the existing trends towards human resource
management and research?
--- Content provided by FirstRanker.com ---
(vii) What are the controls that exist for ensuring their effective and uniform
application?
--- Content provided by FirstRanker.com ---
(viii) What measures exist to modify them to meet the organizationalrequirements?
Using same common checklists for all organizations may not be very
--- Content provided by FirstRanker.com ---
effective to audit human resources for its uniqueness in functional practices and
philosophies.
--- Content provided by FirstRanker.com ---
The human resource audit should probe much deeper, evaluatingpersonnel programmes, policies, philosophy and theory. For this, it is necessary
to decide the appropriate levels of audit such as results, programmes, policies,
--- Content provided by FirstRanker.com ---
philosophy, etc., before actually initiating the personnel audit. Experience
suggests that evaluation by results sometimes becomes just superficial. For
--- Content provided by FirstRanker.com ---
example, high absentee rates may result from a variety of causes. In order tomake deeper probe, the process of personnel audit includes the following steps:
--- Content provided by FirstRanker.com ---
204
(i) Identifying indices, indicators, statistical ratios and gross numbers in some
cases.
--- Content provided by FirstRanker.com ---
(ii) Examining the variations in a time frame in comparison with a similar
previous corresponding period.
--- Content provided by FirstRanker.com ---
(iii) Comparing the variations of different departments during different timeperiods.
(iv) Examining the variations of different periods and then comparing them with
--- Content provided by FirstRanker.com ---
the similar units working in the region.
(v) Drawing trends, ascertaining frequency distribution and correlations between
--- Content provided by FirstRanker.com ---
them.(vi) Preparing a report and send it to the top management for information and
action.
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
Essential Steps in HR Auditing Process:Though the process varies from organization to organization, generally it
--- Content provided by FirstRanker.com ---
involves the following steps:
1. Orientation:
--- Content provided by FirstRanker.com ---
The key staff members of the organization are to be made aware of the
particular issues considered as significant. They should be oriented with the
--- Content provided by FirstRanker.com ---
plans and programmes of audit. The audit procedures must be clearly explained
to them. This is required to make them understand the need of HR Audit.
--- Content provided by FirstRanker.com ---
2. Scanning:The information available in the personnel records, manuals, appraisal
--- Content provided by FirstRanker.com ---
forms, etc. are to be scrutinized thoroughly.
3. Survey:
--- Content provided by FirstRanker.com ---
205
--- Content provided by FirstRanker.com ---
It involves collection of information to pinpoint issues, strengths andweaknesses, managerial philosophies and needs of the organization. This may be
collected from the executives.
--- Content provided by FirstRanker.com ---
4. Interviews:
--- Content provided by FirstRanker.com ---
What questions to be asked is to be decided. This is based on the issuesand the information collected from surveys. The audit efforts will be fruitful if
clarity is obtained as to the key factors selected for audit. Clarity can be obtained
--- Content provided by FirstRanker.com ---
only if the accurate information is collected. The accurate information can be
obtained through conducting interviews. The questions may be developed by the
--- Content provided by FirstRanker.com ---
audit team on the following topics:-Information ? Coverage, Source and Adequacy are the areas to be
covered under this topic.
--- Content provided by FirstRanker.com ---
Forecasting ? Methodology, Reliability, Testability, Budgeting, Time
framework and technology are the factors to be considered.
--- Content provided by FirstRanker.com ---
Training and Development ? Need assessment, Selection criteria,Quality, Climate, Levels covered and frequency are the factors to be
carefully analyzed.
--- Content provided by FirstRanker.com ---
Performance appraisal ? Validity of appraisal process, Benefits and
drawbacks of the problems, Uniformity in process, Linkage with pay and
--- Content provided by FirstRanker.com ---
feedback are the ones to be taken care of.Management Succession Planning ? Identifying key positions,
availability of successors, matching future needs, responsibility for
--- Content provided by FirstRanker.com ---
developing and non performers.
Compensation ? Adequacy of rewards, nature of job descriptions,
--- Content provided by FirstRanker.com ---
flexibility in job evaluation systems, control over costs, rationale ofreward system and opportunities for improvement are the important
factor in this topic.
--- Content provided by FirstRanker.com ---
5. Synthesis:
--- Content provided by FirstRanker.com ---
206The information gathered from the above step is synthesized to find out
--- Content provided by FirstRanker.com ---
the present situation, priorities, and issues identified.Who has to conduct Audit?
--- Content provided by FirstRanker.com ---
Human resource audits are not routine. The manner of conducting the
audit may be self directed surveys or by the task force within the organization or
--- Content provided by FirstRanker.com ---
may be by the outside consultants.When to conduct HR Audit?
