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Program
Semester
Subject code &
name
Book ID

SUMMER 2015
MBAFLEX/ MBA (SEM 3)
3
MU0013: HR Audit
B1735

Q1

Define Human Resource (HR) Audit. Explain the need for HR


Audit. What are the benefits of HR Audit?

An
s.

Definition of HR Audit - 2
According to Jack J. Phillips A human resource audit is defined as an
investigative, analytical and comparative process that attempts to reflect the
effectiveness of the human resource functions.
According to David Campbell The human resource audit is defined as an
investigation into size, skill, structure, and all other issues surrounding those
currently employed by the orginasation and its future human resource needs.
Human Resource Audit is a systematic assessment of the strengths,
limitations, and developmental needs of its existing human resource in the
context of organisational performance. (Flamholtz, 1987)
According to Dr. Parimalendu Bandopadhyay, HR Audit means the systematic
verification of job analysis and design, recruitment and selection, orientation
and placement, training and development, performance appraisal and job
evaluation, employee and executive remuneration, motivation and morale,
participative management, communication, welfare and social security, safety
and health, industrial relations, trade unionism, and disputes and their
resolution.

Need for HR Audit - 4


Human resource audit is a systematic assessment of the strengths,
limitations, and developmental needs of its existing human resources in
the context of organisational performances. (Flamholtz, 1987).
Human resource audit give an account of the skills, abilities and
limitation of its employees. The audit of non-managers are called skills
inventory while the audit of managers are called management
inventories. Basically, the audit is an inventory that catalogues each

employees skills and abilities which enables the planners to have an


understanding of the organisations work force (William B. Werther, Jr.
and Keith Davies.)
Thus the need for HR audit is :
To make the HR function business-driven.
Determining change of leadership.
To take stock of things and improve HRD for exmanding,
diversifying and entering into a fast-growth phase.
For growth and diversification.
For promoting professionalism amoung employees and to switch
over to professional management.
To find out the reasons for low productivity and develop HRD
strategies to address that.
Dissatisfaction with a particular component. UNCLEAR.
To become employer of choice or revamping employer branding.
To ensure effective utilisation of human resources.
To review compliance with laws and regulations.
To instill a sence of confidence in the human resource
department that it is well-managed and prepared to meet
potential challenges and opportunities.
To maintain or enhance the organisations reputation in a
community.
Benefits of HR Audit 4
Human Resource or HR is an integral part of any company that covers an
array of functions such as recruitment, selection, compensation management,
payroll, benefits, training, developments, etc. HR audit is a broad term
covering all the human resource functions. It cover the following HR areas:
Audit of all the HR functions.
Audit of managerial compliance of personnel policies, procedures and
legal provisions.
Audit of corporate strategy regarding HR planning , staffing, industrial
relations (IR), remunerations and other HR activities.
Audit of the HR climate on employee motivation, morale and job
satisfaction.
After our comprehensive assessment of your HR systems through HR audit,
areas for improvement can be identified and solutions can be implemented.
The best HR practices involve a legally defensible framework, training of
employees, and accurate marketplace data.
Some immediate audit benefits are as follows :

Create an HR business plan.


Streamline HR work processes.
Monitor compliance with established regulations and procedures.
Develop user-friendly HR systems.

It provides variour other benefits to the organisations. These are :


It helps to find out the proper contribution of the HR department
towards the organisation.
It helps in development of the professional image of the HR department
of the organisation.
It reduces the HR cost by minimising the faults in various functions.
It motivates HR personnel towards better performance as they know
that they are being observed so they are more conscious.
It helps in identifying problems and solving them smoothly.
It provides timely legal requirements.
It provides sound performance appraisal systems.
It helps in systematic job analysis.
It helps in changing mindsets.

