Unit-6

TOPIC--BALANCE SCORE CARD-

A Balanced Scorecard (BSC) is a deeply integrated performance metric

that help organizations identify internal problems and overcome them
through effective planning, strategy, and executions. It can be feedback,
information, raw data, and operations management. Though for-profit
companies implemented it first many other organizations use it now.
A BSC is widely popular in the US, Japan, the UK, and other parts of
Europe. The balanced scorecard approach depends on quantifiable data
collected which the managers and executives interpret both internally and
externally to ensure better performance, good financial results, and customer
satisfaction.

A Balanced Scorecard is a performance management tool used by executives

and managers to manage the execution of organizational activities and to
monitor the results of actions. Fundamentally a balanced scorecard provides a
summary level view of organizational performance at a quick glance and
includes key performance indicators (KPIs) across four main areas or
perspectives:

 Financial Perspective: KPIs for productivity, revenue, growth, usage, and

overall shareholder value.

 Customer Perspective: KPIs for customer acquisition, customer satisfaction

rates, market share, and overall brand strength.

 Internal Process Perspective: KPIs for resource usage, inventory turnover

rates, order fulfilment, and quality control.

Characteristics-

 A balanced scorecard is a performance metric used to identify, improve,

and control a business's various functions and resulting outcomes.
 The concept of BSCs was first introduced in 1992 by David Norton and
Robert Kaplan, who took previous metric performance measures and
adapted them to include nonfinancial information.
 BSCs were originally developed for for-profit companies but were later
adapted for use by non-profits and government agencies.
 The balanced scorecard involves measuring four main aspects of a
business: Learning and growth, business processes, customers, and
finance.
 BSCs allow companies to pool information in a single report, to provide
information into service and quality in addition to financial performance,
and to help improve efficiencies.
BALANCE SCORE CARD - PRESPECTIVES

 Customer Perspective: How Do Customers See Us?

The balanced scorecard demands that managers translate their general mission
statement on customer service into specific measures that reflect the factors that
really matter to customers. Customers’ concerns tend to fall into four
categories: time, quality, performance and service, and cost.

 Internal Business Perspective: What Must We Excel at?

The internal measures for the balanced scorecard should stem from the business
processes that have the greatest impact on customer satisfaction—factors that
affect cycle time, quality, employee skills, and productivity, for example.
Companies should also attempt to identify and measure their company’s core
competencies, the critical technologies needed to ensure continued market
leadership. Companies should decide what processes and competencies they
must excel at and specify measures for each.

 Innovation and Learning Perspective: Can We Continue to Improve and

Create Value?

A company’s ability to innovate, improve, and learn ties directly to the

company’s value. That is, only through the ability to launch new products,
create more value for customers, and improve operating efficiencies continually
can a company penetrate new markets and increase revenues and margins—in
short, grow and thereby increase shareholder value.

 Financial Perspective: How Do We Look to Shareholders?

Financial performance measures indicate whether the company’s strategy,

implementation, and execution are contributing to bottom-line improvement.
Typical financial goals have to do with profitability, growth, and shareholder
value.
Advantages of Balanced Scorecard
The Balanced Scorecard (BSC) offers significant benefits and advantages for
organisations. Some of these advantages are:
1. Enhanced Customer Focus: In today’s competitive landscape, companies
are increasingly recognizing the importance of being customer-centric. The
BSC helps organisations gain a comprehensive understanding of their target
customers, their needs, and how to deliver value that delights them. By
incorporating customer-focused metrics and initiatives, companies can
improve customer satisfaction and gain a competitive edge.
2. Emphasis on Intangible and Intellectual Capital: Traditional financial
measures alone do not capture the full value of an organisation. The BSC
encourages companies to consider non-financial aspects such as brand
equity, research and development, IT infrastructure, and marketing
systems. By investing in these intangible assets and building intellectual
capital, organisations can drive long-term profitability and growth.
3. Business Excellence and Growth: The BSC supports organisations in
pursuing a growth-oriented strategy while ensuring business excellence. By
aligning strategic objectives throughout the organisation and allocating
resources accordingly, the BSC helps companies articulate and
communicate their growth strategies effectively. This alignment facilitates
strategic decision-making and resource allocation for sustainable growth.
4. Alignment of Strategy and Operations: One of the key strengths of the
BSC is its ability to connect strategic objectives with day-to-day
operations. By cascading strategic goals down to individual tasks and
actions, employees understand how their work contributes to the overall
 organisational objectives. This alignment improves employee engagement,
accountability, and ultimately, organisational performance.
5. Real-time Performance Review: The BSC serves as a dynamic
performance tracking system, enabling real-time monitoring and review.
Organisations can establish robust information systems linked to the
scorecard, allowing them to track and analyze performance data in real
time. This timely feedback and review process enables organisations to
identify areas for improvement and make informed decisions promptly.
Disadvantages of a balanced scorecard
While there are so many advantages to implementing a balanced scorecard
system into your workplace, there are also potential roadblocks and
disadvantages to balanced scorecards.
1. It must be tailored to the organization
A balanced scorecard is supposed to provide a framework from which to work
from, however, it will still need to be customized to every organization using
this system. This can take up a lot of time, and while examples are helpful, they
can’t be copied exactly due to the unique needs of every business.
2It requires strong leadership support to be successful
For the balanced scorecard system to be fully effective, it must be implemented
from the bottom all the way to the top of the organization. This means getting
buy-in from leaders, which can sometimes take some convincing, not to
mention the learning curve involved with getting the whole organization to use
the new system.
3. It can get complicated
The framework itself of balanced scorecards takes some time and dedication to
understand. There are countless resources and case studies to read from and it’s
easy to get bogged down with the many different ways of using this method.
4. It requires a lot of data
Most of the time balanced scorecards require managers and team members to
report information, which means logging data. Many don’t like this because
they find it tedious and also, it can get in the way of doing the work required to
meet objectives.

Conditions necessary for successful implementation of the Balanced

Scorecard
To ensure the successful implementation of the Balanced Scorecard, the
following conditions are necessary:
1. Strong Commitment and Support from Top Management: The
commitment and support of top executives and senior management are
paramount in driving the successful implementation of the Balanced
Scorecard. It is crucial that they fully grasp the concept and process of the
 Balanced Scorecard and actively champion its introduction and adoption
within the organisation.
2. Identification of Critical Success Factors (CSFs): A critical step in
implementing the Balanced Scorecard is determining the factors that are
vital to the organisation’s success. For companies facing competitive
challenges, customer satisfaction often emerges as a driving force for
survival. This necessitates identifying CSFs such as superior quality,
reduced cycle time, efficient inventory turnover, minimal defects, prompt
customer response, effective after-sales service, and employee competency.
For organisations that have already achieved high customer satisfaction
through quality measures, identifying areas of improvement becomes more
nuanced. It becomes crucial to identify the most fundamental CSFs, taking
into account the requirements of multiple stakeholders, including
government and society. This may involve expanding the perspectives
beyond the traditional four and considering social responsibility and
environmental concerns. The involvement of the entire organisation in
identifying CSFs and prioritizing stakeholder requirements is essential.
3. Translation of CSFs into Measurable Objectives (Metrics): Once the
CSFs are defined, they need to be translated into measurable objectives or
metrics. While financial metrics are well-established, developing
appropriate non-financial metrics can pose a challenge. These metrics
should align with the organisation’s strategic goals, be based on objective
data and information, be actionable, and allow for ongoing refinement and
improvement. It is important to ensure that these metrics cannot be easily
manipulated and that they provide a reliable and consistent indication of
progress towards the desired objectives.
4. Integration of Performance Measures with Rewards: A key aspect of
the Balanced Scorecard implementation is linking performance measures
with a robust rewards system. Such a system should motivate employees to
strive for the desired objectives and align their efforts with the
organisation’s strategic priorities. A well-designed reward system,
understood by all employees, serves as a powerful incentive for driving
performance and achieving the intended outcomes.
5. Implementation of an Effective Tracking System: Performance metrics
hold little value if they are not actively tracked, monitored, and followed up
on. Implementing a streamlined and efficient tracking system is crucial for
timely feedback, learning from results, and driving continuous
improvement. Organisations should establish a system that allows for quick
tracking, provides meaningful feedback, and facilitates organisational
learning.
6. Cascading Balanced Scorecards throughout the Organisation: To
ensure organisational alignment and a comprehensive view of performance,
it is important to create and link balanced scorecards at all levels of the
 organisation. This includes developing scorecards at the corporate,
divisional, and individual employee levels. The scorecards should be
interconnected, with targets at lower levels contributing to the achievement
of higher-level objectives. This cascading approach ensures that everyone
understands how their daily actions and tasks contribute to overall
organisational success.
7. Effective Communication: The Balanced Scorecard serves as a powerful
communication tool for conveying strategy and its components across the
organisation. However, effective communication does not occur
automatically. Organisations should proactively establish an efficient and
transparent communication system that enables employees at all levels to
understand and connect with the language and goals of the Balanced
Scorecard.
8. Integration of Strategic Planning, Balanced Scorecard, and
Budgeting: To ensure that strategic initiatives receive the necessary
resources and support, it is essential to integrate the strategic planning
process with the Balanced Scorecard and the budgeting process. This
linkage enables organisations to allocate resources effectively, prioritize
initiatives, and align them with the strategic objectives defined in the
Balanced Scorecard.