--- Content provided by FirstRanker.com ---
It may be one time affair or ongoing process within the organization. The
focus may be the extent to which mangers and supervisors complied with the
--- Content provided by FirstRanker.com ---
established personnel policies and practices.--- Content provided by FirstRanker.com ---
HR Research
--- Content provided by FirstRanker.com ---
Information on HR can be made available in two forms; the first oneincludes facts, terms and concepts or ideas, while the second one is the form of
predictions and explanations. The second form is the product of research. HR
--- Content provided by FirstRanker.com ---
research is the detailed analytic study about people is the organization by
conducting attitudinal survey or direct interview with a structured, close ended
--- Content provided by FirstRanker.com ---
questionnaire. By simple analysis of data also research can be carried out, butthey may not give much insight on employees' attitude or intrinsic feelings.
There are different phases of HR research like, fact finding, hypothesis
--- Content provided by FirstRanker.com ---
formation, valuation and interpretation and application of the results, etc. In
India, many organizations carry out systematic HR research. However,
--- Content provided by FirstRanker.com ---
systematic HR research can help organizations to combine people andprocedures, study patterns of supervisory behavioural, supervisory skills,
identify needs for changing policies and procedures, etc.
--- Content provided by FirstRanker.com ---
207
EXPERIENCES AND EXTRAPOLATIONS FOR FUTURE SCENARIOS
--- Content provided by FirstRanker.com ---
ON HUMAN RESOURCE ACCOUNTING
Human Resource Accounting ? Indian Scenario
--- Content provided by FirstRanker.com ---
The practice of identifying and measuring data about human resourceshas been developed in many Indian companies. In the paper presented by Dinesh
K. Gupta titled 'The Lev and Schwartz model based human resource accounting
--- Content provided by FirstRanker.com ---
system and the use of appropriate discount rate", he has referred that many of
the organizations which have HRA systems do disclose the output details in the
--- Content provided by FirstRanker.com ---
annual report in the supplementary form. According to him almost all theorganizations having HRA except very few, calculate the human resource value
based on Lev and Schwartz model which states that the values of human capital
--- Content provided by FirstRanker.com ---
embodied in a person of age T' is the present value of his remaining future
earnings from employment.
--- Content provided by FirstRanker.com ---
The process followed to assign value to the human resources is similar tothe mechanism used in evaluating the physical capital budgeting proposal. The
focus is to calculate the present value of the salaries to be paid to an employee
--- Content provided by FirstRanker.com ---
throughout his or her association with the organization till his retirement. This
discounted figure represents the revenue generation potential of the human
--- Content provided by FirstRanker.com ---
resources.As observed in many cases, most of the organizations have followed a
particular discount rate to calculate the human resource value since it happened
--- Content provided by FirstRanker.com ---
to be the same rate as used in the evaluation of physical capital budgeting
proposals. According to a survey undertaken by Dinesh. K. Gupta, NTPC
--- Content provided by FirstRanker.com ---
(National Thermal Power Corporation) discounts projected salary stream at l2%which the NTPC uses as the minimum rate of return in its capital budgeting
proposals. SPIC uses the rate of l7% to value its human resources which
--- Content provided by FirstRanker.com ---
happens to be its weighted average cost of capital.
--- Content provided by FirstRanker.com ---
208The existing practice concerning use of discount rate to calculate the
human resource value has been debated on two points i.e.
--- Content provided by FirstRanker.com ---
a) The use of one blanket discount rate which cannot do justice as all the humanresources do not have the same capacity to contribute to the organization It is
illogical.
--- Content provided by FirstRanker.com ---
b) The use of same discount rate (as in physical capital budgeting ) in the human
capital project evaluation is not correct because of the differences in the times of
--- Content provided by FirstRanker.com ---
cash outflows.Therefore, two issues which emerge with regard to HRA valuation in
India are to be clarified. They are:-.
--- Content provided by FirstRanker.com ---
1. Whether the organizations publishing HRA information use the appropriate
model for valuation of Human Resources in India, and
--- Content provided by FirstRanker.com ---
2. Whether the private sector undertakings have HRA system being followed.The answer to the first query is that many joint sector and a few private
sector organizations publish HRA information in their annual reports and mostly
--- Content provided by FirstRanker.com ---
they use Lev & Schwartz model for valuing the human resources.
On an analysis of ONGC, SAIL and CCI, Gupta found that there exists
--- Content provided by FirstRanker.com ---
no relation between the operational results generated by employees of anorganization and the value of employees given by the Lev and Schwartz model.
