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MBA: 2 Year
Roll No: 2K181080
Subject: HRACM Assignment- Infosys Case Study
Case Study
Q.1. Briefly discuss the concept of valuation of Human Resources and compare the various
models available for Human Resource Accounting.
Ans. Human Resource Valuation:
Human resource valuation means the identification and measurement of the value of human
resources and then supplying this information to the interesting parties. It is sometimes also
defined as a method of assigning value to the employees on the basis of their future economic
services to the organization. The employees of value at the present worth of the services they are
expected to render during their stay in the organization or a particular period of time.
Model on human resource accounting:
This model prescribes the human resource accounting approach for two categories of employees:
Employees, who are at strategic, key decision-making positions such as MD, CEO
Employees, who execute the decision taken by Top Executives (Vice President, Directors)
Model arrives value of human resources as sum of below-mentioned three parts:
The various value based measures of human resources are based on the concept of economic
value. Since the various value based method examine possible future earnings from human
resources, the degree of reliability to be expected from these methods is generally poor.
Measure based on behavioural – variables such as Likert’s causal, intervening and end-result
variables approach are neither objective nor reliable. Which method the firm should choose
depends upon what the reporting objective is and for which user group the information is to be
provided. The replacement cost method is useful in considering the acquisition of staff and
economic value for measurement of performance. If the user group is internal and the objective
is to allocate scarce employees one should use the opportunity cost method but if the user
group is external and the objective is to account for the historic cost of investment, historical
cost method should be used.
The “Present value of future earnings” model, as suggested by Lev and Schwartz, has been
found to be most popular model on account of convenience and objectivity. The human resource
valuation models in most cases have not dealt with the mode of recording and disclosure of the
accounting information relating to human resources. This has been left the discretion of the
accounting bodies that have yet to develop a generally accepted basis for valuation, recording
and disclosure of human resource accounting information in the financial statements of
organization. In most cases, the human resource accounting information is given in the form of
supplementary information attached to the financial statements.
Q.2. what are the benefits of Human Resource Accounting? Discuss in detail the
HRA Model adopted by Infosys
Ans. Advantages of HRA:
1. Information for manpower planning: HRA provides useful information about the cost and
value of human resources. It shows the strengths and weakness of the human resources. All this
information helps the managers in planning and making the right decisions about human
resources. Thus, it provides useful information for Manpower Planning and Decision Making.
2. Information for making personnel policies: HRA provides useful information for making
suitable personnel policies about promotion, favourable working environment, job satisfaction of
employees, etc.
3. Utilization of human resources: HRA helps the organisation to make the best utilization of
human resources.
4. Proper placements: HRA helps the organisation to place the right man in the right post
depending on his skills and abilities.
5. Increases morale and motivation: HRA shows that the organisation cares about the employees
and their welfare. This increases their morale and it motivates them to work hard and achieve the
objectives of the organisation.
6. Attracts best human resources: Only reputed organisations conduct HRA. So, competent and
capable people want to join these organisations. Therefore, it attracts the best employees and
managers to the organisation.
7. Designing training and development programs: HRA helps the organisation to design (make) a
suitable training and development program for its employees and managers.
8. Valuable information to investors: HRA provides valuable information to present and future
investors. They can use this information to select the best company for investing their money.
HRA model adopted in India
In the financial year 1995-96, Infosys Technologies (Infosys) became the first software company to
value its human resources in India. The company used the Lev & Schwartz Model (Refer Exhibit
I) and valued its human resources assets at Rs 1.86 billion. Infosys had always given utmost
importance to the role of employees in contributing to the company's success. Analysts felt that
human resources accounting (HRA) was a step further in Infosys' focus on its employees.
Chairman and managing director of Infosys, believes “Comparing this figure over the years will
tell us whether the value of our human resources is appreciating or not. For a knowledge
intensive company like ours, that is vital information."
It was only in the mid-1990s, after Infosys started valuing its employees, that the concept gained
popularity in India. By 2002, HR accounting had been introduced by leading software companies
as well as leading manufacturing firms like Reliance Industries.
HR managers were quick to respond on the above developments by stating that more and more
organizations had now started to realize the importance of skilled workforce. They felt that to be
successful in highly competitive markets, companies require to continuously improve the level of
performance of their workforce.