Human Resources Audit

What keeps you awake at night?

Strategic Analysis of HR: Purpose People related strategies may be important to new

strategy (for example, a change in the way the organization does business)

In today’s technologically complex business world, analysis of existing human resources is important in order to determine what options are available

The network of people within an organization and their relationships with people can be an important part of strategy

HR and Sustainable Competitive Advantage In some industries, people are the most important

factor in success- advertising and creative development- leisure and tourism- management consulting- hospitals and medical professions

The adaptability of people to changing environments is an important skill

“The ability to learn faster than your competitors may be the only sustainable advantage” – Arie De Geus, former head of planning at Royal Dutch Shell

The Audit: Principles

Obtain some basic information on the people and policies involved in the organization

Explore in detail the role and contribution of the human resources management function in the development of strategy

The Audit: Contents

People in the Organization

Role and Contribution of HR strategy

•Employee numbers and turnover

•Organization structure

•Structures for controlling the •organization

•Use of special teams, e.g. for•Innovation

•Level of skills and capabilities•required

•Morale and rewards

•Employee and industrial •relations

•Selection, training and development

•Staffing levels

•Capital investment/employee

•Role of quality and personal service•in delivering the products or services•of the organization

•Role of professional advice in•delivering the product or service

HR Audit: People in the Organization

•Relationship with strategy

•Key characteristics of HR strategy

•Consistency of strategy across different levels

•Responsiveness of HR strategy in leading change in the organization

•Role of HR strategy in leading change in the organization

•Monitoring and review of HR strategy

•Time horizon for operation of HR strategy

Role and Contribution of HR Strategy

Good HRD requires the following The top management of the organization requires the strategic advantage and the critical value addition provided by people.

The role of HRD is well carved out. Line managers understand , accept , and

internalize their own role in development. A learning culture is created in the organization. Appropriate HRD systems are identified to suit

the needs, requirements and strategies of the corporation and implemented well.

Good HRD requires the following(cont.) The systems are periodically reviewed and

aligned and realigned with the business goals of the organization.

Support HR policies are formulated and implemented.

The HRD function is handled by competent people

The styles, beliefs and values of the top management is aligned to promote a good learning and competency building culture.

HRD function and the implementation of HRD is periodically reviewed and renewed .

HRD audit is a comprehensive evaluation of the current human resource development strategies, structure , systems, styles and skills in the context of the short and long term business plans of a company. HRD audit attempts to find out the future HRD needs of the company after assessing the current HRD activities and inputs available.

What the Audit Achieves

Provides information that is useful in deciding how feasible a strategy is

Identifies any human resource “gaps” (human resources necessary for a proposed strategy minus the current state of human resources)

Allows the organization to “benchmark” their performance against other organizations (benchmark is a process of comparison)

A human resource audit evaluates the HR activities in an organization with the intent of improving those activities. The audit may include one division or entire company. It provides feed back about the HR function to operating managers and HR specialist. It also provides feedback on how well managers are meeting their HR duties. In short audit is an overall quality control check on HR activities in a division or a company supports the organization strategy. The concept of HR audit is similar to the financial audit –a process to evaluate and a take action where necessary. Auditing is an evaluation of the system in order to enable management to take decision regarding the efficient running of an enterprise.

What is HR audit?HR management auditing consist of the analysis and evaluation of policies, procedure and practices to determine the effectiveness of HR management in an organization.

HR audit is a process to review implementation of your institutions

policies and procedures, ensure compliance with employment law,

eliminate liabilities, implement best practices and educate your managers.

According to Dale Yoder,” Personnel audit refers to the examination and evaluation of policies , procedures and practices to determine the effectiveness of personnel management”.

The essential features of HR Audit are:

1.The measurement and effectiveness HR management’s mission. Goals, strategies, policies , programmes and activities

2.To determine the action plan for future in response to the results from such measurement.

Human Resource Audit?A human resource audit evaluates the personnel activities used in an organization. The audit may include one division or entire company. It gives feedback about :1.The function of operating managers. 2.The human resource specialists.3.How well managers are meeting their human resource duties. In short, the audit is an overall quality control check on human resource activities in a division or company and how those activities support the organization’s strategy

Objectives of HR Audit To review every aspect of management of

HR to determine the effectiveness of each programmes in an organization.

To seek explanation and information in respect of failure and success of HR

To evaluate implementation of policies. To evaluate the performance of personnel

staff and employees. To seek priorities , values and goals of

management philosophy.