According to him, the model might hold good in a highly competitive society
--- Content provided by FirstRanker.com ---
where an employee is fairly compensated in relation to his contribution to the
organization, but in a society like India where welfare considerations dominate
--- Content provided by FirstRanker.com ---
work culture, the model should be used cautiously.Further, analyzing the second issue, it is believed that private sector
undertakings do use HRA and show greater concern about the growth of net
--- Content provided by FirstRanker.com ---
assets than the growth of sales. The private sector organizations are highly
physical asset growth conscious which presupposes that their attitude towards
--- Content provided by FirstRanker.com ---
the growth in human assets is highly positive.209
--- Content provided by FirstRanker.com ---
In India there is a growing trend towards the measurement and reportingof human assets in corporate annual reports by various public sector and private
sector companies. In India Companies Act 1956 does not provide any scope for
--- Content provided by FirstRanker.com ---
furnishing any significant information about the human resource nor there is any
rigid instruction under Companies Act 1956 to require companies to attach
--- Content provided by FirstRanker.com ---
information about the value of human resources and the result of theirperformance during the accounting year in notes and schedules. At the same
time, there is nothing to prevent the companies to attach information about the
--- Content provided by FirstRanker.com ---
human resource value and their performance during the accounting year in notes
and schedules. Section 211 (5) of Companies Act 1956 provides that every
--- Content provided by FirstRanker.com ---
balance sheet of a company should give the true and fair view of the financialposition of the company and every profit and loss account should give true and
fair view of the profit or loss of the company. This statutory requirement
--- Content provided by FirstRanker.com ---
indirectly supports the adoption of human resource accounting by Indian
Companies because due to present practice of expensing all human resources
--- Content provided by FirstRanker.com ---
training and development expenditures in current years profit and loss accountand non-disclosure of the value of human assets in balance sheet financial
statements of companies do not reveal true and fair financial position of the
--- Content provided by FirstRanker.com ---
company as on the balance sheet date nor do they disclose true and fair profit or
loss of the company for the year in profit and loss account.
--- Content provided by FirstRanker.com ---
As regards disclosure of statistical information regarding employees ofthe companies in company annual reports, section 217 2 (a) of the Companies
Act, 1956 requires the companies to give the particulars of some employees
--- Content provided by FirstRanker.com ---
drawing Rs.6000 per month or above (limit raised to Rs. 12000 per month or
above applicable to accounting years ending or after 18.9.90) in the company
--- Content provided by FirstRanker.com ---
annual reports. These particulars include name of the employee, designation andnature of duties, gross and net remuneration received, qualifications, age of the
--- Content provided by FirstRanker.com ---
210
employee, experience, date of commencement of employment and particulars of
last employment held by the employees.
--- Content provided by FirstRanker.com ---
Recognizing the need to harmonize the diverse accounting policies and
practices presently in use in India the council of the ICAI constituted the
--- Content provided by FirstRanker.com ---
Accounting Standards Board (ASB) in April 1977. The main function of ASB isto formulate accounting standards (AS). The ICAI has so far issued accounting
standards relating to accounting policies, inventory valuation, changes in
--- Content provided by FirstRanker.com ---
financial position, construction costs, research and development costs, etc. but
no accounting standards has so far been issued by the ICAI for human resources
--- Content provided by FirstRanker.com ---
cost and value accounting.HRD from World Perspective
--- Content provided by FirstRanker.com ---
In the meeting of labour ministers of non-aligned and other developing
countries during 19-23 January, 1995 in New Delhi to debate on human
--- Content provided by FirstRanker.com ---
resources, the stock of the current world economic scenario vis-?-vis its impacton human resources in developing countries is taken. The meet emphasized:
1. The need for effective workers' participation for enhancing productivity.
--- Content provided by FirstRanker.com ---
2. The need for adopting employment policy in congruence with the national
economic and social development policy.
--- Content provided by FirstRanker.com ---
3. The need for education and training of workers and building economicallyvaluable stock of technicians, scientists, technologists and management
specialists by increasing access to education, making it equitable and affordable.
--- Content provided by FirstRanker.com ---
4. Need for vocational guidance and counselling.
5. Need for promotion of self-employment.
--- Content provided by FirstRanker.com ---
6. Need for striking a balance between labour protection through stateintervention and market flexibility.
7. Need for eliminating gender discrimination and enhanced participation of
--- Content provided by FirstRanker.com ---
women in all economic activities.
--- Content provided by FirstRanker.com ---
2118. Need for elimination of child labour.
9. Need for safeguarding the interest of international migrant workers.
--- Content provided by FirstRanker.com ---
10. Need for establishing internal labour standards.Regarding human resources and skill development, the meet reached to a
consensus and adopted the following resolutions:
--- Content provided by FirstRanker.com ---
a. To establish policies and practices to secure investment requisite, proportion
of
--- Content provided by FirstRanker.com ---
the Gross National Income as government expenditure in education andtraining.
b. To study sub-sectoral priorities (between primary, secondary and territory
--- Content provided by FirstRanker.com ---
levels
of education), and analyze investment ratios between the sub-sectors and
--- Content provided by FirstRanker.com ---
maximize the rate of return on investment.c. To enhance access to and retention in education and training and thereby avert
wastage of educational investments.
