CHAPTER 3

RESULTS AND DISCUSSIONS

This section is a discussion of the various data relevant to the study. The

discussions revolved on the proposed model for human accounting system for schools

and the relevant metrics for evaluation on the cost of human capital utilizing the proposed

human capital scorecard. The first part of the discussions pertained to educational

revenues and total operating expenses including relevant events that occurred that

contributed to the significant changes in educational revenues and operating expenses.

The second part presented the human capital scorecard and finally, the third part involved

the model for HRAS.

Educational Revenues

Educational revenues as used in this study were revenues derived from tuition

fees, miscellaneous fees and other fees, which were part of educational operations. Other

income earned by the University was not included in the computations. Table 3.1

summarizes the growth in educational revenues from SY 1995 to SY 1999.

Table 3.1
Growth Rate, Educational Revenues
SY 1995-1999
(Base Year = 1995)
199 1996 1997 1998 1999 AVERAGE
5

Growth 1.00 15.00 65.90 54.45 12.31 39.92%

Rate % % % %

Using SY 1995 as the base year, educational revenue had increased 15.00% in

1996. SY 1997 saw a large increase in educational revenue at 65.90% from 1996. This
significant increase in educational revenue during this year was due mainly to the

increase in freshmen enrollment (14% increase from freshmen enrollment from the

previous year). Fees increases were minimal at 5%.

However, two strong typhoons devastated Cagayan in 1998 causing widespread

damages in agricultural products. Since a majority of the University’s student population

belongs to families whose main income was derived form agricultural products, most of

these students dropped out. This explains the significant drop in educational revenue of

the university in 1998. SY 1999 was not a good year either since most of the families had

not recovered from their losses from the past two years. This increase continued to drop

when in SY 1999 the increase was 12.31% from SY 1998 level owing mainly to a

significant drop in enrolment due to the devastating effect on the livelihood of Cagayanos

caused by typhoons during the previous year. On the average, over the five-year period,

the increase in educational revenues was 39.92%.

A regression analysis was made to determine the trend in educational revenues

and also to find out if the trend was significant. The derived regression equation is as

shown:

REVENUE = 3,040,544.30 + 14,122,602.00 (TIME)

F-Value = 59.894 t-value = 7.739

sig. = .004a sig. = .004a
a
significant at α = .01

The derived revenue regression equation showed that the University was able to

maintain on any given period a minimum educational revenue of Php3,040,544.30 that

was increasing annually by Php14,122,602.00. This annual average increase is significant

at α = .01, sig. = .004. The regression equation is also a valid predictor for educational
revenue as the F-value = 59.894 is significant at α = .01. It can be said then that the

trend in the increase in educational revenue is significant. It can be noted that the

computed average increase annually of 39.92% can also be considered significant.

Total Operating Expenses

Total operating expenses included instructional expenses, administrative

expenses, and student services expenses. Capital expenditures were not included in total

operating expenses. Table 3.2 presents the growth in total operating expenses over a

five-year period.

Table 3.2
Growth Rate, Total Operating Expenses
SY 1995-1999)
(Base Year = 1995)
199 1996 1997 1998 1999 AVERAGE
5

Growth 1.00 15.00 64.59 55.25 12.10 36.74%

Rate % % % %

Again, SY 1995 was used as a base year. SY 1996 saw an increase in total

operating expenses of 15% from 1995 level. SY 1997 experienced a high increase in

expenses from 1996 level at 64.59%. This increase, nevertheless, dropped to 55.25% in

SY 1998 from 1997 level. This level further dropped to 12.10% increase in 1999 from

1998 level. On the average, the average increase in total operating expense was 36.74%.

It is important to note, however, that educational revenues (Table 3.1 was

growing approximately with the same rate as operating expenses, which explains why the

University had to spend more than 70% of its tuition fee increases for faculty salaries and

benefits. Records show that the University actually incurred 110% of its educational

revenues to operating expenses, 95% of which went to salaries and wages.

 The main reason why the university was able to survive financially was its ability

to generate non-educational revenues that were sufficient to meet operating expenses and

capital expenditures.

