Assessing the value of human capital employed in a business

We provide a practical and effective method for accounting for people with the model of the human capital holding environment to assess the value of people employed in an enterprise and the financial benefits of human resources management and people development.

1 Focusing on financial value and results from human resources investment

(1) Every organisation is an economic entity (or economy within itself) – and any organisational expenditure will be viewed as a cost or as a means to a performance goal. Positioning HR and employment management as contributing to the management and stewardship of an enterprise to achieve worth performance objectives requires practice to be informed by financial values and assessments.

(2) The “Human Capital Holding Model” provides a model to relate people management practices to the reality of the business imperative and also the financial basis and specific tools to relate practice to the beneficial outcomes for an organisation.

(3) Everything important in business is evaluated and it is the business and human capital environment within which the combination of resources, structures expectations and mutuality coexist to produce necessary outcomes.

(4) In addition to facilitating the use of metrics to calculate the value of human capital employed by an organisation, reproducible forms for assessing the financial benefits of employment policies, learning and development can also be deployed.

2 Plausible accounting approach and quantitative metrics

(1) The model enables the application of sound, plausible and consistent accounting procedures involving quantitative metrics to measure human capital and also facilitates the contribution of human resource management to the stewardship of an organisation.

(2) The model provides instruments and levers by which progress towards achieving targets may be measured.

(3) Leverages and targets of a firm may embrace drivers such as management of capital, leadership, organisational environment, development, rewards and benefits and jobs; and may also involve securing a quality of commitment to produce the required effort and contribution of people and the retention of a skilled workforce.

(4) Reliability and measurement: the Accounting Standards Statement on the contents of an operating and financial review, stated that information contained in the review should be neutral, free from bias, and complete, dealing even-handedly with both good and bad aspects. This included the aspect where there may be a┬átemptation in an organisation to ‘cherry-pick’ a few good stories about Human Captial practices.

Information should be capable of comparison year on year thus enabling a reader to identify trends: “When disclosing measures in the operating financial review or any other financial of management report, then:

  • They should be defined and the method of calculation explained.
  • The source of underlying data should be disclosed and, where relevant, assumptions explained.
  • Comparative amounts should be disclosed.

3 The approach facilitates the meeting a firm’s objectives

(1) In terms of a possible reporting mechanism the potential of the model of human capital holding will, among other ends, serve the needs of:

A reliable, balanced and objective view of the organisations practices and performance.

Facilitate audit processes and relate to good governance including assessment of being a “top rated employer.”

Embraces the elements of a company’s objectives and strategy, and provides for the basis of an account of the internal relationships. It would facilitate an assessment of where an organisation may stand as an outstanding employer.

4 Accounting for human capital

(1) The use of the human capital holding model in both assessing the value of human capital within an employing organisation and also its application in assessing strengths and sustainability of a company’s performance and in planning and meeting the various challenges including change.

(2) Quantitative measures may also be supported by key indicators if the compilation and use of the indicators is of value and benefit to the organisation and relevant to external reporting in so far as providing further augmentation of the quantitative measurement.