UNIT: 02 (Human Resources And Inflation

Accounting)
Quality of workforce and Organization:
Definition:

Quality of work life is a concept which talks about

the overall focus on employee as a person rather
than just the work done by him/her. Quality of
Work Life is becoming an increasingly popular
concept in recent times.
Workforce Quality means that employees are
motivated to improve their skills and creativity to
achieve better results while accountable for their
performance. Workforce quality is also measured
with the sub-variables of commitments,
qualifications, expertise, achievement orientation,
and accountability.
Importance of quality of work life
Quality of work life (QWL) is a fact that an
individual’s life can’t be compartmentalised and
any disturbance on the personal front will affect
his/her professional life and vice-versa.
A good work life balance is also what motivates an
employee the most to perform well at his or job
and also spend quality time with the family.
Impact of Workforce Quality on
Organizational performance

 Success in today's ever-changing, globally

competitive environment demands an agility-a
capacity for faster and more flexible responses
to customers and other stakeholders' needs.
 Research papers show that there is a positive
relationship between workforce quality and
organizational performance.

Several factors contribute to promoting and

enhancing workforce quality. Here are some
key factors:

1. **Recruitment and Hiring Process:** A

well-designed recruitment and hiring process
that focuses on identifying and attracting top
talent is crucial. This includes using effective
job descriptions, conducting thorough
interviews, and evaluating candidates'
qualifications, skills, and cultural fit.

2. **Training and Development:** Providing

ongoing training and development
opportunities for employees helps them
acquire new skills and stay up-to-date with
industry trends. This not only enhances their
individual capabilities but also contributes to
the overall quality of the workforce.

3. **Performance Management:**
Implementing a robust performance
management system allows for regular
feedback, goal setting, and evaluation of
employee performance. This helps in
identifying areas for improvement and
recognizing high performers.

4. **Employee Engagement:** Engaged

employees are more likely to be productive
and committed to their roles. Creating a
positive work environment, offering
meaningful work, and recognizing employees'
contributions can significantly enhance
engagement levels.

5. **Work-Life Balance:** Organizations that

value work-life balance and provide flexible
working arrangements tend to attract and
retain high-quality employees. A healthy
balance between work and personal life
contributes to employee satisfaction and well-
being.

6. **Competitive Compensation:** Offering

competitive salaries and benefits is essential
for attracting and retaining top talent.
Adequate compensation demonstrates that
the organization values its employees' skills
and contributions.

7. **Clear Communication:** Open and

transparent communication from leadership
fosters a sense of trust and clarity among
employees. When employees understand the
company's goals, strategies, and expectations,
they can align their efforts accordingly.

8. **Leadership Development:** Effective

leadership plays a significant role in promoting
workforce quality. Investing in leadership
development programs helps cultivate
managers who can guide and inspire their
teams to excel.

9. **Career Growth Opportunities:**

Providing a clear path for career advancement
within the organization encourages
employees to stay and contribute their best
efforts. Opportunities for growth and
development are attractive to high-quality
workers.

By focusing on these factors, organizations can

create an environment that supports and
promotes high workforce quality, ultimately
leading to improved productivity, innovation,
and overall success.
Efficient Use of Human Resources:
The Human Resources of an organization
represent one of its largest investments. The term
human resources at the macro level indicate the
sum of all the components (like skill, creative
ability) possessed by all the people. Human
resources at the organizational level include all
the component resources of all employees from
rank and file to top level management. So, it
includes the resource, of all people who
contribute their services to the attainment of
organizational goals. Human resources play a
crucial role in the development process of the
present economy. It is often felt that though the
exploitation of natural resources, availability of
physical and financial resources and international
aid play prominent roles in the growth of modern
economies, none of these factors is more
significant than efficient and committed
manpower.