--- Content provided by FirstRanker.com ---
HRA in Other countries:
--- Content provided by FirstRanker.com ---
AustraliaHuman resource accounting is largely an American invention and most
of the early literature on HRA came from USA. In Australia there are many laws
--- Content provided by FirstRanker.com ---
aimed at protecting the position of employees, consumers etc. an increasing
number of Australian companies have the quantity and quality of social
--- Content provided by FirstRanker.com ---
performance and human resources development. Studies by Trotman and Panghave shown that 79% of the top 100 Australian companies voluntarily provide
information about their social responsibility in the areas of community
--- Content provided by FirstRanker.com ---
development, energy, environment, human resource development and product
improvement.
--- Content provided by FirstRanker.com ---
Newzealand212
--- Content provided by FirstRanker.com ---
In Newzealand there is voluntary disclosure of social responsibilityaccounting and human asset value information in published financial statements
and annual reports by companies which shows their concern for use of such
--- Content provided by FirstRanker.com ---
information for decision making purposes. There is enough support for human
resource accounting under section 153 of Companies Act 1953 and under
--- Content provided by FirstRanker.com ---
various accounting standards issued by New Zealnad Society of Accountantswhich require true and fair disclosure of accounting information and disclosure
of all material facts by the accounts which may influence considerably the
--- Content provided by FirstRanker.com ---
decision making by users of financial statements.
--- Content provided by FirstRanker.com ---
IndonesiaIn Indonesia, change in employment relationship for technology and
consequently restructuring of the organization is controlled by the government
--- Content provided by FirstRanker.com ---
for obviously surplus of labour in the labour market. The employment matters
being highly regulated in Indonesia, scope of organization-wide HRD activities
--- Content provided by FirstRanker.com ---
is limited.Malaysia
Malaysian economy is now facing extreme recession. Termination and
--- Content provided by FirstRanker.com ---
lay-offs are very frequent in industries, which obviously restrict the HRD
activities.
--- Content provided by FirstRanker.com ---
PhilippinesPhilippines industries are facing the challenge of new technology, which
resulted in large scale displacement of workers, skills-mismatch and
--- Content provided by FirstRanker.com ---
redundancy. This situation is being settled by widespread training and
development programmes in the industries.
--- Content provided by FirstRanker.com ---
SingaporeSingapore has established a Skills Development Fund to counter the
effect of technology and train the workers.
--- Content provided by FirstRanker.com ---
213
Thailand
--- Content provided by FirstRanker.com ---
The extent of HRD activities in Thailand are limited. Retraining efforts
to help the workers to make them adaptable to changes are also not that
--- Content provided by FirstRanker.com ---
adequate.HRA ORIENTED REPORTING PROCESSES
--- Content provided by FirstRanker.com ---
Human Resource Accounting Disclosures by Public Sector Enterprises
The growing trend towards the measurement and reporting of human
--- Content provided by FirstRanker.com ---
assets in corporate annual reports is particularly noticeable among public sectorenterprises. The Indian public sector companies which are presently reporting
human asset valuation are the following:
--- Content provided by FirstRanker.com ---
1. Bharat Heavy Electricals Limited (BHEL)
2. Steel Authority of India Limited (SAIL)
--- Content provided by FirstRanker.com ---
3. Cement Corporation of India Limited (CCI)4. Oil and Natural Gas Commission (ONGC)
5. Electronics India Limited
--- Content provided by FirstRanker.com ---
6. Engineers India Limited
7. Hindustan Shipyard
--- Content provided by FirstRanker.com ---
8. National Thermal Power Corporation Limited (NTPC)1. Bharat Heavy Electricals Limited
--- Content provided by FirstRanker.com ---
BHEL recognizes that in any organsiation the value of its employees
cannot be over emphasized. It has been valuing and reporting human assets in its
--- Content provided by FirstRanker.com ---
annual reports since 1978-79. the human assets valuation is done by followingthe Lev and Schwartz model and application of a discount factor of 12% per
annum on the future earnings to arrive at the present value of human resources.
