HUMAN RESOURCE ACCOUNTING (HRA)

Objectives

• Discuss the concept of human resource accounting.

• Describe the advantages of human resource accounting
• List the methods of human resource accounting
• State true costs of planning and recruitment

Structure

1.0 Introduction

2.0 Definition of Human Resource Accounting

3.0 Need, Significance, Objectives for HRA

3.1 Need for HRA

3.2 Significance of HRA

3.3 Objectives of HRA

4.0 Advantages of HRA

5.0 Methods of HRA

5.1 Cost Approach

5.2 Economic Value Approach

5.2.1 Monetary Methods

5.2.2 Non-Monetary Methods

6.0 Limitations/Objections to HRA

7.0 Controlling Manpower Costs

8.0 True Costs of Planning and Recruitment

8.1 True Costs of Recruitment

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 8.2 True Costs of HR operations

8.3 True Costs of HR operations per employee

9.0 Summary

10.0 Glossary

11.0 Terminal Questions

12.0 Answers to Self Assessments

13.0 Answer to Terminal Questions

14.0 Case Study

1.0 Introduction

In this unit we shall discuss measuring the potential value of human resource or its
contribution to the organization.

We have seen a global shift from manufacturing to service based economies in the past few
decades. In service based economies, competencies of the employees are more significant.
In services like retailing, academic institutions, consulting firms etc., the effectiveness of the
organization relies on the skills of its employees and the services they render. Therefore the
prosperity of the business is directly proportional to the quality and management of Human
Resource. This is also true for other industries as all businesses need people.

Thus Human Resource is a vital component of the company assets and is called – ‘Human
Capital’. To arrive at a tangible worth or value of Human Capital, some methods of
measuring the worth or value of human resource and related processes viz. hiring, training
etc. have been developed. These methods or processes of measuring or quantifying human
resource are termed as Human Resource Accounting.

2.0 Definition of Human Resource Accounting (HRA)

According to, The American Accounting Association’s committee (1973), human resource
accounting is “the process of identifying and measuring data about human resources and
communicating this information to interested parties”. So apart from calculating the costs
and investments in processes like recruitment, hiring, placement and training, HRA also
quantifies the value of employees in an organization.

According to Flamholtz (1971) HRA is defined as “the measurement and reporting of the
cost and value of people in organizational resources”.
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Featuring HRA related information is not a statutory requirement as per the Companies Act
(1956). The Institute of Chartered Accountants of India has not defined any standard or
measurement to report HRA. This does not make HRA a superficial analysis. There are a
few organizations like BHEL and SAIL which understand the importance of HRA and
emphasize on furnishing related information in their annual reports.

3.0 Need, Significance, Objectives for HRA

3.1 Need for HRA

The need for Human Resource accounting comes from a simple belief that anything that
needs to be improved needs to be measured first.

Once organizations realized the value of Human Resource and its contribution to the
effectiveness of the business, they felt the need of sustaining and increasing this value. In
order to identify whether or not they are moving in this direction, it was imperative to
measure value of people in the organization.

In order to measure this a few methods were developed and employed. These methods or
processes form Human Resource Accounting.

3.2 Significance of HRA

In any organization, management takes decisions on various business aspects. These

decisions have both long term and short term implications. Human Resource Accounting
helps the management take well informed decisions for the betterment of the organization.

In absence of HRA there could be decisions which are seemingly profitable in the short
term but may have adverse effects in the long run. For instance an organization hiked the
sales incentives to spruce up sales for a particular month. The desired targets were
achieved for that month. However, in the next few months the performance deteriorated
drastically as the organization could not offer the same hiked incentives due to pressures
on the bottom line.

HRA provides vital information to the management and assists in effective human resource
management. It also adds value to critical HR processes – Hiring, Training, Developing,
Retaining, Rewarding etc.