A regression analysis was made to determine the significance of the trend in total

operating expense levels, vis-à-vis, its average annual increase. The derived regression

equation is as follows:

Total Operating Expense = 2,736,489.80 + 12,710,342 (TIME)

F-Value = 59.894 t-value = 7.739

Sig. = .004a sig. = .004a
a
significant at α = .01

The regression equation shows that the minimum total operating expense that the

University incurred annually was Php2,736,489.80 and increased by Php12,710,342

every year. This increase is significant at α = .01. The regression equation is also

significant since the F-test is significant at α = .01. The equation is therefore considered

as a valid predictor for total operating expense and the average annual growth rate of

36.74% can also be considered as significant.

A comparison on the increases for educational revenues and total operating

expenses showed that there was not much significant in their differences, educational

revenues outgrowing total operating expenses by approximately 1.00% annually. On the

average, educational revenues had been growing 39.74% while total operating expenses

by 36.74%. The average growth was only separated by 3%, that is, total operating

expenses was increasing in direct proportion to educational revenues.

Likewise, annual increase in peso terms for educational revenue which was

Php14,122,602.00 was 11.11% more than the expected annual increase in total operating
expenses which was Php12,710,342. This finding shows that the University expects a

gross margin of 11.11% on educational revenue.

The second part of the discussions now revolves around the human capital

scorecard: acquiring, maintaining, developing, and retaining costs.

Acquiring Costs

The first item in the first quadrant of the scorecard is acquiring costs.

Nevertheless, the University, specifically the Treasurer’s Office had no specific costs

incurred in the acquisition of new faculty. Almost all faculty applicants were walk-ins

and no significant costs were recorded except for miscellaneous items that cannot be

considered significant.

The need for information on continuous basis on acquisition issues can be defined

in terms of identifying the specific human resource requirements and finding appropriate

individuals who meet these requirements.

The human resource accounting brings into focus the cost benefit calculus of such

decisions (Pyle, 1970):

• What are the costs attached to hiring a person?

• What are the benefits likely to be derived from him? For how long?

• Will the benefits be available consistently? What further investment is needed and

at what intervals for getting the required benefits?

• What is the risk attached with the acquisition decision of the employee leaving the

organization and of the cost-benefit analysis going wrong?

• What is the cost of this risk?

 Of the above issues raised by Pyle, the University has no record of the required

costs including cost-benefit analysis. The University, however, is experiencing a high risk

of losing a significant number of its faculty member to other schools after providing them

sufficient training and development.

Maintenance Costs

The item in the second quadrant of the scorecard is maintenance costs. This is

identified as salaries paid to faculty.

Fitz-enz (2000) shows that any asset needs to be maintained in good condition in

order for it to retain its value, and in the case of a human being, continue to contribute

value to the goals of the organization. Pay and benefits are monitored through a

combination of cost ratios. Salary surveys are designed to provide external benchmarks

for decisions regarding pay levels of various jobs. One can also look at pay in terms of

average pay of employees, distribution across levels, and cost as a percentage of

operating expense.

An examination of the various salary levels offered by other schools in Cagayan,

the University offers higher salary levels. Looks into the ratios also show that

maintenance costs are increasing on the average of 37.20% annually over the five-year

period of study.

In the area of maintenance costs, as prescribed by Fitz-enz and Pyle, the

University has complied favorably.

The monthly maintenance costs (salary of faculty) expressed as a change from

the base year SY 1995 is presented in Table 3.3.

 Table 3.3
Growth Rate, Total Maintenance Costs
SY 1995-1999
(Base Year = 1995)
199 1996 1997 1998 1999 AVERAGE
5

Growth 1.00 15.01 66.00 55.45 12.33 37.20%

Rate % % % %

Maintenance costs of SY 1997 increased 15.01% from that of SY 1995. SY 1997

showed the highest percentage increase at 66.00%, which was over SY 1996 level. This

significant increase in maintenance costs can be attributed to the increase in faculty

members due to the significant increase in the number of classes because of the increase

in freshmen during that year. For SY 1998, maintenance cost increased by 55.45% from

1997 level. The significant increase during this year was due to the significant increase in

salaries of tenured faculty members as this was a ranking year. The increase in

maintenance cost dropped to 12.33% in SY 1999. This dropped can be attributed to the

high turnover rate of faculty who transferred to other schools for higher salary levels.