TOPIC-

BEANCHMARKING-

Benchmarking for specifically HR purposes involves looking at the policies and

practices of one organization, then comparing and contrasting those with
another similar organization. A benchmarking approach should focus on best
practices, or the things organizations are doing that consistently lead to
successful results. In order for an understanding of best practices to be obtained,
benchmarking activities must be planned strategically with particular goals in
mind. By identifying in advance the types of patterns and data they are seeking,
HR professionals can then create a benchmarking HR system that is more
reliable and valuable.

Benchmarking is a strategic process that involves comparing various

business metrics either across different organizations or within the same
company. This practice is aimed at assessing how well a company is
performing in its industry, identifying areas that need improvement, and
determining best practices for achieving organizational goals. HR
 benchmarking relies on both quantitative and qualitative data to evaluate
the success of HR processes.

HR benchmarking can be conducted at multiple levels, including the industry,

organization, department, and individual role levels. After collecting relevant
data, the ultimate goal is to identify and implement effective practices and
processes to drive organizational improvement.

What is the process of HR benchmarking?

To implement impactful benchmarking, HR can:

1...Defining goals and objectives

“What is benchmarking, and where do I start?” Before anything, what is the

purpose from the HR benchmarking process? Maybe organisation want to
enhance budget distribution or the composition of your workforce. The
benchmarking process works for all HR processes, but focusing efforts on
specific areas makes them more impactful.

2…Identifying the measurements/ identifying relevant benchmarks

 Different metrics allow HR leaders to compare specific aspects of their

company with those of other companies. For instance, HR leaders can
measure:
o Quality of hire
o Turnover rate
o Quality of work
o Market index
o Average compensation per employee

3…Collection and analysis of data. Professional HR leaders engage in

extensive, in-depth research to find external information that accurately
corresponds to their measurements. They often purchase benchmarking reports
that save them from sifting through irrelevant information and provide accurate,
pertinent data.

4….Study the gaps. Comparing internal and external metrics, HR leaders

should ask what their organization can do to reach the levels of success of other
companies in their industry. HR leaders can implement changes that align with
company strategy based on the data they collect. Perhaps, for instance, a
company prides itself on high base salaries. So, they decide to decrease funding
for employee wellness programs and increase base pay. This way, the employer
can offer a more competitive edge for compensation plans while maintaining
alignment with the high base salary strategy.

5…Design a plan to implement the changes. HR leaders and colleagues can

collaborate to implement an executive-backed plan that achieves the designated
goals. Creating a detailed plan that meshes with the company culture can
increase the chances that people will readily accept the new changes.

6…Analyze the long-term results. After a specified period, HR professionals

should follow up to ensure that the new changes bring positive results and then
provide a detailed report to distribute to collaborators.

TYPES OF BENCHMARKING

 Strategic benchmarking

Strategic benchmarking goes beyond HR metrics and practices to compare an

organization’s overall HR strategy with other industry leaders. It examines high
level items like the alignment of HR strategies with organizational goals, the
effectiveness of talent management practices, and the ability of HR to adapt to
 changing business needs. Strategic benchmarking provides insights into
innovative HR techniques that can drive long-term organizational success.

 Process benchmarking

Process benchmarking focuses on specific HR processes or activities, like

training and development or employee engagement initiatives. It involves
comparing process efficiency, effectiveness, and outcomes with other
organizations to identify areas for improvement and innovation.

 Performance or Functional Benchmarking

This compares how well an organization is achieving its goals. That may be in
terms of profit/loss statistics, customer satisfaction or other measurements of
success. In terms of HR departments, this can be an internal or an external
procedure, as the HR department can be compared to other departments such as
quality assurance in the organization. It may also, however, be compared
externally to the HR departments of other organizations in things such as net
promotion scores for the employer.

 Internal Benchmarking
This human resource benchmark refers to comparing two aspects of an
organization. A simple example might be the comparison of the functioning of
two employees in terms of productivity and quality of performance. They may
study the overall employee experience to look at similarities and differences.
Departments can also be compared to one another to see which has the highest
profit ratio.

 External Benchmarking
This comparison is between competing organizations. Using measurements
common to both (or to all), the benchmarking business can see numerically
where they rank. They may, for instance, be in the top twenty-five percent or
perhaps just below average when compared to the top-performing business
surveyed.

 Competitive benchmarking: Unlike process benchmarking, which focuses on

a single specific process, competitive benchmarking takes a holistic view of the
overall performance of organizations
 Advantages of Benchmarking:

There are several advantages of benchmarking. Most of the common benefits of

benchmarking help to improve the productivity of the company. Moreover,
these advantages can provide a clear picture of the key factors of benchmarking
in the company. And increased productivity elements, display the successful
features of the company.

 Enhanced business impacts: Benchmarking involves examining workforce

practices and linking them to business results, providing insights into how
these practices affect overall performance.
 Improved HR practices: Benchmarking allows for objective evaluation of
HR processes, highlighting weaknesses and facilitating improvements.
 Industry trends tracking: Regular benchmarking enables the identification
of industry trends and shifts, helping in strategic planning to maintain
competitiveness.
 Better employee experience: Utilizing benchmarking insights to enhance
HR practices increases employee engagement and overall work experience.
 Talent attraction: A positive work experience, achieved through
the benchmarking process, attracts high quality candidates and retains current
employees, supported by competitive compensation and benefit programs.
 Effective training: The benchmarking process reveals the skills employees
in similar businesses possess and their training durations, enabling you to
offer sufficient training programs.
 Implements creative ideas:
One of the common type of benchmarking where in which all the beneficial
aspects of the company are creatively implemented for the overall development
of the company. The benchmarking process helps the company find out their
key features and after finding out the key features of their company, that
company compares it with another company to complete the picture. And if
there are any filling to be needed, then the company starts implementing
creative ideas for the company.

 Increased competitions: Most of the time while doing business and

while running a successful company, that company faces some strong
competition from the rest of the companies. And that competition helps
the current company to maintain their position even better in terms of
their success rate of the company. Therefore, as per the statement of the
benchmarking process, it definitely increases healthy competition among
different companies.
 Developing improvement:

It is clear about benchmarking that it deals with those findings of the company
and another company which helps them find their position in the business
market. And if there are any chance or space available for improvement in the
company activities, then the company needs to develop those improvements in
the company for the growth of the company in its own terms.

 Identifies essential activities:

One of the best possible advantages of benchmarking is that it can help all the
companies to identify their own essential activities that can improve the profits
of the company. Therefore, after benchmarking it is very much important for all
the companies to be identified in the list of companies, which is in a run and
where it can deliver the victory of their company effectively.
  Quality of work:

Because of benchmarking once the company identifies their strengths and

weakness compared with the rest of the company, then it is quite clear that all
the aspects of the company need to be improved at a time to time basis.

And finally, the company can deliver some sort of ways which can deliver
quality in their working order. Therefore, benchmarking makes things clear and
creates some sort of awareness among the company’s working environment.

