Performance and control management problems in Human Resource Costing and Accounting (HRCA)

It no more remains a prize winning question that which is the most valuable asset in an organization. The very apparent answer is "human resources". Their importance can not be surpassed by any other resource in the organization.

Given its huge importance it becomes one of the most important decision areas for managers. A considerable amount of time is spent on devising HR plans and strategies as their effectiveness decides the overall profitability and the goodwill of the firm in the market place. A recent innovation in management of human resources is to analyze the organizational costs and benefits associated with the manpower. The idea is to quantify the contributions made by people in the achievement of the organizational goals and the expenditure incurred by the firm to support the actions. This facilitates measuring the parameters which until now were considered to be highly subjective. The practice is called the "human resource cost accounting", which involves incorporating HR aspect onto balance sheets.

Although the concept seems to be promising enough, there are many implementation problems involved. These in effect lead to problems in controlling the parameters under consideration. The first and foremost hitch in its adoption is lack of awareness. Organizations often have mechanisms to quantify the tangible elements but fall short of ideas to assign values to the intangible ones. Therefore, the acceptance levels are still very low. Less penetration of this concept in the organizations has limited the scope of development of any industry standards. It means that an organization desirous of launching a balanced scorecard approach will have to start from scratch. This may lead to variations and confusions. Not to forget the costs involved. The work entails a lot of research and development costs which most of the firms can not afford. Some just shun the idea upon learning about the amount of efforts involved. The most important factor to be mentioned here is the fact that human resources are the most unpre dic

table entities. Quantifying them is easier said than done.

All these issues require a suitable method to facilitate measurements and finding out profits and losses. KPIs and balanced scorecards seem to be the most appropriate ones to be used in this context. Balanced scorecards make possible the consideration of non-financial aspects also in the overall assessment of the organizational success. Key performance indicators such as acquisition costs, strategic achievements, employee turnover, education & training of employees, and many more can be used by categorizing these factors under various perspectives.

In this way, KPIs can be a good strategy to overcome the weakness of the theoretical human resource costing and accounting concept, thereby, making it a practical and implementable approach.