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    Models For Measuring HUMAN ASSETS

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    ashish_ladda
    Models for measuring the value of human assets in organizations can be divided into cost-based models and economic models. Cost-based models include the historical cost method, replacement cost method, and standard cost method. Economic models include the goodwill method, behavioral model, economic model, opportunity cost approach, and Jaggi & Lau method. Each model has advantages but also limitations in fully capturing an employee's value due to difficulties in measuring factors like future performance, contribution to profits, and impact of changing business conditions.

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    Models For Measuring HUMAN ASSETS

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    ashish_ladda
    120 views16 pages
    Models for measuring the value of human assets in organizations can be divided into cost-based models and economic models. Cost-based models include the historical cost method, replacement cost method, and standard cost method. Economic models include the goodwill method, behavioral model, economic model, opportunity cost approach, and Jaggi & Lau method. Each model has advantages but also limitations in fully capturing an employee's value due to difficulties in measuring factors like future performance, contribution to profits, and impact of changing business conditions.

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    Models for measuring HUMAN ASSETS

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    Models for measuring the value of human assets in organizations can be divided into cost-based models and economic models. Cost-based models include the historical cost method, replacement cost method, and standard cost method. Economic models include the goodwill method, behavioral model, economic model, opportunity cost approach, and Jaggi & Lau method. Each model has advantages but also limitations in fully capturing an employee's value due to difficulties in measuring factors like future performance, contribution to profits, and impact of changing business conditions.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    120 views16 pages

    Models For Measuring HUMAN ASSETS

    Uploaded by

    ashish_ladda
    Models for measuring the value of human assets in organizations can be divided into cost-based models and economic models. Cost-based models include the historical cost method, replacement cost method, and standard cost method. Economic models include the goodwill method, behavioral model, economic model, opportunity cost approach, and Jaggi & Lau method. Each model has advantages but also limitations in fully capturing an employee's value due to difficulties in measuring factors like future performance, contribution to profits, and impact of changing business conditions.

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    of 16

    Models for measuring

    HUMAN ASSETS
    THE
    COST-BASED MODELS
    Historical Cost Method
    • Proposed & Developed by: Brummet, Flamholtz, Pyle
    • Considers that: Intention of costs incurred on HR Development-
    obtaining future benefits.
    • Implemented in US- 1968 to 74 by
    • RG Barry Corporation.

    Costs
    Expenditure
    Costs Investments
    Future Revenues
    Assets
    Historical Cost Method contd…
    Advantages Disadvantages
    • Expenditure incurred: • Costs didn’t reflect Value
    • Recruiting + Selecting + • True Value : Difference
    Training + Developing • between real performance and
    employees total cost incurred, associated
    Capitalized & shown in with human resources of
    Balance Sheets as Assets. organization.
    • Flaws in times of inflation:
    • Humans: • The validity of historic
    • Skills + Knowledge + accounting rests on the
    Experience assumption that the currency
    in which transactions are
    VALUE FOR recorded remains stable.
    ORGANIZATION
    Replacement Cost Method

    • Developed by Flamholtz, also called as Flamholtz model.


    • The cost to replace the existing human resources are estimated
    relative to the cost incurred in employing.
    • Replacement cost needs to reflects value of both the employee as
    well as the organization.
    • Replacement can be personal replacement or that of the skills.
    Replacement Cost Method contd..
    Benefits: Is present/ future oriented

    Critical Analysis:
    • Difficult to say in terms of value as generated over a period of
    time.
    • Difficult to measure contribution of an employee to the company,
    in relation to the cost incurred to employ them.
    • Critics feel that it is valid and applicable for only the key
    employees.
    • Multiple alternatives of replacement make the assessment and
    choice of best alternative difficult.
    Opportunity Cost Approach
    • Developed by Hekimian and Jones. Also called as Competitive Bidding Model.
    • The opportunity cost of key employees is assessed in relation to their
    performance and in accordance to the organization goal.
    • The bid price is a measure of employees competence and experience through
    which value will be generated for the organization.
    • The approach is based on economic concept which overcomes the deficiency in
    replacement cost app. Measured through a competitive bidding process within the
    entity.

    Steps:
    • The entity is divided in to investment centers.
    • The investment center managers bid for scarce employees they need within the
    entity
    • The maximum bid price may be obtained by the capitalization of the excess profits
    generated
    Opportunity Cost Approach contd..
    Benefits: overcomes the deficiency in replacement cost approach.

    Critical Analysis:
     Competitive bidding to assess future contribution to the organization
    goal may force disassociation of the individuals from the biding
    process, thereby making it difficult to measure their value.
     Difficult to measure value as bid price may be based on the
    perception of the bidder. This may not give correct estimation of the
    employees true value.
     Value measure through this approach is relative and may not be
    affective
    Standard Cost Method

    • According to this model, the costs of recruiting, selecting, training


    and developing a particular class or grade of employees were
    standardized.
    • These costs were determined and evaluated over the years to get
    the total value of human resource in an organization
    THE
    ECONOMIC MODELS
    Goodwill Method / Hormonson Model
    • The component of HR Value in the additional profits earned
    compared to the industry average can be calculated as below:

    • HR Value = Goodwill x (Amount invested in HR)


    Total Investment

     Drawbacks of Goodwill method –


    • Additional profits generated in a year may be influenced by other factors.
    • Moreover, critics argued that amount invested in acquiring customers,
    suppliers, etc. was not a part of goodwill.
    • The model was invalid in case the profit/revenues of the organization were
    less than the industry average.
    • The model required correct definition of all variables and relationships that
    affected the company’s goodwill.
    Behavioral Model
    The Model
    •Developed Rensis Likert.
    •Established a set of factors through which psychological and sociological
    conditions of the employee determined productivity.
    •It was assumed that these socio-psychological factors conditions would
    determine performance of the organization in the long run.

    Drawbacks --
    •Socio-psychological factors can’t measure the value of HR in the organization.
    •Various relationships could not be correlated to its performance as it was difficult
    to establish a relationship to every organizational performance.
    •In case of lack of valid relationship, the true HR value would not be reflected by
    the HR performance.
    The Economic Model
    Also called the Lev & Schwartz model

    • The Model
    • Estimates the present value of the future earnings capacity of an employee –
    from joining till retirement

    • Follows the following formula:


    H(Vi) = Aa(r+1) E(1+d)Pr – ar

    Where :

    • H(Vi) : Human capital value of an employee ‘i’ years old


    • E : Employee’s annual earnings till retirement
    • r : the age of retirement
    • Aa(r) : Probability of an employee aged ‘a’ dying at age r
    • d : Rate of discount

    • Drawbacks
    • Employees may leave the organization or die before the end of estimated tenure
    Jaggi & Lau Method
    • The Model
    • Past performance – indicator of the future performance
    • Value of an employee – depends on – present value of (past
    performance + relation to retirement + death & service
    performances)
    • Present value of future services of employee – taken as value
    generated by the employee

    • Drawbacks
    • Past performance not the real indicator – for future performance
    • Ever changing technology the potential may vary in future and
    may not be a reflection of past performance
    Myers & Flowers Method
    • The Model
    • Employees’ attitude and outlook on a particular issues –
    determines productivity on his behavior in the organization
    • Employee’s value
    = (Employee’s attitude index) X (wages payable to the employee)
    • Attitude of an individual more important than of a group

    • Drawbacks
    • Several factors other than attitude influence behavior of an
    employee
    • Measuring the attitudes of individual employees – A complex
    task
    Thank You!!

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