Top 8 Advantages of Human Resource Accounting – Explained

Advantages of human resource accounting in HRM are mentioned below:

Human resource accounting helps in knowing whether human asset is being built up in the business or not. An executive may show good results in producing goods etc, but he might not have built the human resources properly.

A good manager keeps the morale of his subordinates high so that they contribute their best in achieving the organisational objectives.

Advantages

1. It throws light on the strengths and weaknesses of the existing workforce in an organisation. This in turn, helps management in recruitment planning, whether to hire people or not. It thus provides useful information about the value of human capital which is essential to managers for taking the right decisions e.g. choice between,

  • Direct recruitment and promotion
  • Transfer and retention and
  • Retrenchment and retention.

2. Management can evaluate the effectiveness of its policies relating to human resources. For instance, high costs of training may indicate the need for changes in policy for reducing labour turnover.

Human Resources

Image Source: ccc.edu

Management can also judge as to whether there is adequate return on investment in human resources. HRA provides feedback to manager on his own performance.

3. It helps potential investors judge a company better on the strength of the human assets utilised therein.

If two companies offer the same rate of return on capital employed, information on human resources can help investors decide which company to be picked up as an investment. The present law does not require the value of the human asset to be shown in the balance sheet.

4. It helps management in taking appropriate decisions regarding the use of human assets in an organisation that is whether to hire new recruits or promote people internally, transfer people to new locations or hire people locally, incur additional training costs or hire consultants keeping the impact on the long-run profitability in mind.

5. The return on investment (ROI) can realistically be calculated only when investment on human resources is also taken into account.

The return on investment may be good because there is an investment on human beings. On the other hand, a low investment may be the reason of low investment on human asset. So ROI can give accurate results only when expenditure on employees is treated as an asset.

6. HRA may help to improve the motivation and morale of employees by creating a feeling that the organisation cares for them.

HRA will also help in improving the efficiency of employees. The employees come to know of the cost incurred on them and the returns given by them in the form of output etc.

7. It can be seen whether the business has made proper investments in human resources in terms of money or not. If the investment is excessive then efforts should be made to control it.

8. HRA will give the cost of developing human resources in the business. This will enable the management to ascertain the cost of labour turnover also.

There may be a high labour turnover and management may not take it seriously in the absence of cost figures of human resources.

Though it is not possible to eliminate labour turnover but in case the cost of labour turnover is high, then management should try to reduce it as far as possible.

Submitted by : Dr. Gajdant, Category : Knowledge