What Should Human Resource Accounting Systems Count?
When most people think about an accounting system, thoughts of ledgers and numbers usually pop into mind. And accounting systems for human resources are no exception; the cost of a company's human resources is certainly one of its largest financial commitments. But exactly what are those "costs"? Are they salaries, benefits, training? Do they include development costs, cost for employee time away from the job during training? The answer to all these questions is yes--sort of.
Certainly it's important for human resource professionals to know how much their operations cost, if only for their own knowledge and budgeting purposes. But our respondents all agree that this information is most important in terms of establishing measures for how their operations are affecting the organization's bottom line. Upper management doesn't want to know how much a particular training program costs unless you can show that the money being spent on that program is offset by improved productivity and subsequently higher revenues. As one of this issue's "Four by Four" respondents pointed out, "Accounting for costs and effectiveness are the only two ways [human resource professionals] really have to determine whether they have done their jobs."
As you read the responses below, you'll notice that some of the participants take a very broad approach to what an accounting system should entail while others take a more detailed view. But you'll also notice that all the respondents stress that these systems cannot be separate unto themselves. Rather, they must be based on corporate objectives and be tied into the organization-wide accounting strategy.
I resist the notion that training people are accountable for the use of what they help people learn on the job.
Henry Dahl is director of corporate employee development and planning at the Upjohn Company, Kalamazoo, Michigan.
Human resource accounting--I don't really know what that means. It used to mean that people would put the employee investment on a balance sheet and then track the value of that over time. Theoretically that makes sense; practically it doesn't. The definition that I think works best is that human resource accounting is whatever anybody wants to do to measure the cost benefits of managing human resources.
I look at what human resources means to the total organization, and I'm trying to do it in a way that is similar to the way financial people compute return-on-capital investment. Financial people determine capital investment and measure the return on that investment by various return-on-assets ratios. We should ask that same question on the people side: What return are we getting on all the dollars that we are spending for people--human resources--each year?
This is a way of looking at human resources as an economic resource of the organization similar to capital. Some human resource professionals reject this application because they have difficulty quantifying employees as human resources; they believe we should be looking at human beings as individuals, which shouldn't be quantified. But management needs and asks for ways to relate the performance of human resources to the accomplishment of business objectives and strategy.
1. The goal of human resource people should be to help management get the best return it can on the dollars it spends for people. Some people in training and development focus on the training side of things rather than on helping the organization gain a competitive edge through its human resources.
We need to look at the whole picture--not just training. We should be asking how much the organization gains from all aspects of human resource management: from better knowledge and skills, from intelligent hiring, from having optimum reward systems, from having a well-designed organizational structure, and so on. …