Q2

Write short notes on:


(i)
Audit of HR Planning
(ii) Audit of Industrial Relations

An
s

(i)

Meaning and role of Audit of HR Planning 5

HR planning refers to the ongoing processes of systematic planning to achive


optimum use of organisations most valuable asset its human resources. The
objective of HR planning is to ensure the best fit between employees and jobs,
while avoiding manpower shortages or surpluses. The three key elements of
HR planning process are forecasting labour demand, analysing present labour
supply, and balancing projected labor demand and supply. HR planning is the
process by which the management ensures that it has the right personnel who
are capable of completing those tasks that help the organisation to
accomplish its goals. The audit of HR planning helps to verify the following
aspects of HR planning :
a) An
organisations
plans
regarding
expansion,
diversification,
technological change, etc., should be backed by the availability of
human resources. It suggests modification in the plan when the
expected manpower is not available.
b) Uncertainty and change.
c) Advancement and development of employees through training,
development , etc.

d) The level to satisfy the individual needs of the employees for


promotions, transfer, salary enhancement, better benifits, etc.
e) System for anticipating the cost of salary, benifits and all the cost of
human resource thus facilitating the formulation of budgets in a society.
f) The need for redundancy and plans to check of human resource and to
change the techniques of management.
g) Planning for physical facilities, working conditions, the volume of fringe
benefits such as canteen, schools, hospitals, conveyance, child care
centres, quarters, company stores, etc.
h) Development of various sources of human resource to meet the
organisational needs.
Audit of HR planning helps ensure that you have reliable monitoring and
planning systems in place, so that the implications for strategic and cost
planning can quickly and easily be assessed. Normally auditing addresses the
following six areas:
1. How to develop and introduce an effective HR planning system.
2. How to estimate workforce requirement for the organisation.
3. Understanding and predicting the available labour supply.
4. How to analyse the supply and demand balance, and deal with a
surplus or a shortfall.
5. Handling the implications for recruitment, internalredeployment, pay
and reward, training and development, and employee retention.
6. Monitoring organisational plans, ie., how to develop a system that will
give you reliable early warnings of problems ahead.
The audit of HR planning helps to take steps to improve human resource
contributions in the form of increased productivity, sales, turnover, etc. It
facilitates the control of all functions, operations, contribution and cost of
human resources.

(ii) Meaning and role of Audit of Industrial Relations - 5


In the words of Lester, Industrial relations involves attempts at arriving
at solutions between the conflicting objectives and values; between the
profit motive and social gain;
between discipline and freedom,
between authority and industrial democracy; between bargaining and
co-operation; and between conflicting interests of the individual, the
group and the community. Industrial relations is a term used to depict
the collective relationships between the management and the workers.
It covers the aspects of industrial life such as trade unionism, collective
bargaining, workers participation in management, discipline and
grievance handling, industrial disputes and interpretation of labour laws
and rules and code of conduct.
Auditing industrial relations often involves checking whether the

following are already in place, in written form or in custom and practice:

An organisational vision, mission corporate plan or philosophy


statement.
A written industrial relations policy specific to the organisation.
Any written industrial relations and procedures specific to the
organisation (for example, grievance procedure, dispute resolution
procedure, staff consultation procedures, appeals procedures, etc. ).
A written industrial relations plan specific to the organisation.
Any formal, written complaints/grievances lodged by staff.
Statistical/quantifiable analyses such as:

Staff turnover rate.


Unplanned leave rate (absenteeism rate).
Average length of service per employee rate.
Workers compensation and accident/injury rate.
OH&S (occupational health and safety) compliance and
incident/near-miss rate.
It is very important to verify the policies pertaining to industrial relations
through auditing due to the following reasons :

The most important benefit of audit of industrial relations is that


this ensures continuity of production. For example: If the
companys policies are not appreciated by the workers, they may
go on strike, hampering production.
It reduces industrial disputes.
Good industrial relations improve the morale of the employees.
Good industrial relations are maintained on the basis of
cooperation and recognition of each other. It will help in
increasing production. Wastages of man, material and machines
are reduced to the minimum and thus national interest is
protected.

Q
3

What is HR Scorecard? Explain the reasons for designing &


implementing HR Scorecard framework.

An
s

Meaning of HR Scorecard - 2

The HR scorecard was developed by academicians Bryan E. Becker, Mark


A.Huselid, and Dave Ulrich and was presented in their book The HR Scorecard:
Linking people, strategy, and performance. It helps to verify the level to which
the HR policies of the company are alligned with the strategic goals of the
company.
HR scorecard measures the HR functions effectiveness and efficiency in
producing employee behaviours needed to achive the companys strategic
goals.

