Chp 1 Costing Human Resources

8/2/2019 Chp 1 Costing Human Resources

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Costing Human

ResourcesChapter 1

The Costs and BenefitsOf Human Resources


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In the past. . .

HR professionals have

been getting by focusing

on the day-to-day. They

need to develop abroader and farther-

reaching vision and

understand where their

organization is headedand how they can help

steer the company in

that direction.


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Human Resource Accounting

HRA procedures are the first step in developingsophisticated measurement and accountingprocedures to enable to company to report

accurate estimates of the worth of theorganizations human assets.

Historical-cost approach to employee valuationlooks at costs actually incurred. Most appropriatefor external reporting used to inform interestedparties of the financial position & results of acompanys operations.


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More on historical-cost approach

Based on false assumption that the

dollar is stable.

Because the assets are not salable

there is no independent check ofvaluation (subjectivity).

Measures only costs to the

organization; it ignores completely

any measure of the value of the

employee to the organization.


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Replacement Cost

Measures the cost of replacing the employee ratherthan the historical cost of an employee.

Most appropriate in the context of dismissal and

replacement staff.

Include: recruitment, selection, compensation, and

training costs

May lead to upwardly biased estimates because an

inefficient firm may incur greater costs. How often do companys make decisions regarding

dismissing & replacing staff?


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Present Value of Future Earnings

Organization establishes what an employees future

contribution is worth to it today

Can be measured by its cost or by the wages the

organization will pay the employee Measure is limited because it assigns value to the

average rather than to a specific

group or individual.


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Details. . .

Uses statistics such as consensus income

returns and mortality tables

Since there value is assigned to the average,

there is no benefit to monitoring an individual

firms investment in employee development

since the investment would have little or no

impact on the present

value of future earnings.


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Endless Search

The search continues for a single, limited-

criterion measure for HRA but it is unrealistic

to expect that such a measure will be

developed.

We judge the value of athletes by

measuring how much a particular

team is willing to pay him.


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Costing Employee Behaviors

The criterion should measure thecontribution of the individual to the

overall efficiency of the organizationIt

centers on the quantity, quality, and costof the finished product.

Such factors as skill are

latent-their effect is realized inthe end product.


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Costing Emp Behaviors

The contribution each

employee makes it not

related to the size of a

firms investment in thatemployee, but it is

directly related to how

each person works and

what is produced.

Fixed costs (salaries)

Variable costs (sales

commissions)

Opportunity costs (forgone)

Outlay costs (ex. Materials

used in training new

employees) v. time costs (ex

supervisors time spent

orienting new employees)


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Intellectual Capital

Traditional financial statements are lessilluminating with respect to the assets thatcreate wealth than they were in the past.

Intangible assets such as brand names,intellectual capital, patents, copyrights, andexpenditures for research and developmentnow generate an increasing amount of wealth

for firms. Soft assets not recognized in financial

statements


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Put People on the Balance Sheet

Every country, every company, and every

individual depends increasingly on knowledge

patents, processes, skills, technologies,

information about customers and suppliers,and experience.

This has brought up a new way of strategic

thinking about how to put people on thebalance sheet.


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Valuing Intellectual Capital

A way of describing the

otherwise intangible

dimensions of the operation,

and not as an attempt to createadded value in the likes of the

emperors new clothes.

Found in one or more of three

places: people, structures, and

customers.


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Define Yourself

Human capital: knowledge, skill, andcapability of individual employees to providesolutions to problems that customers think are

importantoutside-in approach Structural capital: sharing, transporting, and

enabling human capital

Customer capital: value of an organizationsrelationships with the people with whom itdoes business, including suppliers


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Measuring Intellectual Capital

1. Keep it simple

2. Measure what is

3. strategically important

4. Measure activities that produce

intellectual wealth


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Measurement of intellectual

capital can help managers and

investors by providing a moreaccurate estimate of the true

value of the company than

would a single accounting of itsphysical holdings.

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Chp 1 Costing Human Resources

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