--- Content provided by FirstRanker.com ---
Prior to 1981-82, BHEL was using Lev and Schwartz model without any
changes but since 1981-82, BHEL one change from the model has been made
--- Content provided by FirstRanker.com ---
214
which assumes the maintenance of staff strength at the existing level and
--- Content provided by FirstRanker.com ---
replacement as and when retirement takes place. BHEL disclosure value of itshuman assets in its annual report in the following manner:
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
BHEL HUMAN ASSET ACCOUNTS
VALUE OF HUMAN ASSETS
--- Content provided by FirstRanker.com ---
(Rs. In million)1987-88
--- Content provided by FirstRanker.com ---
1986-87
Executives
--- Content provided by FirstRanker.com ---
47443960
Superiors
--- Content provided by FirstRanker.com ---
3841
3121
--- Content provided by FirstRanker.com ---
Artisans5850
5169
--- Content provided by FirstRanker.com ---
Supporting Technical staff
74
--- Content provided by FirstRanker.com ---
698Clerical and office supporting staff
1106
--- Content provided by FirstRanker.com ---
1036
Unskilled and semi-skilled staff
--- Content provided by FirstRanker.com ---
19821899
Total
--- Content provided by FirstRanker.com ---
18265
15883
--- Content provided by FirstRanker.com ---
RatiosTurnover /Human Resources
1.27
--- Content provided by FirstRanker.com ---
1.26
Turnover/Fixed assets at current cost
--- Content provided by FirstRanker.com ---
1.311.30
Turnover/Total Resources
--- Content provided by FirstRanker.com ---
0.58
0.56
--- Content provided by FirstRanker.com ---
Value added/ Human resources0.49
0.50
--- Content provided by FirstRanker.com ---
Value added/Fixed assets
0.50
--- Content provided by FirstRanker.com ---
0.51Value added/Total resources
0.22
--- Content provided by FirstRanker.com ---
0.22
Human Resource/Total Resources
--- Content provided by FirstRanker.com ---
0.460.44
--- Content provided by FirstRanker.com ---
215
Source: Annual Report 1987-88
Steel Authority of Indian Limited (SAIL)
--- Content provided by FirstRanker.com ---
In evaluating human assets SAIL adopts the "Economic Valuation
Method" and the basic model as conceived by Lev and Schwartz incorporating
--- Content provided by FirstRanker.com ---
refinements as suggested by Eric Flamholtz and Jaggi and Lau and also makescertain modifications as considered necessary to suit special circumstances of
SAIL. The valuation of human capital is done by ascertaining the present value
--- Content provided by FirstRanker.com ---
of future anticipated earnings and discounting the same to their present worth by
applying a discount factor of 14%. SAIL discloses "Human resources value" in
--- Content provided by FirstRanker.com ---
its annual report. Under the dual aspect of accounting, value for human assets isshown both on liabilities and assets side of the balance sheet. On the assets side
it is shown after the fixed assets as human assets while on the liabilities side it
--- Content provided by FirstRanker.com ---
appears after the capital as employees contribution. SAIL discloses human
resources in its Social Balance Sheet as in the table.
--- Content provided by FirstRanker.com ---
SAIL Human Resource Value(Rs. In Crores)
--- Content provided by FirstRanker.com ---
Age Groups
Below
--- Content provided by FirstRanker.com ---
25-3535-45
45-50
--- Content provided by FirstRanker.com ---
Above
Total
--- Content provided by FirstRanker.com ---
2550
Managers
--- Content provided by FirstRanker.com ---
-
9.12
--- Content provided by FirstRanker.com ---
90.5657.99
30.63
--- Content provided by FirstRanker.com ---
188.30
Executives
--- Content provided by FirstRanker.com ---
96.34395.44
466.90
--- Content provided by FirstRanker.com ---
165.99
59.27 1183.94
--- Content provided by FirstRanker.com ---
Supervisors30.34
333.46 1050.53
--- Content provided by FirstRanker.com ---
737.44
175.20 2326.97
--- Content provided by FirstRanker.com ---
Clerical Staff20.44
261.64
--- Content provided by FirstRanker.com ---
292.91
57.75
--- Content provided by FirstRanker.com ---
9.59642.33
Skilled Workers
--- Content provided by FirstRanker.com ---
131.35
889.20 1382.10
--- Content provided by FirstRanker.com ---
525.68103.30 3031.63
Semi-Skilled/
--- Content provided by FirstRanker.com ---
202.67
987.32
--- Content provided by FirstRanker.com ---
792.93196.52
35.88 2215.63
--- Content provided by FirstRanker.com ---
Unskilled
Workers
Total
--- Content provided by FirstRanker.com ---
481.14 2876.18 4075.93 1741.37413.87 9588.49
Previous Year
--- Content provided by FirstRanker.com ---
515.21 3008.56 4065.40 1656.44
335.52 9581.13
--- Content provided by FirstRanker.com ---
216
--- Content provided by FirstRanker.com ---
