Human Resource

Accounting

"The unexamined work

life is not worth living."

The things that get

measured gets managed

What is HRA?
Human Resource Accounting is the process
of identifying Investments made by the
organization in the Human Resource
Assets.

It is the process of assigning, budgeting,

and reporting the cost of human resources
incurred in an organization, including
wages and salaries and training expenses.

Objectives of HRA
To provide cost value information for making proper and effective
management decisions about acquiring, allocating, developing and
maintaining human resources in order to achieve cost effective
organizational objectives.
To monitor effectively the use of human resources by the
management.
To have an analysis of the human assets i.e. whether such assets
are conserved, depleted or appreciated.
To aid in the development of management principles. and proper
decision making for the future by classifying financial
consequences of various practices.
It helps the organization in decision making in the following areas:
Direct Recruitment vs. promotion, transfer vs. retention, retrenchment
vs. retention, impact on budgetary controls of human relations and
organizational behavior, decision on reallocation of plants, closing down
existing units and developing overseas subsidiaries etc

Advantages of HRA
It checks the corporate plan of the organization. The corporate plan
aiming for expansion, diversification, changes in technological
growth etc. has to be worked out with the availability of human
resources for such placements or key positions. If such manpower is
not likely to be available, HR accounting suggests modification of
the entire corporate plan.
It offsets uncertainty and change, as it enables the organization to
have the right person for the right job at the right time and place.
It provides scope for advancement and development of employees
by effective training and development.
It helps individual employee to aspire for promotion and better
benefits.

 It aims to see that the human involvement in the

organization is not wasted and brings high returns to
the organization.
It helps to take steps to improve employee
contribution in the form of increased productivity.
It provides different methods of testing to be used,
interview techniques to be adopted in the selection
process based on the level of skill, qualifications and
experience of future human resources.
It can foresee the change in value, aptitude and
attitude of human resources and accordingly change
the techniques of interpersonal management

What is Audit?
The general definition of an audit is an
evaluation of a person, organization,
system, process, enterprise, project or
product.
The term most commonly refers to
audits in accounting, but similar
concepts
also
exist
in
project
management, quality management,
water management

HRD Audit
HRD Audit

is a comprehensive evaluation
of the existing HRD

Structure,
Strategies,
Systems,
Styles,
Skills / Competencies
Culture

and their appropriateness to achieve the

short-term and long-term goals of the
organisation.

What ?
HRD Audit is like an
annual health check-up, it
plays a vital role in instilling a
sense of confidence in the
Management and the HR
functions of an organization

HR Audit v/s HRD Audit

HRD Audit is evaluation
of only few activities

Structure,
Strategies,
Systems,
Styles,
Skills / Competencies
Culture

HR

Audit

is
a
comprehensive evaluation
of the entire gamut of HR
activities

HR Cost
HRD activities
Health, Env. & Safety
Legal Compliance
Quality
Compensation &
Benefits

Methodology of HRD Audit

(How?)
Interviews
Questionnaires
Observation
Analysis of records and secondary data
Workshops could be used
Task forces and internal teams could also be
used
External Auditors have a significant role
Benchmarking of questionnaire data may
be of use

Reasons for HRD Audit

(Why?)
For expanding, diversifying and entering
into a fast growth phase.
For promoting more professionalism and
professional management.
Bench-marking for improving HRD
practices.
Growth and diversification
Dissatisfaction with any component
Change of leadership

Role of HRD Audit

HRD audit is cost effective
It could get the top management to think in terms
of strategic and long term business plans.
Changes in the styles of top management
Role clarity of HRD Department and the role of line
managers in HRD Improvements in HRD systems
Increased focus on human resources and human
competencies
Improvements in HRD systems
Better recruitment policies and more professional
staff
More planning and more cost effective training
TQM Interventions

HRD SCORE CARD

T.V. Rao (1999) has introduced the concept of HRD score card.
The HRD Scorecard is a measure of the HRD maturity level of
an organization. The scorecard is based on the following
assumptions and takes into consideration the research based
understanding gained in the last few decades regarding HRD.
The maturity level of HRD in an organization is indicated by
the following factors:
1. HRD Systems Maturity
2. HRD Competencies of the Employees including the HR
Department
3. HRD Culture of the Organization
4. HRD Influence on the Business Goals or Business Linkages of
HRD

Name of the Organisation

ABC

HRD
Systems
Maturity

HRD
Competen
ce Score

HRD
Culture
Grade

Business
Linkage
Grade

Overall
HRD
Maturity
rating

B*

B*

B*C B*B

A* Highest Score and Highest Maturity Level

A Very High Maturity level
B*
High Maturity Level
B Moderately High Maturity Level
C*
Moderate Maturity Level
C Moderately low Maturity level
D* Low Maturity Level
D Very low Maturity level
F Not at all present
U Ungraded

Assumption
Competent and motivated
employees are needed to provide
quality products and services at
competitive rates and ways that
enhance customer satisfaction

 HRD Systems Maturity Score

Competencies and commitment can be developed
through appropriate HRD mechanisms (tools and
systems). In a HRD Mature organization there will be
well-developed HRD systems and HRD systems
Maturity can be measured through HRD audit.

HRD Competence Score

HRD Competencies of the HRD department and the
line managers play a significant role in implementing
the systems and processes in ways that could ensure
employee satisfaction, competence building and
customer satisfaction linkages. The competencies of
the staff and the other employees can be measured
in terms of an index.

 The HRD Culture

values and processes created by the HRD tools, staff
and their styles also play a crucial role in building
sustainable competencies in the organization. These
need to be measured and monitored. It is possible in
some corporations (for example small corporations) to
have very little of HR systems and yet have a high level
of HR competencies and HR culture. In the traditional
family owned organizations in those years where there
were no systems approaches there used to be good
degree of HRD culture, which has resulted in effective
functioning and business.
Business Linkage Score
Business linkages of HRD are very crucial component of
HRD effectiveness.HRD systems competencies and the
culture must be a lined with the business oals of the
cororation

Challenges in HRD
Audit
Build and improve quality consciousness
Strive to recruit and retain competent , creative
employees
Align biz processes with technology infrastructure

Nurture creative and supportive work culture

Train and develop the employee through 360

degree feedbacks, appraisals.
Promote learning orientation-informal networks

Organisations that Have

done
HRD Audit

Aditya Birla Group (8 years)

L&T
Gujarat Gas
Gujarat Guardian
Apollo Tyres
Alexandria Carbon Black
Godrej Soaps
GVFL
BPL
Tyco International
Wokhardt Hospitals Bangalore
Bharat Electronics
NTPC