Reasons for designing


framework. - 8

&

implementing

HR

Scorecard

In this era of tough competition it is very important for firms to have more
effective HR management systems. It is a challenge for managers to make HR
a strategic asset. The HR scorecard is an instrument that enables them to
improve the HR function in the organisation. It helps to periodically assess
effectiveness of HR functions in a wide range of areas, from recruiting to
terminations, and including training and development, communications, and
legislative compliance. But implementing effective audit systems for human
resource is a difficult task and demands the existance of a unified framework
to guide the HR managers. Sometimes firms under-invest in their people and
at times invest in the wrong ways. Another difficulty faced by managers is that
they cannot prepare the projected cash flows for future productivity of present
inputs as in the case of financial assets, but at the same time they are not
willing to take the risk. So the best way is to prepare the Balanced Scorecard
with sound measurement strategies which are able to link HR functions,
activity and investment with the overall business strategy. The HR scorecard
framework was specifically designed for the following reasons :
It reinforceses the distinction between the HR do-ables and
deliverables: A good audit system must clearly differentiate between
the deliverables that influence strategy implementation and do-ables
that do not. Policy implementation is not a deliverable until it has a
positive effect on the HR architecture and creates the right employee
behaviours that drive strategy implementation. An appropriate HR
measurement system will encourage HR professionals to think both
strategically as well as operationally.
It helps in controlling cost control and value creation: It is the
responsibility of HR to minimise the cost of the firm but at the same
time HR has to fulfill its strategic goal, which is to create value. The HR
scorecard helps HR professionals balance the two and find the
optiminal solution. It allows HR professionals to drive out costs where
appropriate, but at the same time it helps to create value for the firm
by retaining good human resources.

Q4

It measures leading indicators : There are drivers and outcomes in


the HR value chain along with leading and lagging indicators in the
overall balanced performance measurement system. It is thus
important to monitor the alignment of the HR decisions and systems
that drive the HR deliverables. Assessing this alignment provides
feedback on HRs progress towards these deliverables and lays the
foundation for effective HR stragegies.
It assesses HRs contribution to strategy implementation : The
cumulative effect of the HR scorecards deliverables measures provide
the answer to the question regarding HRs contribution to a firms
performance. All measures have a credible and strategic rationale.
It lets HR managers to manage their strategic responsibilities :
The scorecard motivates the HR managers to focus on exactly how
their decisions shape the successful implementation of the firms
strategy. This is due to the systemic nature of the scorecard that covers
all the aspects. Therefore it provides a clear framework.
It encourages flexibility and change : In this era of an everchanging business environment, standardised patterns do not work
well. The changes are required even in the HR policies with the change
in the business environment. The basic nature of the scorecard with its
casual emphasis and feedback loops helps fight against measurement
systems getting too standardised. Every decision needs to be taken
based on past and future scenarios. One of the common problems of
the measurement systems is that managers tend to get skilled to
obtain the right numbers once they get used to a particular
measurement system. The HR scorecard provides the flexibility and
change because it focuses on the firms stratergy implementation,
which constantly demands change.

What is meant by Competency mapping? Explain the various


competencies and the associated behavioral aspects.

An
s

Meaning of competency mapping 3


Competency mapping forms an excellent tool for optimising the human
capital. HR auditor should make sure that they identify the key competencies
for an organisation or a particular position in an organisation, and use it for job
evaluation,
recruitment,
training
and
development,
performance
management, succession planning, etc. They should ensure that the
organisation effectively communicates what it actually expects from them.
The competency framework serves as the bedrock for all HR applications. As
a result of competency mapping, all the HR processes such as talent
induction, management development, apparisals and training yield much
better results.
Competency mapping involves identifying the competencies that will be
needed by people working in an organisation. The level of competency
needed by employees at each level must also be specified. This depends on
the type of job they do and the environment in which the organisation
functions. Once this is identified, teh remaining process becomes easier. The
next step will be to match the existing level of competencies with what is
actually required, and take measures to bridge the gap.