Social Balance Sheet of SAIL as on 31st March, 1986Liabilities
As on 31st March, 1986 As on 31st March, 1985
--- Content provided by FirstRanker.com ---
Organization Equity
268.85
--- Content provided by FirstRanker.com ---
242.52Social Equity
9,588.49
--- Content provided by FirstRanker.com ---
9,581.13
(Employees
--- Content provided by FirstRanker.com ---
contribution)Total
9,857.34
--- Content provided by FirstRanker.com ---
9,823.65
Assets
--- Content provided by FirstRanker.com ---
As on 31st March, 1986 As on 31st March, 1985Social Capital Investments:
Land
--- Content provided by FirstRanker.com ---
7.42
7.21
--- Content provided by FirstRanker.com ---
Residential and Other198.94
175.00
--- Content provided by FirstRanker.com ---
buildings
Roads and Bridges
--- Content provided by FirstRanker.com ---
16.8216.06
Electrification
--- Content provided by FirstRanker.com ---
11.66
10.99
--- Content provided by FirstRanker.com ---
Water supply and26.87
26.11
--- Content provided by FirstRanker.com ---
sewages
Furniture and Fittings
--- Content provided by FirstRanker.com ---
1.231.18
Other Equipments
--- Content provided by FirstRanker.com ---
5.91
5.97
--- Content provided by FirstRanker.com ---
Human Resources9,588.49
9,581.13
--- Content provided by FirstRanker.com ---
Total
9,857.34
--- Content provided by FirstRanker.com ---
9,823.65Source: Annual Reports of SAIL
Cement Corporation of India Limited (CCI)
--- Content provided by FirstRanker.com ---
In the absence of a clear cut well defined and universally accepted model
for evaluation of the economic worth of human assets to a company, CCI has
--- Content provided by FirstRanker.com ---
made an attempt to assess the same by working out the present value of theanticipated future earnings of the employees taking into account the present pay
scales and the promotion policies being followed. The computation has been
--- Content provided by FirstRanker.com ---
made based on the guidelines and principles enunciated in the economic models
--- Content provided by FirstRanker.com ---
217by Lev and Schwartz (1971), Eric Flamholtz (1974) and jaggi and Lau (1974)
with appropriate modifications found necessary. The table shows the progress
--- Content provided by FirstRanker.com ---
made by CCI in human resources valuation. CCI also discloses human assetvalues in social Balance sheet in its annual report in the same manner as that of
SAIL.
--- Content provided by FirstRanker.com ---
Valuation of Human Assets in CCI
(Rs. In million)
--- Content provided by FirstRanker.com ---
1983-84
1984-85
--- Content provided by FirstRanker.com ---
1985-86
1986-87
--- Content provided by FirstRanker.com ---
1987-88Managers
157
--- Content provided by FirstRanker.com ---
115
85
--- Content provided by FirstRanker.com ---
7051
Supervisors
--- Content provided by FirstRanker.com ---
106
88
--- Content provided by FirstRanker.com ---
6443
54
--- Content provided by FirstRanker.com ---
Skilled Workers
207
--- Content provided by FirstRanker.com ---
175114
78
--- Content provided by FirstRanker.com ---
61
Semi-skilled Workers
--- Content provided by FirstRanker.com ---
130101
68
--- Content provided by FirstRanker.com ---
49
42
--- Content provided by FirstRanker.com ---
Clerical and other96
86
--- Content provided by FirstRanker.com ---
59
49
--- Content provided by FirstRanker.com ---
44supporting staff
Unskilled Workers
--- Content provided by FirstRanker.com ---
108100
76
--- Content provided by FirstRanker.com ---
69
55
--- Content provided by FirstRanker.com ---
Total804
665
--- Content provided by FirstRanker.com ---
466
358
--- Content provided by FirstRanker.com ---
287Source: Annual Reports of CCI
Other public sector undertakings namely ONGC, MMTC, MECON,
--- Content provided by FirstRanker.com ---
NTPC, PEC, CANFINA also treat human assets as the greatest natural assets of
the organsiation and report human asset values calculated as per Lev and
--- Content provided by FirstRanker.com ---
Schwartz basic HRA model in their annual reports as ,,Unaudited SupplementedFinancial Information besides disclosing human asset valuation in ,,Social
Balance Sheet of the organization.
--- Content provided by FirstRanker.com ---
Human Resource disclosure practices in Scooters India Limited and
Fertiliser Corporation of India Limited includes recognition of importance of
--- Content provided by FirstRanker.com ---
human resources in directors report, disclosure of number employed, humanresources training and development programmes initiated by the company, state
of affairs regarding workers participation in management, expenditures on
--- Content provided by FirstRanker.com ---
maintenance of townships and other staff benefits by the company.