 Increased performance:

As it is explained earlier that the benchmarking process, identifies all the

features and elements of the company which can lead them towards its success.
And eventually, it also provides essential signals regarding the need and wants
of the company. Once the company finds out about the actual requirements of
the company, then it can increase its work performance as per the comparison
aspects.

Disadvantages of Benchmarking:

As the company can receive some sort of benefits from these benchmarking
processes, then it is quite obvious that the company can be covered with some
of the disadvantages as well. And those disadvantages are as follows.

 Inaccurate comparisons: Comparing data between different teams within

your company or with other organizations can be challenging due to varying
factors and circumstances. Therefore, it’s important to consider HR
benchmarking along with other indicators for more precise assessments.
 Terminology standardization issues: In benchmarking, clarity in meaning
can be elusive, as HR metrics may not have consistent names or measurement
systems across organizations.
 Stabilized standards:--Most of the company compares their working
environment with another company which is earning quite well in a similar
field of work. After finding out the reason for the improved success rates, the
company can incorporate those ideas of that company to improve their
productivity. And eventually, they stabilize their standard to that one aspect,
without its course of action.
 Insufficient information:

Sometimes it happens that while comparing the aspects of different companies,

the information acquiring company can be left behind with their information-
gathering techniques. And that is why it can face tremendous loss in their
business because of insufficient information about the company.Therefore, it is
very essential for all the companies that they need to be sure of their
information about that another company.

 Decreased results:Most of the time when a company sets its standard

and try to improve that standard by implementing some new and creative
ideas, then at that time the company need to look at those companies
which are doing quite good in their similar type of business. And analyze
the actual problem in their company.

Once the company finds out the actual reason, then they need to research well
about the element that whether it is feasible for the company or not.

 Lack of customer satisfaction:

Most probably during the benchmarking process, the company finds out those
outputs which can need to be improved and developed for the sake of the
overall growth of the company. Hence, for that, the company needs to look into
matters which can increase their productivity along with their customer
satisfaction.

Therefore, instead of incorporating the ideas that another company used in their
company, it can check for its feasibility in their own company.

 Lack of understanding:

As most of the companies keep an eye on their competition instead of their own
growth, it is quite clear for all the company that such type of obsession with
another company cannot lead the company anywhere.

Therefore, it is advisable for all the companies that they need to understand the
need for benchmarking in their company instead of spying on another company.

 Increased dependency:

Most of the companies think that benchmarking helps them improve their
company position as it helped those successful companies to be in the top. But
most of the companies forget that those companies which made themselves to
that top position have earned their hard work.

Therefore, instead of depending on the ideas which made that company

successful, they can build their own network to make them independent for a
better future.
TOPIC- ACCOUNTING FOR HUMAN RESOURCES

What is Human Resource Accounting?

Human Resource Accounting is the process of identifying and measuring

data about Human Resources and communicating this information to the
interested parties. It is an attempt to identify and report the Investments made
in Human Resources of an organisation that are currently not accounted for
in the Conventional Accounting Practices.

Thus, Human Resource Accounting is a term applied by the Accountancy

Profession to quantify the cost and value of employees of their employing
organisation.

Human Resource Accounting (HRA) is a branch of accounting that involves

the identification, measurement, and reporting of the value of human resources
as an organizational asset. It is based on the premise that human resources are
valuable assets of an organization that contribute to its growth and success. It
is a method used by organizations to measure the value of their human
resources in financial terms. It involves quantifying the cost and value of the
employees, their skills, knowledge, experience, and abilities, and presenting it
in the organization’s financial statements. HRA considers human resources as
an investment that can generate future benefits for the organization. It uses
various techniques to measure the value of human resources, such as the cost
of recruitment and training, the value of experience and expertise, and the
potential for future growth.

Human Resource Accounting tracks and manages employees’ costs and values,
including performance, compensation, benefits, and training. HR
professionals use various tools to track and analyse data, such as employee
surveys, performance reviews, and compensation and benefits reports. In
addition to tracking employee performance, HR professionals also need to track
the performance of the organisation as a whole. For example, HR professionals
need to track the success of recruitment and retention efforts as well as the
success of initiatives that improve employee morale and satisfaction.

Human Resource Accounting is necessary for any organisation that wants to

know how well its employees are performing and how to improve more. In
addition to tracking employee performance, HR professionals also need to track
the success of recruitment and retention efforts as well as the success of
initiatives that improve employee morale and satisfaction.
Features of Human Resource Accounting (HRA)
The features of Human Resource Accounting (HRA) are as follows:
 Valuing human resources: HRA involves identifying and quantifying the
value of the knowledge, skills, and experience of an organization’s
employees. This can be done using a variety of methods, such as estimating
the cost of replacing employees or calculating the economic value of their
contributions.
 Tracking costs: HRA involves tracking the costs associated with managing
human resources, such as recruiting, training, and compensation expenses.
This can help organizations to identify areas where they can reduce costs
and improve efficiency.
 Investment analysis: HRA can be used to analyze the return on investment
of human resource management practices, such as training and
development programs. This can help organizations to determine the
effectiveness of these practices and to make decisions about where to
allocate resources.
 Decision-making: HRA can provide valuable information to
support decision-making about human resource management practices,
such as determining the optimal level of staffing, identifying areas for
improvement in employee performance, and assessing the impact of
changes in compensation and benefits.
 Reporting: HRA involves creating reports that summarize the value of
human resources and the costs associated with managing them. These
reports can be used to inform decision-making by managers and executives.
 Performance evaluation: HRA can be used to evaluate the performance of
employees and to determine the impact of human resource management
practices on employee productivity and performance. This can help
organizations to identify areas where they can improve employee
performance and develop strategies to enhance productivity.
 Strategic planning: HRA can be used to support strategic planning by
providing information about the organization’s human resource capabilities
and constraints. This can help organizations to identify potential gaps in
their human resource capacity and to develop strategies to address these
gaps.
 Risk management: HRA can be used to identify potential risks associated
with human resource management practices, such as high turnover rates or
a lack of skilled workers. This can help organizations to develop strategies
to mitigate these risks and ensure the availability of the necessary human
resources to achieve organizational goals.
Objectives of Human Resource Accounting (HRA )
The main objectives of human resource accounting (HRA) are as follows:
 To assign a monetary value to an organization’s human resources: It
helps organizations estimate the value of their human resources by
quantifying the cost of recruiting, training and retaining employees, as well
as the economic value of their skills, knowledge, and experience. This
information can help organizations to better allocate resources and to make
informed decisions about HR investments.
 To track the costs associated with managing human resources: It can
help organizations track the costs associated with managing their human
resources, such as recruitment costs, training expenses, and salaries and
benefits. By analyzing this information, organizations can identify areas
where they can reduce costs and increase efficiency.
 To evaluate the effectiveness of human resource management
practices: HRA provides a framework for evaluating the effectiveness of
HR practices such as training and development programs, employee
retention strategies, and compensation and benefits policies. By analyzing
HR data, organizations can identify areas where they can improve their HR
practices and better support employee productivity and performance.
 To support decision-making: HRA provides valuable information to
support decision-making about HR management practices, such as
determining the optimal level of staffing, identifying areas for improvement
in employee performance, and assessing the impact of changes
in compensation and benefits.
 To comply with legal and regulatory requirements: HRA can help
organizations to comply with legal and regulatory requirements related to
HR management, such as equal employment opportunity regulations,
minimum wage laws, and workplace safety regulations. By tracking and
reporting on compliance-related data, HRA can help organizations to avoid
penalties and legal disputes.

Benefits of Human Resource Accounting

Human Resource Accounting is a process that helps organisations manage their
human resources. There are many advantages to using HR accounting software,
including:

 Assists in Determining ROI - HRA is an accounting system that

recognises the expense made on an organisation's personnel. Once the
investment is computed, an organisation can quickly calculate the exact
ROI by determining the earnings made by the organisation. This will
assist in monitoring how much they should spend on the personnel to
 attain optimum ROI.

 Inspires Employees - Staff members get motivated to enhance

themselves once they familiarise their real value in the eyes of the
personnel accounting system of the organisation. The amount invested in
them will motivate them to boost the output symmetrical to the
organisation's financial investment.