3.3 Objectives of HRA

The objectives of Human Resource Accounting are:

• To provide cost/value information of Human Resource and associated processes to

the management and assist decision making
• Enable effective management and monitoring of resources
• To report progress or retardation of human assets

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 • Form the base for developing management principles by reporting financial
outcomes of decisions taken

Self Assessment Questions

(a) HRA is mainly used to calculate cost of Human Resource – True or False

(b) HRA identifies direct and indirect value attached to human resource – True or False

4.0 Advantages of HRA

Apart from reporting the value of HR and HR processes, HRA also implies whether the
processes are genuinely necessary and are adding value. It also highlights reducible and
unnecessary costs.

HRA not only helps internal decision making but also influences external decisions. It
helps investors and stakeholder to make investment decisions. For instance the cost of
training and development will feature under ‘expenditures’ in the balance sheet; whereas
the returns on investment (ROI) of training, will not feature in the balance sheet. Thus it
does not provide a complete picture to the investor. So if the organization is able to
include such information in the annual/quarterly report, it will add a lot of value to
performance and depict a true picture of the potential. It gives the promoters and investors
a measure of efforts being made to enhance the organizational capability and a sense
futuristic approach.

HRA can also be deployed to gain a competitive edge over other organizations. For
instance, let us consider company A and company B competing each other in the market.
Currently company A is doing better than company B as it has a product advantage.
However, company B has revamped its research to close this product advantage gap. Also
company B has instituted HRA in the organization. In the long term, company B is more
certain to be more successful as it has closed the technical gaps and also concentrated on
valuing the human resource. This enables it to stay ahead of others as it is more preventive
to any loss or inefficiency on account of human resource

HRA highlights the organization’s efforts towards development of its employees and
measures the performance of Human Resource Development Function. In conclusion, the
benefits of HRA are:

• The adoption of the system of HRA discloses the value of human resources. This
helps in proper interpretation of Return on Capital Employed. Such information
would give a long term perspective of the business performance which would be
more reliable than the Return on Capital Employed under the conventional system
of accounting.
• The maintenance of detailed record relating to internal human resources(i.e.
employees) improves managerial decision-making specially institutions like direct

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 recruitment versus promotions; transfer versus retention retrenchment or relieving
versus retention; utility of cost reduction programs in view of its possible impact on
human relations and impact of budgetary control on human relations and
organizational behavior. Thus, the use of HRA will definitely improve the quality of
management.
• The adoption of the system of HRA serves social purposes by identification of
human resources as a valuable asset which will help prevention of misuse and
under use due to thoughtless or rather reckless transfers, demotions, layoffs and day-
to-day maltreatment by supervisors and other superiors in the administrative
hierarchy; efficient allocation of resources in the economy ;efficiency in the use of
human resources; and proper understanding of the evil effects of avoidable labor
unrest / disputes on the quality of internal human resources.
• The system of HRA would no doubt, pave the way for increasing productivity of
human resources, because, the fact that a monetary value is attached to human
resources and that human talents devotion and skill considered as valuable assets
and allotted a place in the financial statements of the organization, would boost the
morale, loyalty and initiative of the employees, creating in their mind a sense of
belonging towards the organization and would act as a great incentive, giving rise to
increased productivity.

Self Assessment Questions

(c) Prosperity of a business is directly proportional to the quality and ______________of

Human Resource.

(d) Human Resource Accounting is “the process of identifying and ______________data

about human resources and communicating this information to interested parties”

(e) HR is the only function which is involved in HRA – True/False

(f) HRA helps control future costs – True/False

5.0 Methods of HRA

The two most common methods of HRA are:

• Cost Approach
• Economic Value Approach

Cost Approach is based on the cost incurred by the organization on account of an

employee.

Economic Value approach is based on economic value of the employees and their
contribution. This approach looks at the employees as assets and possible benefits due to
these assets.

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5.1 Cost Approach

Cost is the expense to acquire a resource to obtain service and benefits thereof. This
expense has two portions – current expense and asset portions. Current expense is the
amount incurred to derive benefits in the current financial year. Asset portion is the amount
incurred on expected benefits in future. Differentiating clearly between both is not easy.

Certain other ways to classify cost are – Historical Cost, Opportunity Cost, and
Replacement Cost. These costs can be further divided into direct and indirect cost. Direct
cost is the expense made on hiring, training and placement of new employees while
indirect cost is the time spent by the supervisors and trainers on these activities.