Private Sector Enterprises & Human Resource Accounting
--- Content provided by FirstRanker.com ---
218
A recent survey undertaken among some leading private and public
--- Content provided by FirstRanker.com ---
sector organizations regarding human resources development indicates that inpublic sector 83 per cent organizations has a top management competent enough
to take decisive role in identifying training requirements contrasted against 44%
--- Content provided by FirstRanker.com ---
in the private sector. Only a few companies in the private sector have attempted
human resources accounting and valuation.
--- Content provided by FirstRanker.com ---
The Associated Cement Companies Limited (ACC) regards its humanresources as its prime assets. It is the only company in the private sector to
which the Institute of Chartered Accountants of India awarded a ,,Plaque for the
--- Content provided by FirstRanker.com ---
best presentation of annual accounts and report and commended the ACCs
Annual Report and Accounts for the year 1983-84. the ACC evaluates its human
--- Content provided by FirstRanker.com ---
assets by computing a net present value of the anticipated future earnings of theemployees based on the guidelines enunciated in the economic models of HRA
developed by Lev and Schwarts (1971), Eric Flamholtz (1974) and Jaggi and
--- Content provided by FirstRanker.com ---
Lau (1974) with appropriate modifications as considered necessary. ACC also
discloses in its annual report Total "Inventory of Human Resources" and "Age
--- Content provided by FirstRanker.com ---
wise and Category ?wise Inventory of Human resources".Valuation of Human Assets in ACC
--- Content provided by FirstRanker.com ---
Employees
Value
--- Content provided by FirstRanker.com ---
Number
%
--- Content provided by FirstRanker.com ---
(Rs.in Lacs)
%
--- Content provided by FirstRanker.com ---
Executives56
.21
--- Content provided by FirstRanker.com ---
207
0.61
--- Content provided by FirstRanker.com ---
Managers287
1.05
--- Content provided by FirstRanker.com ---
958
2.84
--- Content provided by FirstRanker.com ---
Officers1949
7.15
--- Content provided by FirstRanker.com ---
4651
13.77
--- Content provided by FirstRanker.com ---
Skilled Workers9977
36.60
--- Content provided by FirstRanker.com ---
3728
11.04
--- Content provided by FirstRanker.com ---
Clerical and other4527
16.61
--- Content provided by FirstRanker.com ---
6703
19.84
--- Content provided by FirstRanker.com ---
219
supporting staff
--- Content provided by FirstRanker.com ---
Unskilled Workers6695
24.56
--- Content provided by FirstRanker.com ---
6741
19.95
--- Content provided by FirstRanker.com ---
Total27258
100.00
--- Content provided by FirstRanker.com ---
33782
100.00
--- Content provided by FirstRanker.com ---
Source: Annual Reports of ACC (1985-86)
The Tata Iron and Steel Company Limited, Reliance Industries Limited,
--- Content provided by FirstRanker.com ---
LML Limited, J.K. Synthetics Limited and other companies in the private sector
recognize importance of human resources and their contribution in the
--- Content provided by FirstRanker.com ---
Directors Report which ends with the words of appreciation to the valuableservices rendered by the employees of the company. Information relating to
human resources is also disclosed under the heading "Payments to and Provision
--- Content provided by FirstRanker.com ---
for Employees" in Conventional Profit and Loss Account and in other sections
of annual report like Personnel and Industrial Relations, Workers Participation
--- Content provided by FirstRanker.com ---
in Management, Employee Training and Development etc. However, majority ofthe private sector companies have not made any attempt to arrive at monetary
value of human resources and disclose the same in their annual reports. Nor
--- Content provided by FirstRanker.com ---
prepare any ,,Social Balance Sheet. However, they publish particulars of
employees as an annexure to the directors report in their annual reports in
--- Content provided by FirstRanker.com ---
fulfillment of the statutory requirement of section 217 (24) of the CompaniesAct 1956.
International Accounting Standards
--- Content provided by FirstRanker.com ---
The International Accounting Standards Committee (IASC) has issued
International Accounting Standards (IAS) to harmonize diverse accounting
--- Content provided by FirstRanker.com ---
practices prevalent in different member countries. To promote better disclosures,the IASC has till now issued 30 accounting standards, three exposure drafts and
a framework for the preparation and presentation of financial statements on
--- Content provided by FirstRanker.com ---
important accounting areas as disclosure of accounting policies, valuation of
--- Content provided by FirstRanker.com ---
220inventories, changes in financial position, depreciation accounting, accounting
for research and development, accounting for leases, revenue recognition etc.