 Boosts Process of Choice Making - HRA works as a centre to get

information about the actual value of personnel operating in the
organisation. This information assists the administration in making
appropriate choices regarding organisational concerns.

 Sign of Health of the organisation - HRA functions as an indication of

the well-being of any kind of organisation. The quantity of investment
made on the personnel of any organisation aids in gauging the amount of
revenue that might be gained in the future.

 Assist in Figuring Out the Requirement of Recruitment - HRA reports

on the changes in obtaining returns as well as how much expense needs to
be made on the manpower of the organisation. If the earnings are high
demand for hiring brand-new staff members, and if no earnings are
gained, no more employment occurs. These decisions are based on the
information given by HRA.

 Ascertains Unfavourable Results of the Programs - HRA system

additionally assists in establishing the negative impacts of numerous
programs running in the organisation.

 Facilitates Organising and Executing HR Plans - HR policies of an

organisation include plans regarding human resources functions such as
promotion, training, demotion, transfer etc. Appropriate organisation and
implementation of these plans are vital for every organisation's smooth
functioning. This feature is controlled by the Human Resource
Accounting system of an organisation.
 Enhance the performance of the employees - The aim of human
resource accounting is to enhance the effectiveness of the employees.
The strengths and weaknesses of the employees are identified through the
records of HRA. To improve the weak areas required, policies and
programs are developed to improve the performance of the employees.
 Better resource allocation - The objective of HRA is to allocate human
resources more effectively as and where it is needed. Human resource
 accounting finds the areas where the need for human capital exists so
that human capital can be made to get the best return on the investment.
 Competitive advantage- If the company can manage its human
resources, then it can provide a competitive advantage. It attracts quality
employees and develops a workforce of skilled employees. This leads to
better productivity and generates more revenue for the organisation.
 Cost savings - The methods of Human Resource accounting help find
out the areas where the cost can be reduced. Various places, like in the
recruitment or training process. Cost can be reduced where this process
could provide better results per the requirement.
 Reduce turnover and absenteeism - HRA is helpful in reducing the
turnover and absence of employees. It provides them with proper training
and motivation to work. This also provides them with growth
opportunities in the organisation. These are also helpful in providing
better compensation and other benefits to the Employees.

Disadvantages of Human Resource Accounting

There is a lot of advantage of Human Resource accounting to the organization

in various ways. But there are certain potential disadvantages of Human
Resource accounting, some of which are explained below.

o No clear-cut guidelines - It is not easy to value the organization's human

resources because human behaviours are uncertain and cannot be
predicted. Like any other physical assets, the organization's human
resources cannot be owned, retained and used as per the organization's
requirements. In many cases, employees may leave the organization after
getting valued. So it isn't easy to set proper guidelines to value the
organization's human resources.
o Cost - One of the disadvantages of human resource accounting is that
sometimes it might be costly for the organization. Implementing HRA
requires a lot of resources to develop and maintain the process.
Maintaining HRA might not be possible for small and medium-sized
organizations.
o Continuous process - Human resource accounting is a continuous
process. It needs the data to be updated continuously. If the data recorded
in Human Resource accounting is not updated, it will not provide the
correct information about the organization. Ultimately the organization's
financial statements will need to show the proper value of the
organization's human capital.
 o Complexity - Implementing human resource accounting is a very
complex process. It requires specialized knowledge and skills to record
the data correctly. In many cases, the organization must hire external
consultants to complete the work.
o Absence of standardized procedure - To value the organization's
human resources, there is no standardized procedure. In most cases, the
procedures are different from organization to organization. But for this
particular reason, the procedures of valuing human capital do not
maintain uniformity. And also, in many cases, human resource
accounting needs wider acceptance.
o Dehumanize human resources - Sometimes, value in the organization's
human capital is regarded as dehumanization because valuing the human
resources as the organization's assets that are used for a completing the
organization's goals might be manipulated. On the other hand, a person
who gets low values might be demotivated and jealous because of the
differences.
o No evidence - As human resource accounting is an emerging concept. It
still needs proper evidence to prove its utility.
o The idea may not be accepted - Due to different valuations of different
employees, the group system might emerge, and employees who are low-
valued may feel discouraged. There also exist the chances of non-
acceptance of ideas by trade unions and employees.
o Legal issues - The valuation of different employees might create certain
kinds of legal issues. Issues relating to discrimination, confidentiality and
relating to privacy of the valuation process.
o Subjectivity - Evaluation of employees in the organization is done on the
basis of the skills, knowledge and experience that are provided by the
employee. Many a times it is difficult to value all human resources
accurately. On the other hand, the valuation process might be influenced
by the personal biases and opinions of the evaluator.

Methods of Human Resource Accounting

Human Resource Accounting methods can be classified into 2 parts each
having various Models. Some of the Important ones are:-

1. Monetary

2. Non- Monetary
1. Monetary method

A. Cost Based Models

I. Capitalisation of Historical Costs Model

II. Replacement Costs Model

III. Opportunity Cost Model

B. Value Based Models

I. Present Value of Future Earnings Model/ Lev and Schwartz Model

II. Reward Valuation Model/ Flamholtz Model

III. Valuation on Group Basis

A. COST BASED MODELS

I. Capitalisation of Historical Costs
As per this Method of HR Accounting, the sum of all costs related to Human
Resources (i.e. Recruitment, Acquisition, Formal Training, Informal
Training, Informal Familiarisation, experience and development) is taken
together to represent the value of the human resources.

The value is amortised annually over the expected length of the service of
individual employees and the unamortised cost is shown as Investments in
the Human Assets. If an employee leaves the firm (i.e. Human Assets expire)
before the expected service life period, then the net value to that extent is
charged to the Current Revenue.

This Model of HR Accounting is simple and easy to understand and satisfies

the basic principles of matching the costs and revenues.

Limitations

As the historical costs are sunk costs and are irrelevant for decision making,
this model was severely criticised as it failed to provide a reasonable value to
the human resources.
 1. This method of HR Accounting capitalises only the Training and
Development Costs incurred on the employees and ignores the future
expected costs to be incurred for their maintenance.
2. This Model of HR Accounting distorts the value of the highly skilled
human resources as such employees require less training and therefore,
according to this model, they will be valued at a lesser cost.

II. Replacement Costs

The Historical Cost Method was highly criticised as it only takes into account
the Sunk Costs which are irrelevant for Decision Making. Thus, a new model
for Human Resource Accounting was conceptualised which took into the
account, the costs that would be incurred to replace its existing human
resources by an identical one.

1. Individual Replacement Costs – which refers to the cost that would

have to be incurred to replace an individual by a substitute who can
provide the same set of services as that of the individual being replaced
2. Positional Replacement Costs – which refers to the cost of replacing
the set of services referred by an incumbent in a defined position

Thus, the Positional Replacement Cost takes into account the position in the
organisation currently held by the employee and also the future positions
expected to be held by him.

Limitations

As per this method of HR Accounting, the determination of replacement cost

of an employee is highly subjective and often impossible. Particularly at the
management cadre, finding out an exact replacement is very difficult. The
exit of a top management person may substantially change the human assets
value.

III. Opportunity Cost Model

This model was advocated by Hekimian and Jones in the year 1967 and is
also known as the Market Value Method.

This method of measuring Human Resources under this Model is based on

the concept of opportunity cost i.e. the value of an employee in its alternative
best use, as a basis of estimating the value of human resources. The
opportunity cost value may be established by competitive bidding within the
firm, so that in effect, managers bid for any scarce employee. A human asset
therefore, will have a value only if it is a scarce resource, that is, when its
employment in one division denies it to another division.
Limitations

One of the serious limitations of this method for Human Resource

Accounting is that it excludes employees of the type which can be hired
readily from outside the firm. Thus, this approach seems to be concerned
with only one section of a firm’s human resources, having special skills
within the firm or in the labour market.

B. ECONOMIC VALUE MODELS

I. Present Value of Future Earnings Model
This Model of human resource accounting was developed by Lev and
Schwartz in the year 1971 and involves determining the value of human
resources as per the present value of estimated future earnings discounted by
the rate of return on Investment (Cost of Capital).