(a) Historical cost is defined as the expense made on hiring, training, placement, etc.
in the past. It also considers the salaries and other payouts.
(b) Opportunity cost method looks at what would have been the returns if the cost
incurred on HR was invested somewhere else. This method has a limited
application as it is very subjective.
(c) Replacement cost method is deployed to calculate the cost if existing employees
were to be replaced by new ones. It considers separation cost of existing employees
and hiring, training, placement, etc. cost of new employees.

Methods for Valuation of Expense Centre Groups

Flamholtz proposes 3 methods for valuation of expense centre groups here:

i) Capitalization of Compensation

This method involves capitalizing a person’s compensation to determine his value to the
organization. Similarly, the value of the group will depend on the members comprising the
group. This method is not an ideal method as it ignores all non-monetary factors and
determinants. For example: All the employees in the HR department may be earning 70
Lakhs annually. This becomes the value of the group to the organization.

ii) Replacement Cost Valuation

Replacement cost is defined as the cost that will have to be incurred on hiring, training,
developing, etc. of a new group to replace an existing group to obtain services equivalent
to those rendered by the existing group. This method is not ideal in the long run as it has
subjective estimates.

iii) Original Cost Valuation

This method is similar to the replacement cost valuation except for it determines the value
by considering the actual cost that was incurred for hiring, training, development, etc of the
group. This method can be used to estimate the cost of building an effective group. Even in
this method the factors like group dynamics and teamwork are ignored. Also, the fact that
you cannot replicate people is also ignored.

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5.2 Economic Value Approach

The economic value of Human Resource is the financial benefits they offer through their
services at present and those expected in future. This approach is also known as Human
Resource Value Accounting (HRVA). This approach can be considered for an individual, a
group or the organization. There are monetary and non-monetary methods of calculating
this value.

5.2.1 Monetary Methods

i) Flamholtz’s Model of Individual Value

According to Flamholtz the value of an individual is the worth of services offered by the
individual in his current role/profile and the role/profile he may hold in future on account
of a transfer or a promotion.

This value is difficult to derive as it has two dimensions. The first is Expected Conditional
Value which is the productivity, transferability and promote-ability of the employee. This
depends upon the motivation and energy levels of the employee as well as organizational
factors like environment, opportunities and need of the organization.

Second dimension is Expected Realizable Value which is derived from expected

conditional value and the probability that the employee will be associated with the
organization till his retirement or till the time he is productive. Employees are free to
switch over from one organization to the other; so it is important to determine the
probability of their turnover.

The individual and organizational factors discussed above lead to job satisfaction. Job
satisfaction is inversely proportional to employee turnover and therefore it is directly
proportional to expected realizable value. So greater the job satisfaction, higher is the
expected realizable value.

Flamholtz’s Stochastic Rewards Valuation Model

The movement or progression of employees through different organizational roles/levels is

termed as a Stochastic Process. This model assumes that employees generate value during
the stochastic process. However there is a presumption that the employee will move from
on role/state to another, in a specified period of time. ‘Exit’ is also considered to be a state
in this model.

There are some prerequisites to this model:

• A clear differentiating structure of roles/states/positions an employee would

move/progress during this career with the organization
• The value of these positions to the organization
• An employees’ expected tenure with the organization
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• Probability of movement from one role to another at specified durations

ii) The Lev and Schwartz Model

The Lev and Schwartz model is commonly used by Indian companies and is based on
calculating the value by considering an employee’s current and future earnings. It assumes
that an employee would stay for ‘t’ years with the company and ‘Ev’ is the value he can
earn based on his current and future earnings. It also considers a discount factor ‘r’ to
adjust the difference between the value of current and future earnings.