--- Content provided by FirstRanker.com ---
As far as the inclusion or exclusion of human resource information in theBalance Sheet and Profit and Loss Account of companies, so far, no definitive
accounting standard has been brought. The ,,Framework for Preparation and
--- Content provided by FirstRanker.com ---
Presentation of Financial Statements issued by IASC clearly states that
financial statements are aids to economic decision making and puts a case for
--- Content provided by FirstRanker.com ---
human resource accounting and its inclusion in financial statements. OtherInternational Accounting Standards like-
IAS-1; Disclosure of Accounting Policies,
--- Content provided by FirstRanker.com ---
IAS-4; Depreciation Accounting,
IAS-5:Information to be disclosed in Financial Statements,
--- Content provided by FirstRanker.com ---
IAS-7; Statement of Changes in Financial Position,IAS-9; Accounting for Research and Development Activities,
IAS-16; Accounting for Construction Costs,
--- Content provided by FirstRanker.com ---
IAS-16; Accounting for Property Plant and equipment,
IAS-17; Accounting for Leases,
--- Content provided by FirstRanker.com ---
IAS-18; Revenue recognition,IAS-23; Capitalization of Borrowing Costs,
IAS-29; Financial Reporting in Hyper inflationary Economics and
--- Content provided by FirstRanker.com ---
IAS-30; Disclosures in the Financial Statements of Banks also support
the adoption of Human Resource Accounting by business entities to provide a
--- Content provided by FirstRanker.com ---
true and fair disclosure of financial position of the business and its profitability.The accountants, by charging expenses of recruitment, training,
--- Content provided by FirstRanker.com ---
familiarization and development of human resources to the current periods
profit and loss account, understate profits or overstate losses. By not accounting
--- Content provided by FirstRanker.com ---
the expenses related to human resources, even when they are substantial, theaccountants conceal assets and net worth to that extent.
--- Content provided by FirstRanker.com ---
221
The importance of people an as productive resource has been ignored by
the accounting profession. A team of competent devoted and motivated persons
--- Content provided by FirstRanker.com ---
can convert a sick concern into successful one but on the contrary incompetent
and unmotivated personnel may squander away the existing resources leading to
--- Content provided by FirstRanker.com ---
bankruptcy. Hence, the more valid treatment of human resources developmentexpenditure yielding future benefits is to capitalize such expenditure.
The total absence of any information regarding the value of human
--- Content provided by FirstRanker.com ---
capital is a serious handicap to decision making both to the managers employing
quantitative means to arrive at quantitative goals and to investors likewise
--- Content provided by FirstRanker.com ---
seeking to make rational decisions concerning the shares which they hold orpropose to buy. The most important argument for disclosing changes in human
asset value on the balance sheet is that it is the managerial, scientific and
--- Content provided by FirstRanker.com ---
commercial personnel which determine the companys future success. That is
why investors and the public also have a vested interest in human
--- Content provided by FirstRanker.com ---
resources/human asset accounting. Such a system has many applications inimproving planning and decision making in an organization. HRA Software:
--- Content provided by FirstRanker.com ---
Activities:
1. Assume that you are required to conduct a Human Resource Audit in
--- Content provided by FirstRanker.com ---
your organization. To collect adequate information, prepare a suitablequestionnaire covering all aspects of information.
2. Prepare a Checklist of key questions to be asked in regard to assessment
--- Content provided by FirstRanker.com ---
of major manpower concerns.
3. Prepare a draft report regarding the installation of Human Resource
--- Content provided by FirstRanker.com ---
Accounting in your organization.4. Suggest various measures to improve the Human Resource Audit system
followed in your organization.
--- Content provided by FirstRanker.com ---
--- Content provided by FirstRanker.com ---
222Questions:
1. Define Human Resource Audit
--- Content provided by FirstRanker.com ---
2. State the objectives of Human Resource Audit3. What is the scope of Human Resource Audit?
4. What is the job of Human Resource Audit?
--- Content provided by FirstRanker.com ---
5. Who has to conduct Human Resource Audit?
6. List out the records required for Human Resource Audit.
--- Content provided by FirstRanker.com ---
7. Explain the steps involved in the Human Resource Audit Process.Books for further study:
--- Content provided by FirstRanker.com ---
3. Theodre W. Schultz, "Investment in Human Capital", The Americal
Reviwe, Vol. I.
--- Content provided by FirstRanker.com ---
4. Caplan E. H. and Landekich, S., "Human Resource Accounting: Past,Present and Future".
5. Personnel / Human Resource Management (Text, Cases and Games): P.
--- Content provided by FirstRanker.com ---
Subbarao & V.S.P. Rao.
6. Personnel / Human Resource Management: A.R. Sharma.
--- Content provided by FirstRanker.com ---
7. Personnel / Human Resource Management: David A. Decenzo, StephenP. Robbins.
--- Content provided by FirstRanker.com ---
223
--- Content provided by FirstRanker.com ---