HUMAN RESOURCE ACCOUNTING

Acc to Eric G Falmholtz First stage (1960-1966)-

Beginning of academic interest in the area of HRA

Second stage(1966-1971)-

The focus here was more on development and validating deferent models

Third stage(1971-1976)- This period was marked by a widespread

interest in the field of HR R.G. Barry experiments contributed substantially during the stage

Fourth stage(1976-1980)-This was the period of decline in the areas of HRA

Fifth stage(1980 onwards)-There was a sudden renewal of interest in the field of HRA

Provide cost value information about acquiring, development ,allocating and maintain HR

  Enable management to effectively monitor

the use of HR

Find whether human asset is appreciating or depreciating over a period of time

Assist in the development of effective management practices

  To motivate individual persons in the

organization to increase their worth by training

In planning physical resource vice-versa hr by giving valuable information

Use of resources to achieve the immediate and long run goals of the organization

  Traditional accounting involves treatment of

human capital and non-human capital differently

Conventional treatment on human resource

Acc to Grojer and Johanson

As a political tool, used to demonstrate mismanagement of human resource

  As a pedagogical instrument for analyzing and

structuring  As a decision making aid to ensure that decision

on hr are more rational from the management point of view

Foresee the changes  Provides different methods of testing  Increase productivity

Brings high return  Helps individual employee to aspire  Provides scope for advancement

Throws light on the strength and weaknesses of the existing workforce

 

Cost approach

 

Economic value approach

HISTORICAL COST

• OPPORTUNITY COST

REPLACEMENT COST

The historical cost of human resources is the sacrifice that was made to acquire and develop the resource

• a calculation of what would have been the returns if the money spent on HR was spent on something else

• the cost that would have to be incurred if present employees are to be replaced.

PRESENT VALUE OF FUTURE EARNINGS

COMPETITIVE BIDDING MODEL

IND.VALUE TO ORGANIZATION

value of an individual is the present worth of the services that he is likely to render to the organization in future

an internal market for labor is developed and the value of the employees is determined by the managers. Managers bid against each other for human resources already available within the organization. The highest bidder ‘wins’ the resource.

This method helps in determining what an employee’s future contribution is worth today.

i) The Lev and Schwartz Model ii) The Eric Flamholtz Model iii) Morse Model

According to this model, the value of human resources is ascertained as follows –

1. All employees are classified in specific groups according to their age andskill.

2. Average annual earnings are determined for various ranges of age.

3. The total earnings which each group will get upto retirement age arecalculated.

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 humanresources/assets.

5. The following formula has been suggested for calculating the value of anemployee according to this model –

This is an improvement on ‘present value of

future earnings model’ since it takes into consideration the possibility or probability of an employee’s movement from one role to another in his career and also of his leaving the firm earlier, that his death or retirement.

The model suggests a five steps approach for assessing the value of an individual to theorganisation :1. Forecasting the period will remain in the organisation, i.e.,his expected service life;

2. Identifying the services states, i.e., the roles that the mightoccupy including, of course, the time at which he will leaveorganisation;

3. Estimating the value derived by the organisation when aperson occupies a particular position for a specified timeperiod;

4. Estimation of the probability of occupying each possiblemutually exclusive state at specified future times; and

5. Discounting the value at a predetermined rate to get thepresent value of human resources.

Rensis Likert in the 1960s was the first to research in HR and 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 variable scan be divided into three categories:

(i) causal variables; (ii) intervening variables; and (iii) end-result variables. The interaction between the causal and intervening variables affect the end-result variables by way of job

satisfaction,costs, productivity and earnings

Pekin Ogan (1976) has given Net benefit model. This, as a matter of fact, is an extension of “net benefit approach” as suggested by Morse.According to this approach, the certainty with which the net benefits in futurewill accrue should also be taken into account, while determining the value ofhuman resources. The approach requires determination of the following: Net benefit from each employee. Certainty factor at which the benefits will be available. The net benefits from all employees multiplied by their certainty factor will give certainty-equivalent net benefits. This will be the value of human resources of the organization.

Not easy to value human asset  Results in dehumanizing human resource  No evidence

Hr is full of measurement problem  Employees and unions may not like the ideas

Unrealistic

Lack of empirical evidence

People are valuable organizational resource

Human resource value is influenced by management style

HRA information is needed