Ev =

Ev = value an individual can earn based on current and future earnings

I(t) = the individual’s annual earnings up to ‘t’ years or retirement age

t = assumption that an employee would stay for ‘t’ years

r = discount factor ‘r’ to adjust the difference between the value of current

and future earnings

E.g. NTPC’s HR Value, (1994 - 95) as per the annual report, Discount factor (r) = 0.12

Category No of Per Capita Total Value

Employees (USD’000) (USD million)
Executives 6,841 17.76 1,215
Supervisors 3,010 15.11 455
Workmen 12,445 13.71 1,705

Fig. 1: NTPC’s HR value as per the annual report (1994-95)

iii) Morse Model

The value of human resource is equivalent to the present value of the net benefits derived
by the enterprise from the services of its employees. The following steps are involved
under this Model:-

(a) The gross value of the services to be rendered in future by the employees in their
individual and collective capacity
(b) The value of direct and indirect future payments to the employees is determined
(c) The excess of the value of future human resources (as per “a” above) over the
value of the future payments (as per “c” above) is ascertained. This represents the
net benefit to the enterprise because of human resources.

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iv) Hekimian and Jones Competitive Bidding Model

In this method managers bid for existing human resources and determine the value of the
employee. The highest ‘bid’ is the value of that resource. This model is based on the
managers’ valuation of the employees.

v) Brummet, Flamholtz, and Pyle’s Economic Value Model

This method is based on the principle that the current worth of the services an employee
can provide in future is equal to the resource’s value. Example: Mr. Ramesh works as a
Recruitment Manager. He is responsible for hiring 50-100 middle management and senior
management employees. His services are currently worth USD100,000 per annum (Note*).
Let us assume that Mr. Ramesh continues to work in the same role for the next 5 years, and
his contribution in terms of services increases at 20% per annum.

Year FYI Services Increment

Worth
(USD’000)
0 2010 – 2011 100
1 2011 – 2012 120 20% 0ver previous year
2 2012 – 2013 144 20% 0ver previous year
3 2013 – 2014 173 20% 0ver previous year
4 2014 – 2015 208 20% 0ver previous year
5 2015 – 2016 249 20% 0ver previous year
Total (Year 1 – 994
5)

Therefore in the next 5 years, Mr. Ramesh will provide services worth USD994,000.

Note* Please note this is not the salary of Mr. Ramesh, it’s only the value of his services.

This can be further extended to measure the value of a group. For example: the economic
value of the HR department in the organization can also be calculated using the above
mentioned approach. HR departments’ economic value is equal to the current worth of the
future services the HR department can offer. If let say the current worth of the services that
HR can offer in the future is USD100,000, then that is the Economic Value of the HR
group.

vi) Hermanson’s Un-purchased Goodwill Model

Hermanson proposes that exceptional earnings indicate the value of human assets. Human
assets are not shown in the balance sheet. Example: A telecom company earns 25% more
profit than its competitors. That is a telecom company earned USD8 8 billion profit and it
competitors earned USD 6 billion profit. This 25% additional or exceptional earning
indicates the value of human assets which are not listed in the balance sheet. These human
assets are not owned by the company, but their existence in the company leads to creation
of this exceptional earning. This is the un-purchased good will model. This model was

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intended to be deployed for published balance sheets, but it is also used now to forecast
future performances.

5.2.2 Non-Monetary Methods

Non-Monetary methods rely on predicting the value of skills, capabilities attitudes of the
employees in terms of rankings, ratings or indices. These methods can be a substitute to the
monetary methods and also have predictive value. They are based on simple skills and
capability inventory, Psychometric tests, Performance Evaluation, 360 degrees Feedback
etc.

i) The Likert and Bowers Model

This model developed in 1960s proposes use of casual, intervening and end-result
variables to determine the value of a group to the organization.

• Casual variables are the ones which can be managed and controlled by the
organization (Independent Variable). Examples: Managerial behavior, organization
structure.
• Intervening variables reflect the competencies, capabilities of an organization and
involve group processes (Independent Variable). Examples: Organizational culture,
environment, processes, leadership, employee satisfaction.
• End-result variables reflect the achievements of the organization, total productivity,
the efficiency and productivity of the organization (Dependent Variable). Examples:
Sales, cost

Scenario: If the organization structure and the attitude of the middle management (casual
variables) are superlative or comparable to the best, then the first part of the battle is won.
If the processes, leadership are excellent and the organization culture is of meritocracy
(intervening variables) then the second part of the battle is won. These automatically build
the confidence that the organization will perform well on key performance metrics. If the
dependent variables such as end-results of sales, customer service are comparable with the
best in the industry, then the last and final part of the battle is won. Now determining the
value of the group becomes relatively easy.