The audit should be:

Proactive

Reactive

Informative

Developmental

Benefits of HR AuditAn audit reminds member of HR department and others its contribution, creating a more professional image of the department among manager and specialist. The audit helps clarify the department’s role and leads to greater uniformity, especially in the geographically scattered and decentralized HR function of large organizations. Perhaps most important, it finds problems and ensures compliance with a variety of laws and strategic plans in an organization.a) Identifies the contribution of HR department to the organizationb) Improves the professional image of the HR department.

Benefits of HR Audit (cont)c) Encourages greater responsibility and professionalism among member of the HR department.d) Clarifies the HR department’s duties and responsibilities.e) Stimulates uniformity of HR policies and practices.f) Finds critical HR problems.g) Ensures timely compliance with legal requirements.h) Reduces human resource cost through more effective HR procedure.i) Creates increased acceptance of needed change in the HR department.j) Requires thorough review of HR department’s information system.

Besides ensuring compliance, the audit can improve the department’s image and contribution to the company. Operating managers may have more respect for the department when an audit team seeks their view. If the comments of manager are acted on, the department will be seen as being more responsive to their needs. And since it is service department, these actions may improve its contribution to organizational objectives.

The Scope of Human Resource AuditsAudit of Corporate Strategy

Corporate Strategy concerns how the organization is going to gain competitive advantage.

Audit of the Human Resource FunctionAudit touches on Human Resource Information System, Staffing and Development, and Organization Control and Evaluation.

Audit of Managerial ComplianceReviews how well managers comply with human resource policies and

procedures.

Audit of Employee SatisfactionTo learn how well employee needs are met.

Audit of Corporate Strategy Human resource professionals do not set

corporate strategy, but they strongly determine its success.

By assessing the firm’s internal strengths and weaknesses and its external opportunities and threats, senior management devises ways of gaining an advantage, such as :

stresses superior marketing channels, low-cost production, etc. Understanding the strategy has strong

implications for human resource planning, staffing, compensation, employee relations, and other human resource activities

Audit of the Human Resource Function1. Human Resource Information System- Human Resource Plans : Supply and demand

estimates; skill inventories; replacement charts and summaries

- Job Analysis Information : Job standards, Job descriptions, Job specifications

- Compensation Management : Wage, salary, and incentive levels; Fringe benefit package; Employer-provided services

2. Staffing and Development

Recruiting : sources of recruits, availability of recruits, employment applications

Selection : selection ratios, selection procedures, equal opportunity.

Training and development : orientation program, training objectives and procedures, learning rates

Career development : internal placement, career planning program, human resource development efforts

3. Organization Control and Evaluation Performance appraisals : standards and

measures of performance, performance appraisal techniques, evaluation interview.

Labor-Management Relations : Legal compliance, management rights, dispute resolution problems.

Human Resource Controls : employee communications, discipline procedures, change and development procedures,

Audit of Managerial Compliance Compliance with laws is especially

important. When safety, compensation, or labor laws are violated, the government holds the company responsible.

If managers ignore policies or violate employee relations laws, the audit should uncover these errors so that corrective action can be started.

Audit of Employee Satisfaction Employee satisfaction refers to an employee’s

general attitude toward his or her job. When employee needs are unmet, turnover,

absenteeism, and union activity are more likely. To learn how well employee needs are met, the audit team gathers data from workers.

The team collects information about wages, benefits, supervisory practices, career planning assistance, and other dimensions of job

Scope of HR Audit

In order to conduct HR audit, HR manager requires considerable amount of data. To conduct meaningful HR audit information on following human resource functions is necessary:

1) Procurement Function

a) In inventory present and future needs for manpower

b) Reliable performance standard

c) Possible change affecting manpower

d) Location and matching of required and available skills

e) Valid measure for testing and selection

f) Cost of requirement and replacement

2) Development Functiona) Valid measure of employee performanceb) Cost benefit calculation on training and developmentc)Linkage between individual aspirations and organizational needs.d) Career and succession planning.3) Compensation Functiona) Linkage between wages and productivityb) Impact of money on work motivation of employeec) Employee cost in term of turnoverd) Effect of inflation and technology on wages label and productivitye) Value of collective bargaining and fringe benefit programmes to the organization.