Over the five-year period the increase in maintenance costs was 37.02%

A regression analysis was made to determine if the trend in maintenance costs

was significant. The derived regression equation is as follows:

Maintenance Costs = 868,726.93 + 4,035,029.20 (TIME)

F-value = 59.89 t-value = 7.74

Sig. = .004a sig. = .004a
a
significant at α = .01

The expected monthly maintenance costs was Php868,726.93 and increased

annually by Php4,035,029.20. This increase is significant at α = .01. The F-test of the

whole regression equation is also significant at α = .01, thus, the derived maintenance
costs equation is a valid predictor. It can also be said that the annual average increase in

maintenance costs of 37.02% is significant.

Retaining Costs

Also a part of the second quadrant of the scorecard is retaining costs, in the case

of the University, this is also called benefit costs.

Keeping talent will always be an important activity. Even in severest times when

an organization plunges into a negative earnings position, it must still retain a critical

talent core (Fitz-enz, 2000). The retaining programs must be attractive enough to make

employees extent their stay in the organization.

The University is experiencing an average benefit costs growth of 8.2% annually.

Nevertheless, this benefit growth rate is not high enough to retain some of its faculty

members.

The growth in benefit costs is tabulated in Table 3.4

Table 3.4
Growth Rate, Benefit Costs
SY 1995–1999
(Base Year = 1995)
199 1996 1997 1998 1999 AVERAGE
5

Growth 1.00 10.27 9.02 6.88 6.63 8.20%

Rate % % % %

SY 1995 was used as the base year or year of reference. Benefit costs for SY 1996

increased by 10.27% from 1995 level. This increase dropped to 9.02% in 1997. Benefit

costs continued to drop for the last two years of study, 6.88% in 1998 and 6.63% in 1999.

The continued drop in benefit costs were due to the decrease in long-term tenured faculty

members who opted to transfer to other schools.

 On the average, the increase in benefit costs was 8.20%.

A regression analysis was also made to determine if the trend in the decrease in

the increases in benefit costs was significant. The derived regression equation is

presented as follows:

Benefit Costs = Php12,751.33 + 1,587.73 (TIME)

F-value = 28.34 t-value = 5.324

sig. = .013a sig. = .013a
a
significant at α = .05

The regression equation shows that the minimum benefit cost per faculty was

Php12,751.22 increased by Php1,587.73 per year. This increase is considered significant

since the t-value is significant at α = .05. The regression equation is also a valid

predictor since the F-value is significant at α = .05.

Development Costs

Development costs were costs incurred for training and development programs

fort he faculty. These are either postgraduate studies or graduate studies in local academic

institutions or foreign.

Human, material, equipment, facilities, and energy capital are invested in a

process. At the end, one wants to know with some degree of certainty how much the

human asset affected the outcome. A key question is, do the people have the knowledge

and skill to perform up to expectations?

A visible outcome is the creation of centers of excellence in the University as a

result of high performance of its graduates in licensure examinations. Obviously, this can

be attributed mostly to faculty. Secondly, the various costs as shown in the following
discussions, show that the University is spending significantly for faculty training and

development.

Training Costs. A regression equation was made to determine if the costs

incurred in this account was increasing significantly. The derived equation is as shown

below:

Training Costs = 172,243.29 + 394,236.18 (TIME)

F-value = 47.303 t-value = 6.878

sig. = .006a sig. = .006a
a
significant at α = .01

The derived regression equation shows that the minimum training costs annually

was Php172,243.29 and increased by Php394,236.18 per year. The annual increase in

training costs is significant at α = .01 while the regression equation is also significant at

α = .01. It can be inferred then that the derived equation is a valid predictor to forecast

training costs.

Development costs. A regression analysis was also made to determine if the trend

on development costs is significant. The derived regression equation is shown as follows:

Development Costs = 12,751.33 + 1,587.73 (TIME)

F-value = 28.34 t-value = 5.324

sig. = .013a sig. = 013a
a
significant at α = .05

Based on the derived regression equation, the minimum development costs per

faculty was Php12,751.33 and increased annually by Php1,587.73. This increase is

significant at α = .05. The derived regression equation is also significant at α = .05,

hence, the equation is a valid predictor to forecast development costs.

 It can be seen that development costs do not comprise a large amount. However,

the University still exhibits willingness to incur development costs for faculty who

wishes to avail of this grant.