Explanation of various competencies -7


1. Communication Skills: This does not necessarily refer to English
speaking skills.
communication.

Ther

are

various

factors

leading

to

effective

Communication skills as a core competency


Competency
Behavioural aspects
Elements
Communication skills

Ability to express ones


thoughts clearly
Ability to make others
understand you
Ability to listen to
others
Ability to write your
thoughts clearly
Ability to summarise
ones ideas in a
precise way

Group skill
Initiative
Empathy
Patience

2. Interpersonal Relationship Building Ability: This deals with how


well a person is able to socialise and bond with others around him. The

Q
5

Describe the effectiveness of Human Resource Development


Audit as an intervention.

An
s

Explanation of the Effectiveness of


Development Audit as an intervention. - 10

Human

Resource

In any firm, along with the optimal utilisation of other resources, human
resources should also be exploited to its maximum potential. Businesses
which utilise their human resources in an effective way have better chances of
succes in the future. Sustainability and progress of business will depend on
new competencies, methods, strategies and value creating processes. Every
organisation has accepted that human resource is the most valuable asset of
an organisation though its value is not mentioned in the balance sheet.
Lack of information regarding human capital was seen as a serious handicap
for decision making, both for the managers, investors (Srivastava 1979: 83)
and for the human resource development process itself. Some of the
controversies that have emerged as hindrances to the very concept of human
asset and to the process of human audit (Khandelwal 1979) is listed below:
a) Since human beings cant be owned by others, it is wrong to use the
term asset without legal ownership. Again it cant be even said that
the services of an employee are owned by an employer during his
employment in the enterprise.
b) While it may be possible to conceive the resource of an employee or his
service, the potential dimension of an employee cannot be conceived or
predicted. Hence, it is difficult to assess or account the same in terms of
any tangible methods. At the most, human potential can be
qualitatively valued.
c) To be valued as an asset, an item should be capable of being valued
with a reasonable degree of objectivity and it should be capable of
substantion at the time of audit. Human beings do not meet with any of
these requirements. Hence, they cannot be shown as assets.
d) The term asset implies some realisable value once out of use. Human
resources have no realisable value. Rather, they actually involve
expenditure in terms of payment of retrenchment compensation,
gratuity and other terminal benefits at the time of retirement, while the
employer does not receive anything on the termination of the services
or on the retirement of an employee.
e) Calling human resources as assets is against human dignity as human
beings are much more than resources.
The study was conducted to find out the effectiveness of HRD audit as an
Organisational Development (OD) tool, and the issues for making it
succeed in an organisation by exploring the factors affecting it. It also
explored the expectations of HR to make the intervention a success. The

various findings of the study are as follows:


Where HRD chief/top HR is committed to HRD, the was likely to be
effectiveness of HRD was likely to be high in those organisations.
Organisations with positive management style were utilising HRD audit
as a tool for change and advancement in HRD.
Ther is a direct relation with regard to management styles and HRD
effectiveness.
The business units which have a good HRD development profile were
likely to utilise the HRD audit interventions to bring about HRD oriented
changes.
You will be pleased to know that india is the first country to formally establish
a totally dedicated Human Resource Development department seperated from
the Personnel department. It was established in the year 1974 when the term
HRD itself was not very popular in the USA. Two consultants from the Indian
Institute of Management, Ahmedabad, after reviewing the effectiveness of the
performance apprisal system and training in Larsen & Toubro recommended
an Integerated HR System to be established and the department dealing with
development issues be seperated out from personnel department and be
called the HRD department. Thus, the first HRD department was established.
A series of HRD departments were established by the State Bank of India and
its associates in India. By the late seventies, the concept of HRD and the need
for having seperate HRD departments was being realised all over India.
In Pareek and Raos model of HRD department, the objective of this
department is to facilitate the environment of learning and change in the
organisation so as to achieve the organisational goal. This department should
comprise learning specialists who can facilitate the change process.
In their model, OD was conceived as one of the main tasks of the HRD
department. Thus an attempt was made to institutionalise OD through HRD
departments. As the departments picked up momentum, a lot of OD work was
being done through the HRD departments. In fact most change interventions
have been and are being made by the HRD departments (as differentiated
from the personnel departments). HRD managers in India do undertake a
number of interventions, which may be classified as OD interventions. The
nature of interventions undertaken by the HRD departments includes:
Cultural change through new performance management systems