As per this valuation model of Human Resource Accounting, the following

expression is used for calculating the expected value of a person’s human
capital

Limitations

1. This Model of HR Accounting ignores the possibility and probability

that an Individual may leave an organisation for reasons other than
Death or Retirement.
2. This Model of HR Accounting also ignores the probability that people
may make role changes during their careers. For example, an Assistant
Engineer will not remain in the same position throughout the expected
service life in the Organisation.

Despite the above limitations, this model is the most commonly used model
across the Globe for the purpose of Human Resource Accounting.

II. Reward Valuation Model/ Flamholtz Model

Flamholtz advocated that an Individual’s Value to an organisation is
determined by the services he is expected to render. This model of Human
Resource Accounting is an improvement to the “Present Value of Future
Earnings Model” as it takes into account the probability that an individual is
expected to move through a set of mutually exclusive organisational roles or
service states during a time interval. Such movement can be estimated
probabilistically by using the following model

Limitations
 1. The major drawback of this model of Human Resource Accounting is
that it is difficult to estimate the probabilities of likely service states of
each employee.
2. Determining the monetary equivalent of service states is also very
difficult and costly affair.
3. Since the analysis is restricted to Individuals, it ignores the value
added element of Individuals working as groups.

III. Valuation on Group Basis

While applying the above models, the Accountants realised that proper
Valuation as per Human Resources Accounting is not possible unless
the contributions of the Individuals as a Group are taken into consideration.

An Individual’s expected service tenure in the organisation is difficult to

predict but on a group basis it is relatively easier to estimate the percentage
of people in a group likely to leave the organisation in the future. This model
of Human Resource Accounting attempted to calculate the present value of
all existing employees in such in each rank. Such Present Value is
ascertained with the help of the following steps:-

1. Ascertain the number of employees in each rank

2. Estimate the probability that an employee will be in his rank within the
organisation or will be terminated in the next period. This probability
will be estimated for a specified time period.
3. Ascertain the economic value of an employee in a specified rank
during each time period.
4. The present value of existing employees in each rank is obtained by
multiplying the above three factors and applying an appropriate
discount rate.

Limitations

Although this process simplifies the process valuation of Human Resource

Accounting by considering a group of employees as a valuation base, but this
method ignores the exceptional qualities of certain skilled employees. Thus,
the performance of a group may be seriously affected in the event of exit of a
single individual.

Rao (1986) identified the main elements of the non-monetary method of Human
Resource Accounting. The main elements are as follows:
The skills or capability inventory is a simple listing of the firm’s human
resources’ education, knowledge, experience, and skills.
Performance evaluation measures used in HRA (Human Resource Accounting)
include ratings and rankings. Ratings reflect a person’s performance on a set of
scales. They are scores assigned to characteristics possessed by the individual.
These characteristics include skills, judgment, knowledge, interpersonal skills,
intelligence, etc. The ranking is an ordinal form of rating in which the superiors
rank their subordinates on one or more dimensions mentioned above.
Assessment of potential determines a person’s capacity for promotion and
development. It usually employs a trait approach in which the traits essential for
a position are identified. The extent to which the person possesses these traits is
then assessed.
Attitude measurements assess employees’ attitudes towards their job, pay,
working conditions, etc., to determine their job satisfaction and dissatisfaction.

(B) Non-Monetary Measures

1…Attitude Scores
The value of employees can also be determined based on attitude
scores derived from their knowledge, skills, and annual income.

The next step is to multiple these attitude scores by the

employees' annual salary.

The difference between the resulting value and the employee's

annual earnings reflects the gain or loss that the firm incurs by
retaining the employee.

2…performance evaluation method.

Performance Evaluation is defined as a formal and productive

procedure to measure an employee’s work and results based on
their job responsibilities. It is used to gauge the amount of value
added by an employee in terms of increased business revenue
compared to industry standards and overall employee return on
investment (ROI).It include –
(a) Ranking method

(b) Rating method

Models of Human Resource Accounting

1. Lev and Schwartz Model

Under this model, the company determines the present value of future
benefits to employees on the basis of the given assumption:
 o The classification of the employees is done based on their age, skill, and
experience.
o The average annual income of each age group is calculated.
o After it, earnings till the retirement of the employees are calculated.
o Later, the calculated value of each group is discounted with the rate of
cost of capital.
o Only the salary and wages of the employees will be considered in this
method. All other benefits and perks are excluded from it.
o Employees' termination, resignation, or other possibilities are
ignored in this method.

2. The Eric Flamholtz Model

Under this model, the company also includes the factor of
employees leaving the job earlier, voluntary retirement,
retrenchment or death of the employee, etc. to calculate the present
value of the future benefits. There are some assumptions and facts that
the company considers under this model:

o The company, first of all, determines the period of the employees' working
for the organization.
o Then, determine a period after which an employee may leave the job
willingly or due to any other reason.
o After it, the company will estimate the value of employees for the
organization and their contribution to the business' success.
o At last, the company will apply the present value method and consider all
the facts and assumptions that are described above under the Lev and
Schwartz Method.

3. Morse Model
Under this model, the company determines the services that are rendered
by the employees to the business. Morse model determines all other
monetary benefits that are enjoyed by the human resource of the
company such as retirement benefits, gratuity, leave encashment
or paid leave, perks, bonuses, etc. This calculation is done on proper
assumptions and then these values are discounted to calculate the
present value of future benefits.
4. Linkert Model
This model is different from the other models. Here, the company focuses
on the non-monetary benefits given to the employees instead of the
monetary benefits. The organization considers the benefits such
as employees' job satisfaction, productivity, safety, health
benefits, etc. to figure out the present value and benefits to the
organization.

5. Organ's Model
Under this model, the company calculates the net benefits from each
employee and then multiplies it with an estimated period for which the
employee may work for the organization. In short, this method calculates
the individual contribution of the employees toward the business during a
certain period.

Process of Human Resource Accounting

To execute the human resource accounting effectively and efficiently, it is
required for the management to follow a particular procedure. The various steps
of this procedure are explained below:

1. Setting HRA Objectives

There are certain goals that every company has to accomplish and work on. In
the first step, the company determines these goals and requirements to set a
foundation for the objectives of the human resource accounting system.

2. Developing HRA Measurements

The second step in this process is to develop HRA measurements. For this
purpose, the companies can use any of the two methods that are available, i.e.,
Monetary and Non-monetary Methods. These methods are helpful in calculating
the cost and/or value of human resources. The management can use any one or
both of these methods for the measurements. But it is a must to check the
validity and consistency of any method before applying or implementing it.

3. Developing HRA Database

Certain factors work as the basis for human resource accounting. Such factors
are time management sheet, the cost of each employee working in the company,
different psychological factors, etc. These factors form a database for human
resource accounting.

4. Pilot Testing the System

This is the fourth step in the process of human resource accounting. At this step,
the management conducts a pilot test of the system. A pilot test is a type of
sample test which is done on a selected number of people before conducting the
main test. This test aims to pre-check the working system before finalizing it as
part of the organization or the main research work. Also, pilot testing helps in
finding the flaws in the database which can be corrected before the final
implementation. But pilot testing can only be successful if there is coordination
and cooperation in the management throughout the process.

5. Implementing the Human Resource Accounting

This is the fifth and final step in the process of human resource accounting.
Now, the management will implement the human resource accounting in the
organization and will introduce the entire workforce and staff to a new system
of accounting. But the implementing the system is not enough. The
management has to explain the importance and different methods of HRA to the
employees so that they can adapt to the new concept and remain satisfied with
the organization.

TOPIC-HR WASTAGE OR LABOUR TURNOVER

Meaning-

The change in workforce is known as labour turnover. It is the rate of change in

the composition of the labour force in the organization. Whenever an employee
leaves the organization, the management, has to sustain loss and wastage arising
from the replacement of the leaving incumbent, by inexperienced new labour
force. This replacement cost also includes cost
of recruitment, selection and training of new employees. Loss of output due to
 the 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
defective work of new workers are the replacement cost involved in labour
turnover. In order to keep the workforce satisfied and to prevent or discourage
them from leaving the organization, the management incurs the following costs:

1. Cost of welfare activities

2. Cost of medical services
3. Pension Schemes
4. Extra bonus

Reasons for employee turnover-

1. Lack of Growth and Progression

Opportunity for growth and development is very important for retaining good
employees. If an employee feels trapped in a dead-end position, they are
likely to look towards different companies for the chance to improve their
status and income.