A Hypothetical Example is provided for your reference in Fig. 2 (Value starts at

USD600,000)

Scenario Casual Intervening End Results Valuation of

Variable Variable Score Variable the Company
Score Score (USD’000)
1 0.3 0.3 0.4 600
2 0.6 0.6 0.8 1,200
4 0.9 0.9 1.2 1,800
5 1.8 1.8 2.4 3,600

Fig. 2: Hypothetical valuation of the company based on the variables

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ii) Ogan Model

Pekin Ogan (1976) has given “Net benefit model”. It is an extension of “net benefit
approach” as suggested by Morse Model. Organ Model says, the certainty with which the
net benefits in future will accrue should also be taken into account, while determining the
value of human resources. Organ Model requires the following to be determined:

• Net benefit from each employee.

• Certainty factor at which the benefits will be available.

The net benefits from all employees multiplied by their certainty factor will give certainty-
equivalent net benefits. This will be the value of human resources of the

Self Assessment Questions

g. Certain other ways to classify cost are – Historical Cost, Opportunity Cost, and
_______________ Cost.

h. Opportunity cost method looks at what would have been the returns if the cost incurred
on HR was ________ somewhere else.

i. The economic value of Human Resource is the _________ benefits they offer through
their services at present and those expected in future.

j. According to Flamholtz the value of an individual is the ___________ of services offered

by the individual in his current role/profile and the role/profile he may hold in future on
account of a transfer or a promotion.

k. In____________________________ Model managers bid for existing human resources

and determine the value of the employee.

l. _________________ methods rely on predicting the value of skills and capabilities of the
employees in terms of rankings, ratings or indices.

m. Economic Value approach is based on economic value of the employees and their
_________________.

n. Casual Variables include managerial behavior and _______________.

6.0 Limitation / Objections to HRA

Though the application of Human Resource Accounting in the HR sector has shown a
positive trend, there are objections to HRA and it needs further work.

• Most models are predictive

• Most models and evaluations are based on assumptions
• Value determined are not accurate

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 • Values or methods of determination are often subjective
• Conversion of non-monetary factors into commercial value is difficult
• In some methods, important factors like human behavior are ignored
• Difficult to replicate the models over a period of time
• One cannot predict employee tenure in the organization
• External factors like market conditions and related factors are ignored
• Sometimes application of HRA is complex

7.0 Controlling Manpower Costs

Quite a few methods of Human Resource Accounting determine the monetary value of HR
by considering cost of recruitment, hiring, training, placement, orientation, development,
compensation, replacement etc. All these costs contribute to costs of manpower. HRA links
these costs directly to the output in terms of earnings.

HRA gives the management a perspective to evaluate their past HR decisions and strategy.
The management can compare the expenses made on HR related process and the benefit
they derived from these expenses. This helps them conclude if the expenses were worth
making and reasonable. Any alterations required in the cost structure or the processes can
be determined.

HRA assists in forecasting costs of manpower and associated activities for future business
plans. It may also highlights unnecessary cost and reduce cost. HRA suggests what portion
of the total spend should be allocated to HR and its development. It also measures the
return on investment by Human Resource Development. Overall HRA can be an important
tool in controlling manpower cost.

Some tips on controlling manpower costs are:

• Freeze hiring in certain months of the year

• Criteria for approval of manpower to be made stringent
• Encourage filling in positions from within
• Develop employee competencies by training and any other interventions
• Improve efficiency and effectiveness of work of employees so as to not hire
additional employees
• Retain top performing employees definitely
• Ensure performance appraisals are fair
• Ensure review of performance is done monthly and areas of improvement are
highlighted, no unfair expectations in terms of performance rating should be
allowed to set in
• Encourage automation of business processes
• Encourage simplification of complex processes (eliminate non value adding process
steps or processes)
• Follow industry best practices

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 • Pay overtime to employees or incentivize them instead of hiring temporary staff or
additional employees.
• Hire management trainees
• Encourage management trainees to work for experience on a stipend rather than a
full salary.
• Use low cost solutions for hiring, training such as recruitment portals, e-learning etc.
• Deploy full HR portal, for employees to get all support, they need online.