Total Quality Management (TQM) based interventions (in most cases


these are undertaken also by a seperate group of professionals)
Survey feedback
Role clarity and Role negotiation exercises
Training
Career planning and succession exercise
Assessment centres and promotion policies

Vision and value clarification exercises


Performance coaching workshops
Team building interventions

The Academy of Human Resources Development has come up with a concept


of Individual and Organisational Assessment Center (IOAC), which is becoming
popular as a intervention by the HRD departments. In this concept, the HRD
department establishes an assessment centre with the purposes of assessing
and developing the competencies of individuals as individuals, individuals in
relation to their current and future roles, dynamic relationships, teams, interteam collaboration and work, and organisation climate and synergy.

Q6

Describe the rationale behind human resource valuation and


auditing.

An
s

Meaning of human resource valuation and auditing. - 1


The human resource valuation system cannot be considered to be a
complete system of accounting unless it is followed by an equally
competent system of auditing. Application or use of human resource
accounting, therefore, must also be followed by a seperate HR audit to
ascertain whether or not the performance of the managers has been
true and fair in the overall interests of the organisation they serve.
The application and usefulness of human resource valuation depends
on the future efforts and experiments to be made by practising
managers, accountants and academicians. In the absence of human
resource valuation, the management may not realise the negative
effects of certain programmes aimed at improving profits in the short
run. Such programmes may result in decreased value of human assets
due to a fall in productivity levels, high labour turnover and low morale.
Description of rationale behind human resource valuation and
auditing - 9
The main rationale behind human resource valuation can be understood
by the following list:
1. Guarantee to customers/clients: Human resource valuation
assures customer of quality and consistency. It means of
guarantee available to customers that the enterprise is through in

2.

3.

4.

5.

6.

its personnels efficience to honour commitment.


Establishing investor confidence: The performance of an
organisation depends mainly upon the quality of its human
capital. This can be understood by the fact that human resource
is the main product delivering assets. Even a slight deterioration
in the quality of human capital assets of a service provider clearly
reflects on the organisational performance.
In the current competitive scenario, it is pertinent to
communicate to investors that their human resource is quiet
efficient to deliver high returns on relatively low investments.
Even in sectors other than those with heavy capital investments,
the investors need to be assured that the personnel is capable
enough to be trusted with the formers investments.
Planning outgo: An HR valuation study assists management to
project the future expenditure of personnel costs like training and
development costs, salary and benifits, compensation costs,
retirement benifits etc. Lets take the example of computerisation
in public sector banks. Earlier, these banks mostly relied on hand
written or typed documents, which was time consuming, so full
computerisation was sought. HR valuation was done to ascertain
the computer usage knowledge and technical compatibality of the
employees. It was found that most of the employees were not
adequately computer literate. Based on this finding, a sufficient
budget for training the employees and to make them adapt to the
technological shift, was chalked out and training sessions were
conducted.
Monitoring Performance : An HR valuation report plays quite a
significant role in monitoring efficiency of personnel and in
designing the HR strategy. The organisation can analyse if its
investment in human capital has paid off or not.
Tabulates a database on personnel details, which serves as a
basis for MIS reports on returns on personnel cost, return on
human capital, etc.
Employee motivation: Depicting the value of human resource
in the balance sheet and other reports can communicate to the
employees that the management perceives them as assets and
not merely expenses. This, in fact, leads to a high level of
motivation amoung the personnel associated with the
organisation.
Costing exercise: An HR valuation report helps the
management to make a conscious move to capture its costs

related to the HR department by developing a human resource


accounting system, which compliments the HR valuation exercise.
The organisation can thus provide cost clarity to all its
stakeholders in all areas related to the human resources of the
company.
7. Assessing segment efficiency : Audit of human resources can
help in finding out the efficiency of every segment. Human
resource audit could enable the apprisal of the performance of its
human resources, thereby facilitating the basic functions and
management of human resources.
Hence, human resource valuation and audit activity are helpful
exercises in improving the efficiency of human resources in the
changing business scenario.

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