2. Being Overworked

It might seem natural that, in periods of economic pressure, you ask your staff
to take on extra responsibilities. You might need to let people go and ask
remaining employees to pick up the slack by working longer hours or even
weekends. But asking workers to choose between their work life and personal
life will never sit well. Instead, it will contribute to a higher turnover, as
employees grow frustrated.

3. Lack of Feedback and Recognition

If you avoid giving feedback, you might be pushing your employees away.
Feedback is the first step to ensuring your employees succeed, so avoiding
this process can be detrimental to their success.

If an employee is struggling, your honest feedback can help them manage

their workload and refocus. Ignoring the opportunity for feedback, or providing
unhelpful feedback, will leave your employee to flounder, become
disheartened, struggle and, eventually, give up.

4. Little Opportunity for Decision-Making

Do you micromanage your employees? If so, you’re telling them, ‘I don’t think
you can do this properly without me’.
 In fact, micromanaging stamps out the opportunity for innovation, which is not
what you want. Stifled, over managed employees are likely to grow frustrated
with the lack of freedom, which contributes to high turnover.

Instead, trust your employees to perform well – allow them some freedom and
you are sure to see their enthusiasm skyrocket.

5. Poor Employee Selection

Finding the perfect employee is difficult, but forcing a match with an employee
that is clearly not right for the company culture or values will never end well.
Even though you are desperate to fill that position, picking a poorly matched
employee is bad for you, your company, and the employee.

No one does their best work when they are unhappy, and an incompatible
employee is unlikely to be content with their new position.

STEPS TO AVOID WASTAGE-

In order to avoid wastage, by turnover the management should take the

following steps:

1. Suitable and satisfactory wage policy: When the management is suitably

rewarding the labour by devising a satisfactory wage policy, the turnover may
be low.
2. Proper work conditions: The management should see that the workers are
provided proper working conditions to ensure their health and safety.
3. Sympathetic attitude of personnel department: To prevent turnover, the
personnel department should have positive and sympathetic attitude towards the
workers and motivate them in the right perspective.
4. Financial and non-financial incentive plans: To recognize both efficient and
normal work, the management must frame both financial and non-financial
incentive plans.
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 satisfactory remuneration. When the opportunities for
promotion are more, the turnover may be low.
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 managerial affairs will give him the sense
of responsibility and he will not think of leaving the organization.
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 reduce the depression of workers. Consequently, his
idea to quit on this reason may be dropped by him.
8. Welfare measures: Strengthening the welfare measures in general will improve
the morale and motivation of the workers and will reduce turnover.

9…Other remedial measures are:

i) Improvement in recruitment and practices
ii) Use of proper tests and interviews while selecting the personnel.
iii) Impartial promotion and transfer policies.
iv) Adequate training to the as well as existing employees.
v) Security of service in the organisation.
vi) Provision of retirement benefits.
vii) Improved channels of communication
viii) Reasonable amenities and welfare measures.
ix) Introduction of a satisfactory wage plan
x) Setting up of grievances and redressal machinery

Measurement of Labour Turnover:

Accession Rate = Total accession in the year x 100
Average number of employees for the year

Separation Rate = Total separations in the Year x 100

Average number of employees for the year
Composite Rate =
Total Accessions per year + Total separation per year x 100
Average number of employees for the year
Example: In Arun Ltd. the average work force per month is 2000 and there are
40 accessions and 50 separations during that period.
Accession Rate = 40 x 100 = 2 percent
2000

Separation Rate = 50 x 100 = 2.5 percent

2000
Composite Rate Labour Turnover
(40 + 50)/2000 x 100
= 2.25 percentage.

DISADVANTAGES OF Labour Turnover:

High labour turnover is costly to the employers in the following ways:

i) High labour turnover leads to high replacement costs to the employer, due to
repeated recruitment, selection and placement of employees.
ii) Results into more expenditure on orientation and training of workers.
iii) Loss of production in the time interval between separation of old employees
and replacement by new.
iv) Firm has to incur high over time costs to meet delivery schedules.
v) Output suffers both in quality as well as quantity.
vi) Scrap and waste rates increases due to inexperience of new workers.
vii) Due to lack of execution of orders in time, because of labour turnover the
market reputation of the company will suffer.
viii) Labour turnover leads to underutilisation of human resources of the
country
.
TOPIC- COST OF ABSENTEESIM
Absenteeism
The chronic absence of an employee from their place of employment is known
as absenteeism. In other words, when a person misses work frequently for
genuine reasons such as planned vacations, periodic illness, or personal
emergencies, it is referred to as habitual non-attendance or absenteeism.

Absenteeism refers to an employee's habitual absence from work—usually

intentional and without any good reason. It goes beyond any absences related
to things like occasional sickness, vacations, and other personal time. While a
few absences here and there don't normally pose a problem, absenteeism can,
especially when an employee doesn't show up to work unexpectedly for
extended periods of time.

The Causes of Absenteeism

The principal causes for absenteeism are listed in detail below:

Burnout: Due to high-stress levels and a lack of gratitude for their services,
overworked personnel in high-risk positions occasionally report sick.

Harassment: Employees routinely teased by senior management or other

employees tend to skip work to avoid constant annoyance.

Both Child and Geriatric Care: Workers caring for loved ones may lose
significant time at work when regularly contracted carers or babysitters become
unwell and are temporarily unable to fulfil their commitments.

Pressure or Overload: According to data from the National Institute of Mental

Health, depression is the primary reason for absenteeism in the United States.
People with this illness frequently misuse alcohol and drugs, which results in
further lost workdays.

Disengagement: Apathetic employees are more prone to neglect their tasks

because they lack motivation.

Sicknesses or Injuries: Workers' most often cited excuses for missing work are
illnesses, accidents, and doctor's visits. During flu season, there is a sharp
increase in absence cases.

Bullying and harassment: Employees who are bullied or harassed by

coworkers and/or bosses are more likely to call in sick to avoid the situation.
Burnout, stress, and low morale: Heavy workloads, stressful meetings and/or
presentations, and feelings of being unappreciated can cause employees to
avoid going into work. Personal stressors from outside the workplace can also
lead to absenteeism.

Childcare and eldercare: Employees may be forced to miss work in order to

stay home and take care of a child or elder relative when normal arrangements
have fallen through (for example, a sick caregiver or a snow day at school) or if
the dependent is ill or hurt.

Depression: According to the National Institute of Mental Health, the leading

cause of absenteeism in the United States is depression. Depression can lead to
substance abuse if people turn to drugs or alcohol to self-medicate their pain or
anxiety.

Injuries: Accidents can occur on the job or outside of work, resulting in

absences. In addition to acute injuries, chronic injuries such as back and neck
problems are a common cause of absenteeism.

Job hunting: Employees may call in sick to attend a job interview, to visit
with a head hunter, or to work on their resumes.

Cost of absenteeism-

 Wages paid to absent employees

 High-cost replacement workers (overtime pay for other employees
and/or temporary workers)
 Administrative costs of managing absenteeism
 Poor quality of goods/services resulting from overtime fatigue or
understaffing

 Reduced productivity
 Excess manager time (dealing with discipline and finding suitable
employee replacements)
 Safety issues (inadequately trained employees filling in for others,
rushing to catch up after arriving as a replacement, etc.)
 Poor morale among employees who have to fill in or do extra work to
cover absent co-workers
How to reduce absenteeism?

 Employers can reduce absenteeism by taking several proactive measures,

such as rewarding regular attendance, offering emotional support to staff,
establishing clear expectations for attendance, and formalizing the
company's attendance policy in written documents that all new hires must
review and sign.

 Employers might also concentrate on health programs to reduce

absenteeism. These can include allowing employees to work from home
sometimes to aid with work-life balance, offering discounts on gym
memberships and child care, and adding additional physical and mental
health perks that workers can make use of.

 Additionally, most jobs allow employees to take a certain number of

personal or sick leave. Depending on the organization and its regulations,
a range of actions can be taken against an employee. Most of these
actions would be disciplinary and might lead to job termination.