4) Maintenance Functiona) Absenteeism, turnover, accidents, grievance

disciplines, man-days lost and other indicator of organizational health

b) Environmental standards for physical and mental health of the employees.

c) Causes and cost of employee separationd) Incentives for voluntary separation, if necessary.5) Integration Functiona) Communication and leadership climate in the

companyb) Adoption to environmental changec) Causes of changes in productivity leveld) Impact of change in technology and market.

Why conduct an HR audit?• Ensure compliance

• Improve HR practices

• Train your managers

• Prepare for potential government audit or litigation

• Gain an understanding of department’s environment

• Show a “good faith effort”

• Correct errors

Why do companies want HR Audit To make the HR function business driven To take Stock of things and to improve HRD for

expanding , diversifying and entering into a fast growth phase.

For promoting professionalism among employees and to switch over to professional management.

Multinationals want to know the reasons for lower labour productivity and for improving their HRD strategies in the Indian context.

For growth and diversification. Dissatisfaction with a particular component Change of Leadership

Role of HRD Audit in Business ImprovementIt can get the top management to think in terms of strategic and long-term business plans.Changes in the styles of the top managementRole clarity of HRD department and the role of the managers in HRDImprovements in HRD systemsIncreased focus on human resources and human competenciesBetter recruitment policies and more professional staffMore planning and more cost effective training.Strengthening accountability through appraisal systems and other mechanisms.Streamlining of other management practicesTQM interventionsIt can enhance ROI of the HR function.

Audit Tools/ Methodology of HRD Audit:• Interviews

• Observation

• Questionnaire

•Secondary data analysis

•And examination of documents and communications.

InterviewsInterviews with employees and managers

are one source of information about human resource activity. Employees and managers comments help the audit team find that need improvement.

Another useful source of information is the exit interview. Exit interview are conducted with departing employees to learn their views of the organization.

Interviews

Interviewing the various stakeholders can give considerable data about the current areas and directions for improvement. The main advantage of the interview method is its capacity to capture the primary concern of the stakeholders.

Interviews can be: (a) Individual (b) Group

Individual InterviewsThe auditors normally make it a point to interview the top level management and senior managers individually. Such individuals interviews are a must for capturing their thinking about the future plans and opportunities available for the company. Also by virtue of occupying strategic positions , the top management has the required perspective for a good HRD audit. Thus a good HRD audit begins with individual interviews of the top management.

Individual InterviewsIndividuals interviews are also essential when sensitive information has to be obtained. Such information pertains to working styles and culture. Union leaders, departmental heads , some strategic clients and informal leaders are all interviewed individually.

Group Interviews Normally in an audit of companies having

thousands of employees, it is not feasible to meet everyone individually. Group interviews are normally conducted for groups of four to eight individuals. It is preferable to have employees drawn from same or similar levels.

Some of the open-ended questions normally asked for HRD audit in both individual and group interviews areas follows:

What do you see as the future growth opportunities and business directions of the company?

What skills and competencies does the company have which you are proud of?

What skills and competencies do you need to run your business, or to perform your role , more effectively at present?What are the strengths of your HRD function?What are the areas where your HRD function can do better?What is good about your HRD subsystems , such as performance appraisal , career planning , job rotation, training, quality circles,etc?What is weak about them? What can be improved?What changes do you suggest to strengthen HRD in your company?What do you think are the ways in which line managers can perform more development roles?

Questionnaires

Because interviews are time-consuming, costly, and often to only few people, many human resource departments use questionnaires. Through questionnaire surveys, a more comprehensive picture of employee treatment can be developed. Questionnaire may also lead to more candid answers than face-to-face interviews.

- employee attitude about supervisors- Employee attitude about their jobs- Perceived effectiveness of human resource

department

Questionnaire Method

A comprehensive questionnaire is normally administered to company executives. This questionnaire has over 250 items and requires 90minutes to complete. The questionnaire can be administered individually or in a group.

These questionnaire attempt to assess various dimensions of HRD including the competency base of HRD staff, the styles of line managers, the implementation of various HRD systems, etc.

ObservationObservation is a way to look at the things as they exists. It involves the use of various senses and drawing meanings to the things we see or hear. There are number of things that can be observed by an evaluator. These may be classified under the following categories:Physical facilities and living conditions.Meetings, discussions, and other transactions.Celebrations and other events related to organizational life and culture.Training and other HRD related facilities, including the class-rooms, library, training centre etc.Forms and formats, report, manuals etc.

