|
“Our
main asset is our people!”
How
true is this oft-repeated statement made by the management of all
knowledge-driven companies? The problem in fact starts when it comes
to assessing the real value of human assets. While most organisations
can readily give detailed information about their tangible assets
like plant and machinery, land and buildings, transport and office
equipment, there is no formal record of investment in employees.
Human assets accounting or human resource accounting (HRA), which
stands for measurement and reporting of the cost and value of people
as organisational resources, is still to become an accepted trend
in the Indian IT industry.
HRA
scenario
 It
is true that worldwide, knowledge has become the key determinant
for economic and business success, but Indian companies focus on
‘Return on Investment’ (RoI), with very few concrete steps
being taken to track ‘Return on Knowledge’.
What
is needed is measurement of abilities of all employees in a company,
at every level, to produce value from their knowledge and capability.
“Human Resource Accounting (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 organisation,” says P K Gupta,
the director of strategic development-intercontinental operations,
of Legato Systems India. The current accounting system is not able
to provide the actual value of employee capabilities and knowledge.
This indirectly affects future investments of a company, as each
year the cost on human resource development and recruitment increases.
Experts
point out that the information generated by HRA systems can be put
to use for taking a variety of managerial decisions like recruitment
planning, turnover analysis, personnel advancement analysis and
capital budgeting, which can help companies save a lot of trouble
in the future.
On
balance sheet
Organisations
can actually find out how much they can earn from an individual,
as the intellectual assets of a company are often worth three or
four times the tangible book value. Human capital also provides
expert services such as consulting, financial planning and assurance
services, which are valuable, and very much in demand.
Realising
this, many companies world-over are making HRA as a necessary element
on their balance sheets. One of the best examples is of the Denmark
Government. The Danish Ministry of Business and Industry has issued
a directive that with effect from the trading year 2005, all companies
registered in Denmark will be required to include in their annual
reports information on customers, processes and human capital. A
minimum of five measures for each is required, and comparison with
the previous two years must be shown. Figures for investment in
intellectual capital must be shown and compared with the previous
two years. A narrative should accompany each set of figures. Information
for investors about intellectual capital, both current and future,
should occupy at least one third of the report. Where relevant,
information must also be provided regarding care for the environment.
In
India, there are very few companies like BHEL, Infosys and Reliance
Industries, which have implemented HRA and some are working on it.
Infosys, which started showing human resource as an asset in its
balance sheet, has been reaping high market valuations. NIIT has
been following a similar method called Economic Value Addition (EVA),
which also helps in assessing the real value that an employee can
fetch for the company.
Experts
point out that companies can derive many benefits by going in for
HRA. Not only can they measure the return on capital employed on
total organisational assets (including the human assets), but the
resources can also be planned accordingly. “Once organisations
realise the actual benefit and take it as a growth process, it will
only help them in increasing their shareholders’ value. When
a company is able to assess an individual’s worth, it helps
in increasing its own worth,” says Ajay Sharma, senior HR manager
of Cadence Systems.
Basically
HRA can be tracked through two methods—cost-based analysis
and value-based analysis. The cost-based approach focuses on the
cost parameters, which may relate to historical cost, replacement
cost, or opportunity cost. The value-based approach suggests that
the value of human resources depends upon their capacity to generate
revenue. This approach can be further sub-divided into two broad
categories: non-monetary and monetary.
The
disposition of resources can also be examined by allocating relative
human asset values to different job grades. HRA also helps in examining
expenditure on personnel and in re-appraisal of expenditure on services
and training. It can also serve as a key factor in case of mergers
and takeover decisions, where the human asset value becomes a relevant
factor. Another very significant role, which HRA can help in creating,
is goodwill for a company. The company can project itself in having
best practices with superior policies in place. Experts believe
that this may help the organisation attract more investments.
The
deterrents
While
HRA as a concept has been present in India for more than a decade,
with BHEL taking a lead, it is only now that the awareness is being
translated into application. However, Gupta points out that in terms
of awareness and acceptance, the level is still low as many companies
take little initiative to make the numbers public to shareholders,
despite having the data.
Another
major deterrent is the lack of an industry standard. This means
that every company has to evolve its own standard,
which
can become a tedious process, considering that most of them are
still involved in improving their business. Industry bodies like
Nasscom can help set a standard.
Another
aspect working against the acceptance of HRA is the need for extensive
research that it entails. Many companies do not want to go into
the intricacies of finding the value of their human resources. “While
most big companies (with a large manpower) can afford to dwell into
such best practices, it is not an economically viable option for
small and medium companies,” says Sharma of Cadence.
Naresh
Taneja, the head of human resources of HCL Technologies (Mumbai,
formerly Gulf Computers), believes that one cannot totally rely
on this concept. “Considering the dynamism of this industry,
it is very difficult to predict as to what is going to be your future
requirements and how technology is going to shape in the near future.
This only raises the question on the benefits of HRA.”
Gupta
is however optimistic about the future. “As HRA is not directly
related to RoI, many companies do not take it very seriously. However,
in the past few years organisations have been investing a lot on
improving their systems and infrastructure. And the next obvious
step would be measurement of human assets.”
However,
it’s ultimately the people who deliver results. Realising the
benefits, which it can provide, the responsibility lies on the companies,
as to how much importance can they or do they give to their HR.
|
