What are the methods of HR Valuation and Accounting?

There are several methods of HR valuation and accounting and these are broadly divided into two categories: The monitory measures and non-monetary measures.

Monetary measures include
(a) Historical cost method
It suggests capitalizing the expenditure of the firm incurred on recruitment and selection, training and development of the employees and treats them as the assets of the organization for the purpose of HR accounting. This method suffers from a limitation that the capitalization of costs does not reflect its true value. The total performance has to be judged in relation with the total cost associated with the HR to reflect its value.

(b) Replacement cost method
The cost of replacement of individual and the re-building cost of organization is assessed to reflect the HR asset value of the individuals and the organization. However this method may not reflect either the actual cost or the contribution associated with HR

(c) Opportunity cost method
This model envisages the computation of monetary value and the allocation of people to the most promising activity and thereby assesses the opportunity cost of main employees through competitive bidding among the investment centre.

(d) Economic value method
The value of human resource is evaluated on the basis of contribution they are likely to make in the organization during their stay with the organization. The payments made to the employees in the form of salary, allowances and benefits are estimated and discounted appropriately to arrive at the present economic value of the individual.

(2) Non-monetary measures:
(a) Expected realizable value method
The elements of expected realizable value like the productivity, transferability and promote-ability are measure using personal research, appraisal techniques or other objective methods. The productivity is measured by objective indices and managerial assessment. The promote-ability and transferability are measured in terms of potential using psychometric tests and subjective evaluations.

(b) Discounted present value of future earnings
This method was use by Rencis Likert who proposed three sets of variables-casual, intermediate, output. These helped in measuring the effectiveness over a period of time. Casual variable include leadership style and behaviour, the intermediate variable are morale, motivation, commitment to goals etc. and these in turn affect the output variables like production, sales, profit etc.