June 16th, 2011
By Jennifer Moss
Posted in:
accounting for human capital
Accounting for Human Capital – Are you worth as much as your office chair?
Do you often feel less valuable than your office chair? No matter how much value you bring to your organization, their ability to capitalize on your value on the balance sheet is nearly impossible. I know, I know… you know how much you contribute. But, they don’t because they can’t put “you” on the balance sheet – neither can they account for your accumulated knowledge, skills or experience.
Frustrating!
Watch this to find out more:
Great analogy of what is currently happening in many organizations today.
The reality is that this light-hearted comparison between Barry and Sammy should serve as a wake-up call to organizational leaders. Those individuals that want to make a difference in their organizations must work towards changing the outdated mindset that values “fixtures” more than individuals. Thanks for the great post.
The field of human capital management can aid accounting and finance teams by providing a tangible evaluation of knowledge assets from employees’ education, experience, and skills. I think it will make their jobs easier and help to present better deliverables. Once accounting can target the value of employees, the organization understands its human capital ROI, which will help make better business decisions. It is also important to note, that while it makes sense to engage in a practical approach of measuring and reporting the value of employees, some may be fearful because they think it shows employees as just a “dollar sign”, which may seem to desensitize the “human” factor approach when evaluating individuals as a whole. In that case, more communication needs to be done, to show that human capital accounting is vital for any organization and if done correctly, can provide a positive impact to both the organization (i.e., through improved retention, staff planning, capital budgeting, attrition analysis) and employee (i.e., with proper job placement based on knowledge and capacity, career satisfaction).
Hi PB – I appreciate your comment regarding the fear that accounting for humans might lead us to treat them as dollar signs. This is one of the barriers that needs to be addressed in our conversations with organizational leaders.
Your commentabout communication is very important. If people understand the impact people bring to the business, then they can more clearly understand how people contribute to the bottom line.
The idea of human productivity is as old as the industrial revolution and “Taylorism”. Yes, humans are paid to do a job, and they do impact our bottom line, whether on the assembly line or by creating knowledge. Building connecting points between human effort and its ultimate impact is essential in order for our knoweledge economy to thrive.
So, what amount should be placed on the balance sheet representing the value of the human? Typically, what one sees as an asset is represented by a cost incurred. Could we begin with the capitalization of material training programs (a cost) that are later amortized or tested for impairment? Would that be similar to how the International Accounting Standards now allow for the capitalization of development costs (not yet research) of product and process? Remember that required qualities of published information exist including aspects of reliability – representational faithfulness, objectivity, and verifiability – Conceptual Framework #2.
Now this is good writing…
This post was something i thought id share with my readers…