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Costing Human Resources Chapter 1 The Costs and Benefits Of Human Resources In the past. . . “HR professionals have been getting by focusing on the day-to-day. They need to develop a broader and farther-reaching vision and understand where their organization is headed and how they can help steer the company in that direction.” Human Resource Accounting HRA procedures are the first step in developing sophisticated measurement and accounting procedures to enable to company to report accurate estimates of the worth of the organization’s human assets. Historical-cost approach to employee valuation looks at costs actually incurred. Most appropriate for external reporting used to inform interested parties of the financial position results of a company’s operations. More on historical-cost approach Based on false assumption that the dollar is stable. Because the assets are not salable there is no independent check of valuation (subjectivity). Measures only costs to the organization; it ignores completely any measure of the value of the employee to the organization. Replacement Cost Measures the cost of replacing the employee rather than the historical cost of an employee. Most appropriate in the context of dismissal and replacement staff. Include: recruitment, selection, compensation, and training costs May lead to upwardly biased estimates because an inefficient firm may incur greater costs. How often do company’s make decisions regarding dismissing replacing staff? Present Value of Future Earnings Organization establishes what an employee’s future contribution is worth to it today Can be measured by its cost or by the wages the organization will pay the employee Measure is limited because it assigns value to the average rather than to a specific group or individual. Details. . . Uses statistics such as consensus income returns and mortality tables Since there value is assigned to the average, there is no benefit to monitoring an individual firm’s investment