How to Calculate Absenteeism Rate

There is a standard absenteeism rate formula businesses can use to calculate the
rate of absenteeism. The absenteeism rate formula is:

Absenteeism rate = number of absences / number of work days

To calculate workdays for a full year, the formula would be the total number of
calendar days minus weekend days, minus holidays, minus vacation days equals the
total workdays.

For example:

365 (calendar days) – 105 (weekend days) – 10 (holidays) – 15 (vacation days)

= 235 workdays

Absenteeism Rate Example:

For a single employee’s absenteeism rate, let’s say they had 235 scheduled
workdays, and five days of unplanned absences. To calculate their absenteeism
rate, you need to divide the number of absences (5) by the number of workdays
(235) and multiply that by 100 and you get 2.1%.

(5 absences / 235 workdays) x 100 = 2.1% absenteeism rate

TOPIC- MEASURING HUMAN RESOURCE COST

Why measure Human Resource costs?

There are four main reasons why you’d want to measure Human Resource costs:

 Monitor departmental costs

 Measure impact and overall success
 Predict future costs
 Calculate a return of investment (ROI)Different Types of HR Costs

TYPES OF HR COST-

HR costs can fluctuate, but they tend to fall into one of five distinct categories. The
different types of human resource costs discussed here include recruitment,
retention, training, employee benefits and administration.

Recruitment cost

Recruitment is an essential component of HR that helps with the process of

finding and attracting qualified candidates. Some examples of associated costs
within this category include job postings and advertisements, applicant
screening and the interviewing process itself. Some job platforms have a
paywall for employers and the price can range from a few hundred to several
thousand dollars. Applicant screening can also get costly, depending on their
complexity and screening requirements. Finally, the interviewing process itself
requires time and effort that takes away from other business initiatives.

Employee Retention and Turnover

Retention costs include all of the expenses incurred to maintain a stable and
engaged workforce. When an employee leaves, the cost of replacing them can
range anywhere between 50% and 60% of their annual salary, with overall costs
ranging anywhere from 90% to 200%.

Training and On-boarding

Another important HR cost involves training and on-boarding. This includes

both in-house programs to help learn how to navigate the position and external
training programs to further professional development.

(For method, advantage. disadvantage etc. refer HR accounting topic)

TOPIC-FUTURE TRENDS IN SHRM
In an ever-evolving world driven by technological advancements and shifting
work dynamics, the realm of Human Resource Management (HRM) is
undergoing a transformation like never before. The role of HR professionals is
no longer confined to traditional administrative tasks but has expanded to
encompass strategic planning, data analysis, and fostering a dynamic workplace
culture. As we peer into the future, several emerging trends and challenges are
shaping the landscape of HRM. It includes-

 CSR and HRM-

Corporate Social Responsibility and Sustainability The corporate social

responsibility and sustainability (CSRS) trends highlighted the growing
awareness of the importance of these issues to organizations’ operations, with
each business needing to determine the role CSR plays in the organization.
Increasingly, CSR initiatives will need to be adopted to compete for and retain
top talent, but HR professionals and CSR leaders will also need to examine their
return on investment. Employees are seeking out organizations with strong CSR
programs as well as opportunities to volunteer, and thus, these initiatives are an
increasingly important part of the employer brand.

 Technology and Automation

Technology has been a driving force behind revolutionary changes in HRM.

Automation and Artificial Intelligence (AI) are streamlining processes, from
recruitment to employee engagement. Chat bots assist in answering employee
queries, algorithms help identify suitable candidates, and data analytics predict
workforce trends. While this enhances efficiency, it also raises concerns about
job displacement and the need for up-skilling.

 Organizational Development- Economic pressures, longer life spans

and other factors will increase the number of generations expected to be
in the workforce to five generations. These demographic changes will
necessitate preparing for an aging workforce through training workers to
 replace those exiting the labour force. Work has become project-based,
resulting in the need to simplify processes and re-examine performance
management feedback to move to frequent check-ins. Organizational
structures need to be adaptable due to the rapidly evolving nature of
business, and employees must be empowered to respond rapidly to
changing market conditions. One way managers are responding is by
involving employees more in their career planning, and there is an
increased focus on the separation of individual development goals from
annual performance review in favour of goals solidly linked to business
strategy and objectives
 Remote Work and Flexibility

The COVID-19 pandemic accelerated the adoption of remote work, turning it

into a mainstay rather than an exception. HRM had to swiftly adapt to managing
remote teams, ensuring productivity, and maintaining employee well-being. As
remote and hybrid work models become more common, HR professionals need
to focus on building virtual team dynamics, measuring performance equitably,
and addressing the challenges of work-life balance.

 Employee Well-being and Mental Health

The future of HRM places a strong emphasis on employee well-being, including

mental health support. The pandemic highlighted the need for organizations to
address the holistic wellness of their workforce. Forward-looking HR
departments are implementing initiatives that promote a healthy work-life
balance, provide counselling services, and create a supportive environment
where employees feel valued and understood.

 Diversity, Equity, and Inclusion (DEI)

DEI is no longer just a buzzword; it's a critical aspect of HRM. The future
demands that organizations not only embrace diversity but also cultivate an
inclusive and equitable workplace. HR professionals are expected to implement
policies that prevent discrimination, ensure pay equity, and provide equal
growth opportunities for employees from all backgrounds.

 Continuous Learning and Up-skilling

The rapid pace of technological advancement necessitates a culture of

continuous learning. HRM is evolving to become a catalyst for up-skilling and
reskilling initiatives. This involves identifying skill gaps, curating relevant
training programs, and fostering a culture that values learning as a lifelong
pursuit.
  Data-Driven Decision Making

Data is transforming the way HR functions. From predicting employee turnover

to analysing engagement levels, data-driven insights enable HR professionals to
make informed decisions. However, this trend also poses challenges related to
data privacy and ethical considerations when utilizing personal employee data.

 Agile Performance Management

The traditional annual performance review is giving way to agile and ongoing
feedback mechanisms. Regular check-ins, real-time feedback, and goal-setting
are becoming integral to HRM strategies. This approach not only enhances
employee performance but also fosters a culture of open communication.

 Remote On-boarding and Company Culture

As remote work becomes more prevalent, HRM must find innovative ways to
on-board new employees and integrate them into the company culture. Virtual
on-boarding processes, online team-building activities, and remote mentorship
programs are emerging trends to ensure new hires feel connected and engaged
from day one.

TOPIC--CHANGE & RESTRUCTURING AND SHRM-

In today's fast-paced business environment, change is inevitable.
Companies are constantly adapting to stay competitive, and HR
professionals play a critical role in managing these changes. Effective
change management can help organizations minimize disruptions and
achieve their goals more efficiently. HR professionals are uniquely
positioned to navigate change management because they are responsible
for both the strategic and tactical aspects of managing people in the
workplace.
"The success of change management initiatives depends on
the ability of HR to engage employees and create a culture of
trust and openness." - Deloitte
DEFINING CHANGE MANAGEMENT
Change management is the process of preparing an organization for
change and supporting employees through that change. It involves
identifying the need for change, developing a plan for how to implement
it, and communicating the change to stakeholders. Effective change
management is critical for companies because it helps them remain
competitive and adapt to market conditions.
EXAMPLES
Change management programs can take many forms depending on the
specific needs of an organization. Here are a few examples of change
management programs:

1. Organizational Restructuring: When an organization

undergoes a restructuring, a change management program is
often necessary to ensure a smooth transition. This may include
identifying new roles and responsibilities, communicating
changes to employees, and providing training and development
opportunities.

2. Technology Implementation: The introduction of new

technology can be disruptive to employees, so a change
management program is necessary to help them adapt. This may
involve identifying and addressing concerns about the new
technology, providing training and support, and communicating
the benefits of the technology to employees.

3. Mergers and Acquisitions: Mergers and acquisitions can be

particularly challenging for employees, so a change management
program is essential to ensure a smooth transition. This may
include communicating changes to employees, identifying
redundancies, and providing training and development
opportunities.

4. Process Improvement: When an organization wants to improve

a process, a change management program can help ensure that
employees understand the new process and are able to
implement it effectively. This may involve identifying areas for
improvement, providing training and support, and measuring the
success of the new process.