Documents to observe Annual Report. Appointment Letters Transfer letters Training Sponsorship, evaluation and follow up

formats Product information and company information

brochures News letters Manuals (all types) Notices on notice boards Posters, memos, announcements Appraisal forms, training nomination forms Claim forms, application forms for recruitment Joining formalities for new inductees

What to Assess ? Do they promote a sense of belonging ? Do they communicate a sense of respect and dignity

for each individual? Are they professional or bureaucratic in terms of

language , tone and explanation? Are they clear or ambiguous? Do they indicate a lot of centralization or

decentralization and autonomy? Are they prepared with thought and care? Are they readable and communicative or

ambiguous? How are they organized and displayed? Are they informative or hiding details and prone to

rumours?

What is the audit ‘testing’?

• Compliance with employment law

• Compliance with institution policies/procedures

• Training opportunities

• Department environment

• Potential liabilities

• Accuracy of records

• Manager’s understanding of law/policies/procedures

Before you begin the audit process…1. Determine who will conduct the audit.

Internal vs. External

2. Secure senior management commitment.

a. Are they ready to fix what’s broken, even if it costs ?

b. Do they agree with the methodology?

c. Will they allow access to all departments/information?

d. Will they publicly support the process?

Before you begin the audit process…

3. Define the parameters.

a. Who will be audited?

b. What do you want to audit?

c. What audit tools will you use?

d. How will the process be rolled out?

e. How will results get reported?

f. Who will get the results?

Remember….

The findings are not negotiable!

Allowing a department head and or manager to review your

draft is not a license for him/her to change your

findings.

Don’t forget to conduct an audit in your own (Human Resources) department!

Benefits

•No phantom participants

•Compliant with legal provisions

•Paying correct rates

Compensation/Payroll

•Correct use of exempts vs. non- exempt status

•Employees are correctly graded

•Job descriptions are available for all position or grade categories

•Limited access to systems/records

•Social Security numbers are secure and only used when necessary

Review…

Employee Relations

•Correct documentation of investigations

•Warning/disciplinary letters

•Policies and procedures are readily available to staff

•Required posters are visible to staff

•Sick and vacation tracking is accurate

Training and Development

•Programs are readily available to staff

•Tracking attendance

Review…Records

•Employee files are kept in safe and secure area

•Limited access to files

•Necessary paperwork is readily available (job description, application, emergency contact)

•Certain records are kept separate from employee file (references, medical records, investigatory documents)

Employment/Recruitment

•Staffing and selection paperwork

•Affirmative Action forms

•Posting information

Tasks of Auditors Identify who is responsible for each activity. Determine the objectives sought by each

activity. Review the policies and procedures used to

achieve these activities. Prepare a report commending proper

objectives, policies, and procedures. Develop an action plan to correct errors in

each activity. Follow up the action plan to see if it solved

the problems found through the audit.

Audit ProcessEvaluation by audit results is usually superficial because the interpretation of such indicators is generally limited. High absence rates, for example, may result from a variety of causes. Turnover may be low because unemployment is high. The audit probe should be much deeper –apprising programmes, policies, philosophy and theory. Policy on the depth of the audit must determine which of the following level is desired.a) Results including both accomplishment and problem regarded as effect of current management.b) Programmes including the detailed practices and procedure of which they are composed.c) Policies both explicit and implicit.d) Philosophy of management, its priorities in value, goals and objectives.e) Theory or the assured relationship and plausible explanation they clarify and relate philosophies, policies and continuing problems.

The audit report Findings of research are used to developed a

picture of the organization’s resource activities. For this information to be useful, it is compiled into audit report.

The audit report is a comprehensive description of human resource activities that includes both commendations for effective practices and recommendations for improving practices that are less effective.

Audit report often contain several sections. One part is for line managers, another is for manager of specific human resource function, and the final part is for the human resource manager.

HR Audit ReportThe audit report is a comprehensive description of HR activities that includes both recommendations for effective practices and recommendations for improving practices that are less effective. A recognition of both good and bad practices is more balanced and encourages wider acceptance of the report. An audit report contains several sections.

The HR manager’s report contains all the information given to both operating managers and staff specialists. In addition, the manager gets feedback about:a) Attitudes of operating managers and employees about the department’s benefits and services.b) A review of the departments’ objectives and plans to achieve them.c) HR problems and their implications.d) Recommendations for needed changes and the priority for their implementation.