The efficient use of human resources in an

organization depends upon effective human
resource management. HRM is an approach to the
management of people based on the following
main principles:

 First, human resources are the most

important assets an organization has and their
effective management is the key to success.
 Second, this success is likely to be achieved if
the personal policies and procedure of the
enterprise are also linked with the
achievement of corporate objective and
strategic plans.
 Third, the corporate culture and the values,
organizational climate and managerial
behavior that come out from the culture will
exert a major influence on the achievement of
excellence. The culture must be managed in
such a way that organizational value may have
to be changed or reinforced and that
continuous effort starting from the top, will be
required to get them accepted and acted
upon.
 Finally, HRM is concerned with integration –
getting all the members of the organization
involved in the organizational practice and
working together with a sense of common
purpose to achieve the organizational goals.
It develops a specialized field in attempting to
develop programmes, policies and activities to
promote the satisfaction of both individual and
organizational needs, goals and objectives.
Through human resource, it tries to shape an
appropriate corporate culture and introducing
programmes which support the core values of
the enterprise.
HR Effectiveness
1. Recruitment Cost Report
This report indicates the recruitment cost for
different categories of employees and compares
such costs with results over time.
If the recruitment cost has increased over the
year, it reflects the inefficiency of the HR
department. If it has reduced, it is an index of
successful HR policy.
2. Labor productivity report
Although labor productivity depends not only
on the efficiency of labor but also on many
other factors outside the personnel
department’s jurisdiction, the personnel
department is mainly responsible for
maintaining an efficient workforce.
Comparing labor productivity and efficiency of
different departments and between different
periods is a good index of labor productivity.
If the total productivity falls, the personnel
department is inefficient; if it rises, it will be
considered efficient.
3. Labor Turnover Report
Labor turnover may be used as an index to
judge the efficiency of the personnel
department.
One of the most important tasks in managing
employees is ensuring that labor turnover is
minimized and all vacancies that exist are
filled.Labor turnover measures the number of
people who leave a business in a given period as
a percentage of the average number of people
employed during that period.
Excessive labor turnover indicates a failure of
personnel policy, while lower turnover reflects
the success of such a policy.
4. Discipline
Discipline indicates the success or failure of the
personnel policy concern.
Discipline is good when employees follow the
company’s rules willingly, and discipline is said
to be bad when employees disobey them.
5. Employee Morale
The effectiveness of the personnel policy
determines the morale of the employees.
Morale is the state of mental health. An
individual’s morale is high when he is happy
with his work, surroundings, and fellow beings.
High morale indicates the efficiency of
personnel administration, while poor morale
reflects its failure. Poor morale is reflected in
 high absenteeism, turnover, accident records,
grievances, and lower output levels.
6. Welfare Provisions
The HR department looks after welfare activities
within the organization.When workers feel that
the company has an adequate labor welfare
policy, their tendency to complain and protest
will disappear.
Welfare activities will reduce labor turnover and
absenteeism and increase the workforce’s
efficiency.
7. Employee Satisfaction
When employees are satisfied, they work hard,
and their commitment to the organization will
be increased.
8. Cost-Effectiveness
The cost of work performed should be used to
measure performance only if the employee has
some degree of control over costs.
9. Timeliness
How fast work is performed is another
performance indicator that should be used with
caution. In many cases, projects are not
completed on time.
10. Adherence to Policy
Deviations from policy indicate an employee
whose performance goals are not well aligned
with the companies.

The efficient use of human resources could be

successfully planned only when the employees are
made to understand the objectives of the
organization, plan to develop their own career in
the organization which will make them more
confident and involve them together as a quality
workforce.
 High productivity;
 Development of skill and organizational
commitment;
 Career development;
Enuermerating the Assets:
Human Asset Management (HAM) is the part of
the company that manages human assets (or
human capital). It is the management of
employees as assets, combining many conceptual
elements of an employee’s life cycle through an
organization focusing on that people are a
company’s most important assets.[1] Many
elements are included in the Human Asset
Management area, including employer branding,
recruitment, onboarding, retention, development,
culture, career management, mobility, succession
planning, talent management, performance
management, employee administration and legal
issues.

Enumerating assets typically refers to the process

of creating a comprehensive list of an individual's
or organization's assets. Assets can include various
types of properties, possessions, investments, and
resources. Enumerating assets is important for
financial planning, asset management, taxation,
and various other purposes.
In this competitive climate, the need to evaluate
HRM activities in economic terms is becoming
increasingly apparent. Developing such measures
requires an inter-disciplinary approach wherein
information from accounting, finance, economics
and behavioural science has to be incorporated
and delivered in the language understood by the
business world.