5. Culture Change: When an organization wants to change its

culture, a change management program can help ensure that
employees understand the new culture and are able to adopt it.
This may involve identifying the desired culture, communicating
 the changes to employees, and providing training and
development opportunities.

6. Shifts in Operation: A shift in operations refers to a change in how

an organization operates, which may involve changes to processes,
procedures, or systems. These shifts can be necessary to address
specific challenges or opportunities facing the organization. For
instance, something like Covid-19 could be a reason for an
organization to move its operations online. What is a Restructuring?

ORGANISATION RESTRUCTURING

A restructuring is the process of reorganizing an organization by

altering its composition, its relationships to other organizations, or
both. Restructuring may involve the splitting of an organization into
separate parts, the merger of two or more organizations, or the
transfer of some or all of an organization’s activities to another
organization. It may also involve the elimination of some or all of an
organization’s activities.

Organizational restructuring is a process in which an organization

makes changes to its structure, systems, and processes to achieve its
goals and objectives more effectively. The process of restructuring
can take many forms, including downsizing, merging with or
acquiring other companies, reorganizing departments or divisions,
and changing reporting relationships.

Organizational restructuring can be driven by a variety of factors,

including changes in the business environment, shifts in customer
demands, technological advancements, and changes in leadership or
ownership. The goal of restructuring is to create a more agile and
efficient organization that is better equipped to respond to changing
conditions

Following are some of the common forms of organizational

restructuring:
Downsizing--Downsizing is the process of reducing the number of
employees in an organization. This can be achieved through layoffs,
attrition, or voluntary retirement programs. Downsizing is often
undertaken when an organization is facing financial difficulties, or
when it needs to streamline its operations to remain competitive.

Merger & Acquisitions---This is when two or more companies

come together to form a new entity. Mergers and acquisitions can be
driven by a desire to gain market share, expand into new markets, or
gain access to new technologies or intellectual property.

Reorganizing departments and divisions---This involves

restructuring the organization's processes, and systems to improve
efficiency and reduce redundancy. This type of restructuring can be
done to align the organization with changing market conditions or to
take advantage of new opportunities.

Changing reporting relationships--This involves changing the way

that employees report to their managers and creating new reporting
lines. This can be done to improve communication, streamline
decision-making, and create a more efficient organization.

Process of organization restructuring

The process of organizational restructuring can be challenging and

requires careful planning and implementation. The following are
 some best practices to consider when undertaking organizational
restructuring:

1. Define the goals and objectives: The first step in the process of
organizational restructuring is to define the goals and objectives of the
restructuring effort. This involves setting clear, measurable objectives that
align with the overall strategy of the organization.

2. Assess the current state: The next step is to assess the current
state of the organization. This involves analysing the structure,
systems, and processes of the organization to identify areas that need
improvement.

3. Develop a plan: Based on the goals and objectives and the

assessment of the current state, develop a plan for the restructuring
effort. This should include a timeline, budget, and action plan.

4. Communicate the plan: Communicate the plan to all

stakeholders, including employees, customers, and suppliers. Be
clear about the rationale behind the restructuring effort and the
impact it will have on the organization.

5. Implement the plan: Implement the plan, making sure to

follow the timeline and budget. This may involve laying off
employees, reorganizing departments or divisions, changing
reporting relationships, or implementing new systems and processes.

6. Monitor and evaluate: After the restructuring effort is

complete, monitor and evaluate the results. This involves assessing
 whether the goals and objectives have been achieved and whether
the restructuring effort has had the intended impact.

THE ROLE OF HR IN CHANGE AND RESTRUCTURING

MANAGEMENT
HR professionals are essential in leading change management initiatives.
They are responsible for ensuring that employees are engaged and
informed throughout the process, and that everyone is aligned with the
company's vision and goals. HR plays a critical role in:

1. Communicating Change: HR must communicate the change to

employees and stakeholders clearly and effectively. This means
providing information about the reason for the change, how it
will affect employees, and what steps the company is taking to
ensure a smooth transition.

2. Managing Resistance: Change can be challenging for

employees, and some may resist it. HR professionals can help
manage resistance by identifying potential sources of resistance
and addressing them proactively.

3. Training and Development: Change often requires new skills

and knowledge. HR can help identify training needs and provide
development opportunities for employees to help them adapt to
the change.

4. Managing the Change Process: HR can help manage the

change process by developing a plan, coordinating resources,
and monitoring progress.
 5. Measuring Success: HR can measure the success of change
management initiatives by tracking metrics such as employee
engagement, productivity, and turnover.

TOPIC--Competencies of HR professionals in a SHRM scenario-

1. Communication. From verbal and written communication to active listening

and persuasion, HR leaders require strong communication skills to exchange
information in an effective manner. Strong communication skills also aid with
delivering feedback and engaging in diplomatic efforts.

2. Relationship Management. The ability to manage interactions among

individuals provides support to the organization as a whole. Relationship
management skills establish positive community relations, contribute to
successful networking, and foster teamwork. It also helps build credibility
among customers.

3. Ethical Practice. Compliance to ethical practices and core values fosters

accountability and establishes a sense of integrity that encourages
professionalism among workers.

4. HR Knowledge. A successful HR leader possesses a full understanding of the

principles, practices, and functions that contribute to effective HR management.
Critical areas of knowledge include risk and strategic business management,
workforce planning, and HR technologies.

5. Business Acumen. Business acumen refers to the ability to understand and

apply information in a manner that supports an organization’s strategic plan. HR
professionals with business acumen demonstrate economic awareness, strategic
agility, and other operating principles.

6. Critical Evaluation. Interpreting information to make business decisions and

recommendations is a key part of HR management. It requires critical thinking
and adherence to research methodologies to make reasonable assessments and
informed decisions.

7. Global and Cultural Effectiveness. HR professionals interact with people

from varying backgrounds on a daily basis, which means they need to consider
the perspectives of all parties involved.

8. Leadership and Navigation. Effective HR professionals use leadership to

direct initiatives and support the organization through times of adversity.

9. Consultation. Relying on analytical reasoning, people and project

management, and problem solving skills, HR professionals provide guidance to
organizational stakeholders.

10. Strategy Architect-As Strategic Architects, HR professionals diagnose and

design aligned and integrated HR practices so that strategic aspirations show up
in daily HR actions.

11. Role Model. HR professionals have to set the standard when it comes to
leadership, ethics and business practices. Because of this, our profession can be a
lonely one especially in an office where we are a sole practitioner. We must set
the bar when it comes to ethical behaviours and creating an inclusive and
welcoming workplace culture and environment.
12. HR Subject Matter Expert. Depending on our role within human resources,
we are often cast as the expert on employment law, human resources and
compliance topics. We are often the objective voice of reason in advising
employee terminations, documentation and other employee relations workplace
scenarios. While I am supportive of foundational knowledge of human resources
and employment law, experience is the best teacher here.

13. Collaborator. Since our role in human resources often involves engaging
and working together across the business and with many different individuals
from all backgrounds and positions within our organization, we have to be
master collaborators and project managers in order to transform our business.
This is a challenge since in most work teams and scenarios, we are a peer or a
subordinate and must collaborate to help our team members or individuals come
to the conclusions that we have sometimes known all along to effectively drive
change.

14...Talent acquisition
Talent-acquisition skills are essential for solid competency in HR. To grow on
their career path, an HR professional needs to go beyond recruiting – they need
to understand how to find the ideal candidate for the role.

Attracting top professionals to your business is becoming more difficult because

every organization vies for job seekers’ attention with compensation and
benefits packages. Therefore, your HR team must devise better strategies to
acquire top talent.

Finding and contacting candidates is an important HR competency. HR leaders

need to take a proactive approach in their search and constantly try to find new
people through different channels.
15...Attention to textual detail

True human resource expertise includes great attention to detail. Since HR

employees communicate with a wide range of people daily, they need great
attention to detail, especially during the hiring process.

A keen eye helps recruiters remember important information and spot

discrepancies in applicants’ resumes and skills. These skills help HR
professionals avoid bad hires that could prove costly in the long run.

In addition, spotting errors, from small ones like typos to large ones like
inaccurate data, is one of the human resources skills and competencies that
mitigates potentially damaging organizational issues, such as incorrectly
managed employee benefits.