Some tips on Cost Reduction Methods:-

• Free Transportation
• Revise Telephone Policy
• Revise Travel Policy
• Revise Hotel Policy
• Introduce Video Conferencing instead of travel to the meetings
• Cut on Bonus / Incentives
• Provide VPN facility to work from home.
• Restrict usage of Electricity like in bathrooms, Reception etc
• Stop giving concession on Food and Snacks
• Reduce stationery purchase
• Both sides usage of white paper
• Switch off lights when not in use.
• Sell the scrap and earn money.
• Restrict the supply of Tea / Coffee
• Restriction on Telephone call duration
• Reduce the inventories
• No overtime
• Reduction in Telephone / Mobile Phone calls
• Use Pool Cars in place of individual travel
• Re-negotiate Collective Agreement
• Petrol allowance can be reduced
• Remove the consultants / stop retainer charges
• Stop News Papers / Magazines
• Stop Training programmes
• Stop Get togethers
• Minimizing the Security Guards
• Restrict the travel plans for one day. No night stays.
• No personal telephone calls
• Proper utilization of RAW materials
• Recycle of waste RAW materials

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8.0 True Costs of Planning and Recruitment

All organizations have specific HR strategies which are aligned to their goals. To employ
these strategies HR needs to form various processes, programs and systems. This is called
planning. For example: compensation study of comparable organizations in the industry
may be undertaken to decide the salary levels or increments to be offered. This study may
be outsourced and there is a cost for this study and it is part of the planning activities.
Hence this cost is the direct planning cost. Direct cost will be the actual amount spent on
planning whereas indirect cost will be the cost of the time that supervisors, managers in HR
spend on this activity.

True Cost of Planning = Direct Cost of Planning + Indirect Cost of Planning

This involves planning all HR activities like recruitment, hiring, training, development,
performance management, compensation, statutory processes, separation, etc.

8.1 True Costs of Recruitment

Once the organization establishes the number of employees it needs to hire in various
functions, it looks at different sources to get right candidates. These sources could be
consultants, job portals, referrals, advertisements, campus, internal job posting etc. The
cost involved in all activities of recruiting human resources is called cost of recruitment.
This may also attract future human resources.

Direct cost will be the actual amount spent on recruitment whereas indirect cost will be the
cost of time of supervisors, managers on this activity.

Direct cost would be cost of advertising, designing advertisements, registration fees for
recruitment portals, creating internal advertisements for encouraging referrals, internal job
postings and salaries of recruitment executives spending full time on recruitment.

Indirect cost would be the cost of time of supervisors and managers.

True Cost of Recruitment = Direct Cost of Recruitment + Indirect Cost of Recruitment

8.2 True Costs of HR operations

How do we calculate what is the HR Operation Cost for the Company?

HR Operation Cost = Sum of Direct costs of HR + Sum of Indirect costs of HR

Direct HR costs include salary, bonus, software/hardware purchase, training, licenses,

stationeries etc.

Indirect HR costs include cost of payroll processing department called inter department
cost, seat/space cost occupied by HR employees.

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8.3 True Costs of HR operations per employee

How to calculate operation cost per employee?

Direct costs of HR + Sum of Indirect costs of HR

HR Operation Cost =
Total No of employees in the organisation

Self Assessment Questions

o. HRA assists in _______________ costs of manpower and associated activities for future
business plans.

p. Direct cost will be the actual amount spent on planning whereas indirect cost will be the
cost of the ____________ that supervisors, managers in HR spend on this activity.

q. Direct HR costs include ______________, bonus, software/hardware purchase, training,

licenses, stationeries etc.

9.0 Summary

In past few years there is considerable work and focus in the sphere of Human Resource
Accounting. There are efforts being made to quantify the worth of human capital,
intellectual capital and relationship capita. There are different methods being employed to
derive this value.