Audit report provides very useful information in the form of summaries and valuation. The information thus obtained can be utilized for making comparison of policies, practice and programmes of other organizations. This provides a chance for improvement to the organization in future.The audit report should include the following significant aspects:  Highlights of the contents  Objectives of audit Summary of the audit report for perusal of top executives of the organization.  Conclusions drawn  Department wise evaluation Appendix. The voluminous data that cannot be included in the body of report.

Model OutlineExecutive Summary Chapter 1 Introduction Chapter 2 Current Status of the HRD Function; Some

Facts Chapter 3 General Observations Chapter 4 Career Systems Chapter5 Work Planning Chapter 6 Development System Chapter 7 Self -renewal System Chapter 8 HRD Culture Chapter 9 HRD Functions Tables and Appendices

Chapter 1 : IntroductionThis section can contain the following components briefly:An introduction to the company , highlighting its manpower, turnover, locations, products and services, its main concerns, and its top management.A brief description of the dates and reasons for commissioning the audit.A brief description of the framework and methodology adopted for the study – the methodology should describe details of the sample, audit methods used( questionnaire administered, no. of individuals interviewed etc.)A brief description of the HRD systems framework( various subsystems of HRD Audits etc.Future plans of the company and competency requirements.

Chapter 2 : Current Status of the HRD Function; Some Facts

In this chapter the status of the HRD functions should be presented in the details. This chapter describe the following: Structure and staffing of the HRD functionsHRD departments thrust areas and objectives.Highlights of the HRD systems and subsystems – a brief description of the existing systems in practice (performance appraisal, potential appraisal, career planning,mentoring etc) .Strengths and weaknesses of the HRD function.HRD needs : An overview- broad highlights of the areas that need attention.

Chapter 3 : General ObservationsThis chapter should highlights the salient features of the company that were observed by the auditors in relation to its present competencies and future potential. It may be used to introduce the importance of the three dimensions of HRD : competence building , culture building and commitment building.Business concerns for the present and future: HighlightsCompetencies and competency requirements for the

future.General observations about the competency promoting

mechanismsCommitment and motivation promoting mechanismsWork culture and organizational cultureCulture building mechanism.

Chapter 4 : Career SystemsThis chapter can describe the findings of the audit in relation to manpower planning , recruitment , promotions, career planning and development, and succession planning. The general pattern to be followed in this chapter can include:ImportanceManpower planning and utilization- strengths , weaknesses and recommendationsRecruitment- strengths , weaknesses and recommendationsPotential appraisal and fast track- strengths , weaknesses and recommendationsCareer planning and development - strengths , weaknesses and recommendationsSuccession planning - strengths , weaknesses and recommendations

Chapter 5 : Work PlanningThe following subsections may be used for reporting. In each of the subsections below strengths, followed by the weaknesses and recommendations can be highlighted in the bullet form.Introduction- ( introduce the concept of work planning Briefly followed by the component systems)Contextual analysisRole clarityPerformance appraisal system

Chapter 6 : Development SystemThis chapter may be presented and organized in the following manner:Introduction and componentsInduction trainingTraining and learning systemsPerformance guidance and developmentWorkers developmentOther mechanisms of development

Chapter 7 : Self -renewal SystemThe strengths , weaknesses and recommendations can be highlighted in each of the following sections:IntroductionRole EfficacyOrganization developmentAction –oriented research

Chapter 8 : HRD Culture

IntroductionHRD CultureValuesQuality OrientationRewards and recognitionInformationCommunicationEmpowerment through participation,

decentralization , shop-floor committees etc.

Chapter 9 : HRD Functions

General observationsIndustrial relations and HRPersonnel policies and HRDHRD function – StructureHRD department- competenciesHRD strategiesHRD activities and priorities

Tables and Appendices

Report for line managers How line managers handle their duties

such as: Interviewing applicants Training employees Evaluating performance Motivating workers Satisfying employee needs The report also identifies people problems.

Violations of policies and employee relations law are highlighted

Report for the HR Specialist The specialists who handle employment

training, compensation, and other activities also need feedback. Such feedbacks are :

1. Unqualified workers that need for training

2. Qualified workers that need for development

3. What others company are doing

4. Attitude operating managers toward personnel policies

5. Workers pay dissatisfaction

Report for HR Manager

It is contains all the information given to both operating managers and staff specialists. In addition, HR Mangers gets feedback about :

Attitude operating managers and employees about services given by HRD

A review of HRD plans Human resource problems and their implication Recommendations for needed changes and

priorities for their implementation

Thank you!