2. Contents
Introduction
Objectives of HRA
Importance of HRA
Limitations
Cost of Human Resources
Measurements in HRA
Cost Approach
3. Introduction
Process of identifying and measuring data about
human resources and communicating this
information to interested parties
Quantification of the economic value of the people in
an organization
Measurement and reporting of the cost and value of
people in organizational resources : Flamholtz
Art of valuing, recording and presenting
systematically the worth of human resources in the
books of account of an organization
4. Contd…
1. Valuation of human resources
2. Recording the valuation in the books of account
3. Disclosure of the information in the financial
statements of the business
5. Objectives
Improve management by analyzing investment in
HR
Consider people as its asset
Attract and retain qualified people
Profile the organization in financial terms
To have an analysis of the human asset
To aid in the development of management
principles, and proper decision making for the future
6. Importance of HRA
Furnishes cost/value information for making management decisions about
acquiring, allocating, developing, and maintaining human resources in
order to attain cost-effectiveness
Helps the management in the employment, locating and utilization of
human resources
Helps in deciding the transfers, promotion, training and retrenchment of
human resources
Assists in evaluating the expenditure incurred for imparting further
education and training in employees in terms of the benefits derived by
the firm
7. Contd…
Management tool designed to assist senior management in
understanding the long term cost and benefit implications of
their HR decisions
Helps in identifying the causes of high labour turnover at
various levels and taking preventive measures to contain it
Helps in identifying improper or under-utilization of physical
assets or human resource or both
Provides valuable information for persons interested in making
long term investment in the firm
8. Limitations
No specific procedure for finding cost and value of
human resources of an organization
Form and manner of including HRA value in the
financial statement is not clear
Employee with a comparatively low value may feel
discouraged
Tax laws do not recognize human beings as assets
9. Training (Development) Welfare Cost
cost
-Medical Expenditure
-Formal Training Cost
-Canteen Expenditure
-On the Job Training Cost
-Specific and General Allowances
-Special Training
-Children Welfare Expenses
-Development Programmes
-Other Welfare Expenditure
Acquisition cost Other Costs
-Safety Expenditure
-Recruitment Cost
-Ex-gratia
-Selection Cost
-Multi-trade incentives
-Placement Cost
-Campus Interview Cost
Cost of -Rewarding Suggestions
Human
Resources
10. Measurements in HRA
Cost based approaches:
•Historical Cost
•Replacement Cost
•Opportunity Cost
•Standard Cost
Monetary value based approaches:
•The Lev and Schwartz Model (Present value of future earnings method)
•The Eric Flamholtz Model (Reward Valuation method)
•Morse Model (Net Benefit Model)
Non- monetary value -based approaches:
•Likert Model
•The Flamholtz Model
•Ogan Model (Certainity Equivalent Net Benefit Model)
11. COST APPROACH
Cost
It is a sacrifice incurred to obtain some anticipated
benefit or service
Two portions :
Expense
Asset
12. Types of Cost
Historical cost
Sacrifice that was made to acquire and develop the
resource
Opportunity cost
Money to be spent on HR was spent on something else
Replacement cost
Cost incurred in the replacement of present employees
