The value of HR assets on the balance sheet

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Source: entrepreneur.com –

An integral part of HR management is continuous analysis and evaluation of the approved HR strategic plan. This is to facilitate necessary course corrections, adjustments and monitoring of the plan and its subsidiary parts throughout the period for which the plan is relevant.

It is important that the value that HR brings to the table is consistently established during analysis and evaluation. Any HR plan works in tandem with the overall business strategy and should show how strategic HR goals will help, support and are critical to the overall success of the business.

The strategic mandate of HR is demonstrated by its ability to develop, implement and measure systems that better recruit, attract, train, motivate, retain and develop its human capital. The strategic value-based HR mandate also frequently includes how best to foster a culture that facilitates the fusion of human capital diversity into purpose-driven activity.

An organization’s human capital refers to the financial value of the skills and knowledge of its employees. Human capital consists of the level of education and training of employees, their acquired skills, their intelligence and their health. Therefore, human capital is seen as an intangible asset or value that has the ability to increase efficiency and effectiveness, which ultimately results in higher profits.

We can therefore deduce that the more an organization invests in the training and development of its human capital, the more profitable and efficient it will become.

I recommend HR professionals consider including engagement levels, relevant skills, or real-time training plans to ensure all salient elements of HR value are captured and reported.

Only a fraction of HR professionals in our local industries have the expertise, confidence and business savvy to keep up with changes in the HR function, let alone shape its new direction. Many business leaders have gotten stuck in outdated mindsets that thwart any attempt at innovation their HR managers might come up with.

However, it is up to the HR leadership to build a compelling business case on how HR can support the business strategy and thus create HR value. HR leaders looking to create HR value must identify credible and achievable solutions and responses to the contemporary challenges of identifying the right talent and providing the support and tools needed to develop and retain the best people.

Success in this area should be measured by relevant performance measurement tools and metrics. There should be a measurement system that presents the impact of HR on business performance by showing the role that HR plays in the implementation of the strategy.

One of the primary tools for measuring value creation is return on investment (ROI). Companies must consider the value of investing in the training of their human capital and the development of the skills required to ensure the sustainability of the company and achieve its corporate objectives and be led to consider this as an investment and not as an expense (by the way, an “expense” which is often the first item to be eliminated or reduced during budget review periods).

The principle is that if you hire, train and place employees efficiently, the average revenue per employee will increase accordingly. A useful measure is revenue per employee (total revenue/number of employees).

Another measure is human capital ROI or HCROI. It is an HR metric that assesses the financial value added by the organization’s workforce against the money spent on it in terms of salaries and other benefits. Simply put, it is the amount of profit that an organization earns for every dollar invested in earning its human capital.

I’m sure you or your organization’s CEO have said that “employees are the greatest asset”. Therefore, I ask: should accounting practices consider adopting HR value as an intangible asset on an organization’s balance sheet?

It is well established in the sports world that professional basketball and football players are bought and sold as an organization would sell its goods or services. Therefore, I would say it is time to consider integrating HR assets into our financial statements, instead of only including employee salaries and training in our financial statements as costs charged to the account.

This is not a far-fetched suggestion, as investors and shareholders of most organizations recognize the importance of HR value and its direct relationship to organizational success and profitability.

I must point out, however, that there are three major challenges to any consideration of including this in your organization’s balance sheet. The first is the absence of a generally acceptable assessment of the value of this asset; second, the apparent lack of relevant and supporting accounting standards; and finally the potential tax implications. The first and second challenges are probably not very difficult to overcome if the International Accounting Standards Organization gives this priority attention. The tax issue is however a different matter, which will of course be specific to each country.

The benefit of including HR value on your organization’s balance sheet would allow you to quantifiably reflect the most valuable asset, as well as present the most accurate value of the organization’s actual HR asset. . It also has the potential to allow for intermittent changes or improvements in HR asset value.

Human capital is and will remain an organization’s most crucial resource. Your workforce can make or break your organization, making it a lifeline for your business. Investing, tracking and calculating your organization’s HR value can therefore be a prudent organizational decision.

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