Total development costs. The total development costs include both training and

development costs. It can be noted that this costs also entail large amount of expenditures

by the University. Table 3.5 present the growth in development costs incurred by the

University.

Table 3.5
Growth Rate, Development Costs
SY 1995-1999
(Base Year = 1995)
199 1996 1997 1998 1999 AVERAGE
5

Growth 1.00 16.82 63.96 52.30 12.42 36.38%

Rate % % % %

With SY 1995 as the base year, development costs in SY 1996 increased by

16.82%. From 1996 figures, there was a large amount of increase from 1996 to 1997

amounting to 63.96%. This decreased to 52.30% in 1998 and again decreases to 12.42%

in 1999. The increase in development costs was cognizant to the increase in faculty

members during these years. The new faculty members that were taken in during the SY

1997-1998 were provided with development programs.

It was obvious that there was a continuing decline in development costs over the

five-year period. The decrease in SY 1999 levels can be attributed to the transfer of a

large number of tenured faculty members. Nevertheless, the average annual development

costs is increasing a t a rate of 36.38%, still considerably high.

 A regression analysis was also made to determine if the decline in development

costs was significant. The derived regression equation is given below:

Development Costs = 674,885.20 + 3,637,568.40 (TIME)

F-value = 60.516 t-value = 7.779

sig. = .004a sig. = .004a
a
significant at α = .01

The regression equation shows that the minimum development costs at any period

was Php674,885.20 and increased annually by Php3,637,568.40. This expected increase

in development costs is significant at α = .01. The regression equation is also a valid

predictor since the F-value is significant at α = .01. Although development costs level is

declining, the increase per year is still significant, i.e., the University is still spending

significant amount on the development of its faculty.

The Human Capital Scorecard

The human capital scorecard concept was developed to deal with factors that are

ignored in standard financial statements. Planning is not part of the scorecard since it is

not practical to monitor the effects of planning on a regular basis. By its nature, planning

deals with the future. The human capital scorecard is focused on recent and current

events. What follows are discussions and analysis of data based on the human capital

scorecard for the University.

Acquisition Costs. The first activity after planning is to acquire human capital for

the organization. The human capital must be acquired through hiring or renting from an

agency or contracting with individuals directly for part-time or full-time teaching.

However, records showed that new recruits are most often walk-ins before regular classes

start.
 Related to cost, acquisition activity is focused on the cost per hire. Nevertheless,

the University does not have records on acquisition costs for human resources. A careful

check from the Treasurer’s office showed that there are amounts incurred but

considerably very minimal which were simply treated as miscellaneous. Because of this,

these miscellaneous amounts do not make any significant effect on the University’s

overall operating expenses on human resources.

Maintenance Costs. Once the faculty asset is in-house, he must be maintained.

This is done principally through pay and benefits- the remuneration system. From a

hierarchy of needs viewpoint, people seek basic safety and security first from their

employer. Paying a fair wage and providing a reasonable degree of security through

benefits and programs are accepted as necessary for maintaining a quality faculty.

Measures of maintenance of effectiveness naturally focus on money spent. Salary

levels pay and benefits as a percentage of revenue or expense are necessary.

Operationally, the University needs to know what effect changes in compensation

programs have on productivity and separation rates.

Maintenance costs include total salary cost as percentage of operating expense,

average pay per employee, and benefits cost as percentage of payroll.

Total salary cost as a percentage of operating expense. This measure defines the

proportion of total salary cost to operating expense express in percentage. This study only

considered faculty, thus, only costs relevant to faculty were included. Table 3.6

summarizes the percentage of total labor cost to operating expense.

 Table 3.6
Total Faculty Salary Cost as Percentage
Of Operating Expense
SY 1995-1999

199 199 199 199 1999

5 6 7 8

Percentage 32 32 32 32 32
Source: As computed from University Records

Over the five-year period of study, the total faculty salary cost as percentage of

operating expense was maintained at 32%. It is obvious that the University maintained a

proportionate increase in operating expense as salaries increased.

Average pay per faculty. As part of the maintenance cost, it is also necessary to

monitor average pay per employee for operating expense decisions. As a service

organization, its working capital level always addresses first salaries to be disbursed at

every fifteen days. This working capital level should be at least equivalent to one-month

salaries. Information, therefore, on the average pay of a faculty will help management

plan for monthly salary level. Table 3.7 summarizes the average pay per faculty.