HRA and its benefits is hugely dependant on availability of complete, accurate, timely and
relevant information. Organizations, where resources for making this available are
inadequate.

All organizations have specific HR strategies which are aligned to their goals. To employ
these strategies, HR needs to form various processes, programs and systems. This is called
Planning. It involves Planning of all HR activities like recruitment, hiring, training and
development, compensation etc.

10.0 Glossary

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11.0 Terminal Questions

1. What is HRA and what is its significance?

2. How would you differentiate between monetary and non-monetary value/worth of

human resources?

3. What are the advantages of HRA in modern day business?

4. Describe the methods of controlling manpower costs.

5. List 2-3 objections to HRA.

6. Explain Likert and Bower Model of measurement of group value.

12.0 Answers to Self Assessment Questions

a. True

b. False

c. Management

d. Measuring

e. True

f. True

g. Replacement

h. Invested

i. Financial

j. Worth

k. Hekimian and Jones Competitive Bidding

l. Non-Monetary

m. Contribution

n. Organization Structure

o. Forecasting
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p. Time

q. Salary

13.0 Answers to Terminal Questions

1. Refer section 2 & 3

2. Refer section 5.2.1 & 5.2.2

3. Refer section 4.0

4. Refer section 7.0

5. Refer section 6.0

6. Refer section 5.2.2

14.0 Case Study – Lakshman’s Dilemma

Mr. Lakshman took over his family business from his father. The business employed 15
supervisors and 50 workmen who worked with this organization for a long time and felt
they were a part of it. Mr. Lakshman was an ambitious young man and desired to grow the
business. He soon looked at new opportunities and modernized the business to capitalize
on the new avenues. His tenured staff supported him all the way. They ensured that the
new manpower recruited came up to speed in double quick time. The new manpower was
trained as per the business needs. Especially the supervisors drove Mr. Lakshman’s plan to
perfection.

Soon the business was thrice as big, than what it was when Mr. Lakshman took over. He
wanted to extend the operations by adding another expertise in the same domain. This
required 5 supervisors and 15 workmen. Mr. Lakshman did not want to disturb the existing
set-up as it was doing well. He decided to hire new supervisors and workmen.

The new set up required a lot of inputs and monitoring from Mr. Lakshman despite
training. This took away a major portion of his productive time and restricted his ambitious
plans. In a few months, the new set up was still not earning profits and the old set up
remained where it was.

Case Study Questions

1. How would you assess the human worth of Mr. Lakshman’s old set up?

2. What according to you are the reasons for the current crisis?
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3. Do you think Mr. Lakshman made a few incorrect HR choices while setting up the new
business? If yes, what are they?

Hint:

1. Flamholtz’s Model of Individual Value and Brummet, Flamholtz, and Pyle’s Economic
Value Model.

2. Mr. Lakshman was not strategic in his approach. He did not leverage his internal
expertise. He was more of a manager than a leader.

3. Yes, not leveraging his internal expertise and promoting talent and making leaders out of
them.

RECOMMENDED READING

• Gupta, R.K. (1997). Human Resource Accounting. New Delhi: Anmol Publications.

REFERENCES

Books

• Gupta, R.K. (1997). Human Resource Accounting. New Delhi: Anmol Publications.
• Malik, R.K. Human Resource Accounting And Decision Making. New Delhi: Anmol
Publications
• Rao, S.P. (2010). Personnel and Human Resource Management. Mumbai: Himalaya
Publishing House
• Tripathi, P.C. (2009). Human Resource Development. New Delhi: Sultan Chand
and Sons
• Mahapatro, B.B. (2010). Human Resource Management. New Delhi: New Age
International Publishers
• Aggarwala, D.V., (2008) Manpower: Planning, Selection, Training and
Development. India: Deep and Deep.

Details of these books are available at www.sapnaonline.com and www.infibeam.com.

E-References

• http://www.sveiby.com/articles/intangible_assets.html (Retrieved 21 May 2010)

• http://hr-management.hr.toolbox.com/topics/management-budgeting/aligning-hr-
budget/ (Retrieved 21 May 2010)

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