Human Resource Accounting (HRA)

Gone are the days of silos…what is needed today is an effective interface between different disciplines. A very good example is the emergence of Human Resource Accounting.

Human Resource Accounting (HRA) as an approach was originally defined as the process of identifying, measuring and communicating information about human resources in order to facilitate effective management within an organization. It is an extension of the accounting principles of matching costs and revenues and of organizing data to communicate relevant information in financial terms.

Until recently, the "value" of an organization as measured within traditional balance sheets, e.g. buildings, production plant, etc., was viewed as a sufficient reflection of the organization's assets. However, with the growing emergence of the knowledge economy, this traditional valuation has been called into question due to the recognition that human capital is an increasingly important part of an organization's total value.

To do this, an understanding has to be created for:

• Assessing the value of human capital in addition to an organization's tangible assets and
• Improving (and quantifying) the development of human capital in organizations

Under human resource accounting, a value is placed on people based on such factors as experience, education, psychological traits, training, commitment, and, most importantly, future earning power (benefit) to the company.

The idea has been well received by human-resource-oriented organizations, such as those engaged in accounting, law, and consulting. Practical application is limited, however, primarily because of difficulty and the lack of uniform, consistent methods of quantifying the values of human resources.

Dr. Meenakshi Khemka

(Globsyn Business School)

Strategic Role of HR - HR Due Diligence

This snippet gives a glimpse on the challenging times ahead for HR professionals.

Due diligence is a term associated generally with mergers and acquisitions. A due diligence review helps the merging entities identify the presence of any hidden liabilities for the integrated business. This review not only helps organizations to have a re-look at their decision and its feasibility but also helps in identifying the critical areas that need immediate attention for the process to be successful.

Usually this is considered to be the domain of financial and legal experts who focus on the financial costs and contractual obligations. The traditional belief has been that HR does not have any role to play in this due diligence process. However this is no longer true!

The HR due diligence assesses the human capital of an organization. It critically reviews components like - organizational culture and structure, organizational capabilities and leadership, employee compensation and benefits, industrial relations, pending employee litigations, HR policies and procedures, key talent analysis, and performance management and people fit.

HR professionals increasingly are gaining better access to the strategy boardroom… and this is good news…

Gear up friends…
Dr. Meenakshi Khemka
Globsyn Business School

Young Population - HR Asset for India

India has a distinct comparative factor advantage as a vast reservoir of skilled manpower. There will be a lot of opportunities thrown at India because of the demographic advantage it will have over other countries. The demographic differentials reveal that over the next 20-30 years, India’s population profile will be concentrated in the younger age group, as against the other countries.

An ageing population will make the developed world, and even China, dependent on India which will have a surplus workforce of 4.7 crore people by the year 2020. At the same time, it is estimated, the US will face a shortage of 1.7 crore people while China and Japan will have deficits of 1 crore and 90 lakh, respectively. This will make India, which will have a predominantly young population, the human resource pool for the world, helping the country tide over an expected unemployment crisis.

A reputed global financial firm, UBS in a report says in the developed world, the share of over-65 in relation to the 15-64 year old group ranges between 20-30%, with higher rates in Japan and continental Europe. This ‘youth depopulation’, will have far reaching implications for the economy, consumers product companies, providers of educational and child care service, the housing sector and a part of the core (real estate lending) business of financial services institutions, according to the experts who have made the study of global demographics and its impact on economy.

Though India is at an advantageous position, it will have to take various initiatives to make the most out of this situation. Several studies have pointed out that a huge chunk of India’s educated class is almost unemployable. To tide over this difficulty, the government is trying to ensure the promotion and development of market determined skill sets across the entire economy with emphasis on 20 high-growth employment sectors.

(Adapted from the source: http://www.citeman.com/)

Dr Meenakshi Khemka

Globsyn Business School