2. INTRODUCTION
• HRA is accounting for people as an organizational resource.
• It involves measuring the costs incurred by organizations to recruit,
select, hire, train and develop human assets.
• It also involves measuring the economic value of people to the
organization.
• “HRA is basically an information system that tells management what
changes are occurring over time to the human resources of the
business.
• HRA also involves accounting for investment in people and their
replacement costs, and also the economic value of people in an
organization,”
3. Eric Flamholtz: “ Accounting for people as organizational
resources. It is the measurement of the cost and value of people
for the organization ”
Stephen Knauf (1983):
“ The measurement and quantification of human organizational
inputs such as recruiting, training, experience and commitment ”
DEFINITION
4. Improve management by analyzing investment in HR.
Considers people as its asset .
Attract and retain qualified people.
To have an analysis of the human asset.
To aid in the development of management principles, and proper
decision making for the future and helps to determine financial
consequences of various practices.
It provides a sound and effective basis of human asset control, that
is, whether the asset is appreciated, depleted or conserved.
OBJECTIVES
5. ADVANTAGES
Throws light on the strengths and weaknesses of the existing
workforce in an organization.
Helps management in recruitment planning.
Offers valuable feedback regarding the effectiveness of HR
policies and practices.
Helps potential investors judge a company better on the strength of
the human assets utilized therein
Organizations can find out how much they earn from an individual.
Provides a sound and effective basis for human asset control.
Reflects the extent to which organization contributes to society’s
human capital by investing in its development.
6. Not easy to value human resources in an organization
Full of measurement problems
Employee and unions do not like the idea
Empirical evidence does not support the idea
Lack of an industry standard
The need for extensive research
Not an economically viable option for small and medium companies
Difficult to predict as to what is going to be your future requirements
LIMITATIONS
8. COST APPROACH IN HRA
HISTORICAL
COST
• The historical cost of human resources is the sacrifice
that was made to acquire and develop the resource.
OPPORTUNITY
COST
• A calculation of what would have been the returns if
the money spent on HR was spent on something else
REPLACEMENT
COST
• The cost that would have to be incurred if present
employees are to be replaced.
9. 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.
• E(Vy) = Σ Py(t+1) Σ I(T)/(I+R)t-y
• T=Y Y