Table 3.7
Monthly Average Pay Per Faculty
SY 1995-1999
(in Philippine Pesos)

1995 1996 1997 1998 1999

Average
pay per 9,484.3 10,000.0 10,406.1 13,213.8 14,020.80
employee 8 9 8 3
Growth
Rate - 5.4% 4.1% 26.98% 6.1%
Average Growth rate 10.64%
 The monthly average pay per faculty was Php9,484.38 for SY 1995 and increased

to Php14,020.80 in 1999. The average pay increased by 5.4% in 1996 over 1995 figure.

In 1997, the average pay increased by 4.1%, 26.98% in 1998 and 6.1% in 1999. SY 1998

saw the highest increase in salaries at a rate of 26.98%. Over the five-year period, the

average increase was 10.64%, which was consistent to the expected annual increase of

10%.

A more detailed discussion of the monthly salaries is tabulated in Table 3.8 It can

be noted that there was a steady increase in salaries both on the minimum and maximum

levels. Table 3.3 summarizes this information.

Table 3.8
Maintenance Costs (Monthly Salaries)
(in Philippine Pesos)
Minimum Maximum Mean Standard
Deviation

SALARIES 6,545.13 22,004.15 9,484.38 3,042.35

1995

SALARIES 6,766.12 22,109.56 10,000.0 3,274.61

1996 9

SALARIES 7,766.12 22,433.94 10,406.1 3,452.76

1997 8

SALARIES 8,720.94 30,744.32 13,213.8 4,291.08

1998 3

SALARIES 8,559.70 30,167.72 14,020.8 4,311.14

1999 0

AVERAGE 7 671.60 25,491.94 11,425.0 3,674.39

6

The minimum monthly salary for SY 1995 was Php5,545.13 and a maximum of

Php22,004.15. Full-time faculty members received a maximum of Php22,004.15 per

month. The mean salary during this school year was Php9,484.38 with a standard

deviation of Php3,042.35, thus, the salary range about the mean had a lower range of

Php6,442.03 and upper range of Php12,526.73. This indicate that a new full-time faculty

received a monthly salary of Php6,442.03 while an old faculty was receiving

Php12,526.73.

For SY 1996, there was an increase in both minimum and maximum levels of

salary. The mean salary was Php10,000.09 with a standard deviation of Php3,274.61.

With this, the salaries varied about the mean with a lower range of Php6,725.48 and an

upper range of Php13,275.50. The increase in the lower range was 4% while the upper

range increased by 6%. The mean increased from 1995 level to 1996 level by 5%.

For SY 1997, the minimum salary level did not increase although maximum

salary received increased. The mean salary was Php10,406.18 and the standard deviation

was Php3,452.76. The salary range about the mean had a lower range of Php6,953.42

and an upper range of Php13,858.94. Obviously salary ranges had increased from SY

1995 to SY 1997. The increase in the lower range from 1996 level to 1997 level was 3%

whereas the upper range increased by 4%. Whereas, it can be noted, that the mean

increased by 4%.

Salary levels for 1998 had increased from 1997 levels. The minimum salary was

Php3,70.94 while the maximum amount was Php30,744.32. The mean was Php13,213.83

with a standard deviation of Php4,291.08. The range about the mean has a lower value of

Php8,922.75 while the upper range was Php17,504.91. The lower range increased from

1997 to 1998 levels by 28% while the upper range increased by 26%. Also, the mean

increased by 90%.
 For the SY 1999, minimum (Php5,559.70) and maximum (Php30,167.72) levels

had also increased from 1998 levels. The mean was Php14,020.80 while the standard

deviation was Php4,311.14. Using this information, the lower range was Php9,709.66 and

the upper range was Php18,331.94. From 1998 levels, lower range had increased by 9%

to 1999 levels while the upper range has increased by 5%. On the other hand, mean salary

level had increased by 6%.

On the average, maintenance costs (salary) had a minimum level of Php7,671.60

and a maximum level of Php25,491.94. The mean salary was Php11,425.06 and a

standard deviation of Php3,674.39. Salary levels tend to be skewed to the left.

