HUMAN RESOURCE ACCOUNTING The total growth of the organization depends mainly on the skills of its employees and the services they render. Hence, the success of any organization is contingent on the quality of their Human Resource- its knowledge, skills, motivation and understanding of the organizational culture. Therefore, it is imperative that the humans be recognized as an integral part of the total worth of an organization.

Definition :Human resource accounting (HRA) denotes just this process of quantification/measurement of the Human Resource. “Human Resource Accounting (HRA) is basically an information system that tells management what changes are occurring over time to the human resources of the business.

Objectives 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

Advantages of HRA

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

Methods Of HRA

Cost approach

Economic value approach

COST APPROACH IN HRA

HISTORICAL COST : Is the sacrifice that is made to acquire and develop the resourse.

OPPORTUNITY COST : A calculation of what would have been the returns If the money spend on HR was spend on something else.

REPLACEMENT COST : The cost that would have to be incurred if the present employees are to be replaced.

ECONOMIC VALUE APPROACH

PRESENT VALUE OF FUTURE EARNINGS : value of an individual is the present worth of the services that he is likely to render to the organization in future

COMPETITIVE BIDDING MODEL : 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

IND.VALUE TO ORGANIZATION : This method helps in determining what an employee’s future contribution is worth today.

Limitations

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

Assumptions Underlying HR Accounting

 

People are valuable organizational resource

Human resource value is influenced by management style

HRA information is needed

HRA In Infosys

Infosys was the first software company to value its human resources in 1995-96

The company valued its human resources to Rs 1.86 billion HRA is very essential for any knowledge intensive company Slowly the concept gained importance and companies like

satyam computers, and even manufacturing firms like Reliance industries started adopting it

The assets could be classified into – tangibles and intangibles. Human resources was an intangible asset which involved capabilities, knowledge, skills, and talents of the employees in the company

In HRA cost was assigned to every employee when recruited and revenue generated by him/her during the tenure in the company.