The next step is to transform generated data into

the only language the business world
understands-Money.

The need to convert Human Resource

Management (HRM) activities in economic terms
has become vital in this competitive scenario. And
truly enough HR has also evolved wherein its
functions of hiring, paying salaries, administration,
benefits, developing and retaining employees,
etc., have been translated into quantitative terms
in order to monitor results and facilitate changes.
And today the data that is collected as such is
being converted to monetary values and thus the
emergence of Human Resource Accounting (HRA).

According to the theory of accounting for HR

propounded by Flamholtz EG

(i) people are valuable resource of an enterprise

and;
(ii) information on the investment and value of
human resource is useful for internal and /or
external decision-making.

Here's how you can enumerate human

capital assets in HR accounting:
1. Employee Information:
- Create a database or HR information
system to store essential information about
each employee, including their name, contact
information, job title, department, hire date,
and compensation details.
2. Skills and Qualifications:
- Document the specific skills, qualifications,
certifications, and educational backgrounds of
each employee. This information can help in
talent management and workforce planning.

3. Performance Metrics:
- Track and document performance metrics
for each employee, such as key performance
indicators (KPIs), goals achieved, and
performance reviews. This data helps in
evaluating individual contributions.

4. Training and Development:

- Enumerate the training and development
programs provided to employees, including
the cost of training, the number of employees
trained, and the skills gained through these
programs.

5. Retention Data:
- Keep records of employee turnover rates,
reasons for turnover, and strategies employed
 to retain talent. This information can help in
reducing turnover and improving employee
retention.

6. **Compensation and Benefits**:

- Document the compensation packages,
benefits, bonuses, and incentives offered to
each employee. This data is crucial for
budgeting and compensation analysis.

7. **Succession Planning**:
- Identify potential successors for key
positions within the organization. This is
especially important for leadership and critical
roles.

8. **Workforce Diversity**:
- Enumerate data related to workforce
diversity, including gender, ethnicity, age, and
other relevant demographic information. This
helps in promoting diversity and inclusion.

9. **Employee Engagement**:
 - Measure and document employee
engagement levels through surveys, feedback,
and other means. High engagement is often
indicative of a motivated and productive
workforce.

10. **Employee Benefits Liabilities**:

- Assess the organization's liabilities related
to employee benefits such as pensions,
healthcare, and retirement plans. These are
important for financial reporting.

11. **Human Capital Valuation**:

- Some organizations attempt to assign a
monetary value to their human capital assets,
although this can be complex. Methods like
the Economic Value Added (EVA) approach
may be used.

12. **Workforce Analytics**:

- Use data analytics to extract meaningful
insights from HR data. This can help in making
informed decisions about workforce planning,
talent management, and resource allocation.

13. **Legal and Compliance

Documentation**:
- Ensure all HR-related legal documents,
such as employment contracts, nondisclosure
agreements, and compliance records, are
maintained accurately.

14. **Employee Surveys and Feedback**:

- Gather and analyze employee feedback,
survey results, and suggestions for continuous
improvement in HR practices.

15. **Employee Exit Interviews**:

- Conduct exit interviews with departing
employees to gather insights into their
reasons for leaving and areas for
organizational improvement.

Enumerating human capital assets in HR

accounting helps organizations manage their
workforce effectively, make informed HR
 decisions, allocate resources efficiently, and
ensure compliance with labor laws and
regulations. It also plays a critical role in
assessing the overall health and performance
of the organization.

Calculating the Market value of

assets:
Valuation of human assets are the most important
aspect of human resource accounting. A recent
trend in today's corporate world is to measure the
value of intangible assets of the companies such
as goodwill (valuation of goodwill is quite old),
brands, patents, and now human assets.
Consultants in HRM emphasize the need for
valuation of human assets.

Types of human assets

Intellectual capital: The first element of the

human capital is intellectual capital which can be
defined at individual level as well as at
organizational level. At the individual level, it
refers to his knowledge, skills and expertise. It
may be in the form of specialized knowledge, tacit
knowledge and skills, cognitive complexity and
learning capacity. At the organizational level,
intellectual capital consists of both the stock of
knowledge, skills and expertise that members of
the organization collectively possess, and the
knowledge and expertise that may be embedded
in or owned by the organization including patents.
Information technology based knowledge
systems, or specialized processes of work.

Social capital: is derived from the network of

relationships, both internally and extemally. From
organization's point of view, social capital relates
to structure, quality, and flexibility of the human
networks which can be created through cohorts,
joint departments and functions, long-term
employment and internal culture.
Emotional capital : involves self-confidence,
ambition, courage, risktaking ability and
resilience. It is reflected in what is described as a
"can do" spirit. Individuals need self-confidence
based on self-esteem, courage, and resilience to
convert their knowledge and relationships into
effective actions. ..

spiritual capital :is assuming increasing values,

ego, and approach to work match those of the
organization.
Human Capital Investment:
The Human Capital acts as a building block for the
organizational (structural) capital of the firm. So,
when the enterprise looks for making the Human
Capital more effective and beneficial, it has to
focus on the effectiveness of investing in training,
research and development outcome and returns
to technological infrastructure spending.

The investment in human capital should be

properly planned keeping in mind the future
expansion and development programmes as the
organizational goal. Already it is seen that the
organization required personnel who have to be
rightly used for achieving its long project
objectives. So, these personnel need proper
motivation and encouragement through job
analysis, training and research development. Lines
of activities are to be thought about for making
the employee to be more innovative. They must
conduct themselves so to be a suggestive body to
the organization.
To have effective human capital investment, any
organization should plan broadly on five major
areas as follows:

1. Acquisition
Acquisition involves.
a) Human Resource Planning
b) Recruiting: Internal and External
c) Employees Socialization

the management has to ensure that it has the

right number and kind of people at the right
places, at the right times, capable of effectively
(doing the right thing) and efficiently (doing things
rightly) completing the work needed for the
enterprise to achieve its overall objectives. This
necessitates job analysis. If the HR planning finds
the need or specific or additional employees
based on job analysis, to hire these additional
employees, the enterprise must discover potential
applicants. Out of these potential applicants,
screening is to be done to identify job applicants
who will be successful if selected

2. Development :
This includes,
a) Employee training
b) Management development
c) Career Development

Employee training
Training is a learning experience, which seeks a
permanent change in an individual to improve his
ability to perform on the job. It can involve the 75
changing of skills, knowledge attitudes or social
behavior.

Management development
The management development activities should
attempt to instill sound reasoning process to
enhance one's ability to understand and interpret
knowledge.

Career Development:
A "career" is a sequence of positions occupied be
a person during the course of a life time. Effective
organizational career development ensures the
needed talent being available and improves the
organizational ability to attract and retain high
talent personnel. It also reduces employee
frustrations.

3. Motivation

The Organization has to develop right type of

motivational techniques to help the workers
achieve their need satisfaction and reduction of
tension. If a person is to perform effectively,
extrinsic factors such as job design, working
conditions, job security and supervision must be
seen as satisfactory. But more intrinsic factors
such as achievement, recognition and
responsibility from their work are also the
motivating factors. People expect their work to be
objectively evaluated. So, the performance
appraisal and its results will affect employees"
motivation. If they think that their efforts will be
unfairly judged, motivation will decrease. The
rewards or punishments that follow the
performance appraisal will influence motivation.

4. Maintenance

The objective of this is to retain people who are

performing at high levels. This requires that the
organization provides safe and healthy working
conditions and satisfactory labor relations. This
involves compensation administration:
A)Job Evaluation Safety
b)Health

5. Research
Research helps to introduce changes with new
and relevant HRM practices.
- Effectiveness of various recruitment sources.
-Job analysis
-Performance appraisal validation
- Effectiveness of training methods.
- Attitude survey towards reward system
-Job satisfaction survey
- Effectiveness of an assessment center etc.