A regression analysis was made to determine if the trend on salary increases can

be considered significant. The salary increase decision is necessary for effective planning

on setting monthly working capital level. The derived equation is shown as follows:

Monthly Maintenance Costs = 7,739.08 + 1,228.66 (TIME)

F-value = 27.014 t-value = 5.198

sig. = .014a sig. = .014a
a
significant at α = .05

Based from the derived regression equation, the minimum monthly salary of a

faculty was Php7,739.08 and increased annually by Php1,228.66. The increase in

monthly salary is significant at α = .05. The regression equation is also significant α = .

05, hence, it is a valid predictor for monthly maintenance costs.

The regression analysis shows that monthly maintenance costs are significantly

increasing annually and that marginal increases are also significant.

 Benefits cost as percentage of payroll. Benefits cost as a percentage of payroll shows

the proportion of payroll that is spent on benefits. Benefits that were considered

included amounts paid to SSS, Medicare, Health Care, and retirements. Table 3.9

summarizes the benefits cost as percentage of payroll.

Table 3.9
Benefits Cost as Percentage
Of Payroll
SY 1995-1999

1995 1996 1997 1998 1999

Benefits costs as . . . . .10%

Percentage of payroll 24% 20% 15% 10%

The benefits cost, as percentage of payroll was not significant as there were no

retirements made during the five-year period. Also, other benefits were not significant.

Retention Costs. Retention costs as defined in these study refer to motivation and

reward cost as percentage of payroll. Non-monetary reward and recognition are retention

efforts. Faculty-relations programs are imperative to keep talent in the organization.

Improving retention generates among others, reduced recruiting costs, reduced training

costs, and less supervisory time required. It was expected that motivation and rewards

express in terms of costs were necessary to make the individual continue his residence in

the University. Table 3.10 summarizes this percentage.

Table 3.10
Rewards and Motivation Cost as
Percentage of Operating Expense
SY 1995-1999

199 199 199 199 1999

5 6 7 8
 Rewards and motivation
Costs as percentage of 11% 10% 11% 10% 10%
Operating expense
Average = 10.4%

Rewards and motivation costs as percentage of payroll is on the average 10.4%,

i.e., 10.4% of payroll was spent on rewards and motivation costs. It was apparent that

rewards and motivation costs increased in direct proportion to payroll at an average of

10.4%.

A regression analysis was made on total retention costs over time. This was made

to determine if the flattening out in retention costs, that is, its increase in direct proportion

to payroll is significant. The derived regression equation is as follows:

Total Retention Costs = 269,714.63 + 430,956.37 (TIME)

F-value = 48.412 t-value = 6.958

sig. = .006a sig. = .006a
a
significant at α = .01

The result of the derived regression equation shows that the minimum annual

retention costs is Php269,714.63 and increased by Php430,956.37 annually. The annual

increases is significant at α = .01. The regression equation is also significant at α = .01,

thus, the derived equation is a valid predictor.

Although the increase in retention costs looks to have flattened out at an average

of 10.4% of payroll, the increase per year is still considered to be significant, that is, the

University was still spending significant levels of retention costs for its faculty.

Development Costs

The indicators for development costs include training cost as percentage of

payroll and development costs as percentage of payroll.

 Training costs. Training programs included both in-house and off house. In-house

trainings were usually in-service trainings, echo-seminars and workshops, electronic

multi-media hands-on and Internet accessibility. Occasionally, the University invited

foreign lecturers to conduct intensive in-service trainings. Trainings conducted were

academics, religious, political, cultural and outreach programs in nature. Table 3.11

summarizes the training costs as percentage of payroll incurred by the University for

faculty for the SY 1995-1999.

Table 3.11
Training Costs as Percentage
Of Payroll
SY 1995-1999

199 199 199 199 1999

5 6 7 8

Training cost as
percentage of 10% 10% 11% 11% 11%
payroll

SY 1995-1996 showed that training costs were 10% of payroll while SY 1997-

1999 incurred training costs of 11% of payroll. It can be noted that training costs

increased only be one percentage point. Again it was apparent that training costs

increased in direct proportion with the increase in payroll.

Development costs. Development costs were mostly costs spent on graduate study

grants given to faculty. Table 3.12 summarizes the development costs as percentage of

payroll. Some faculty members were also allowed to international forums, lectures and

postgraduate studies.

Table 3.12
Development Costs as Percentage
Of Payroll
 SY 1995-1999

1995 1996 1997 1998 1999

Development cost as .20% .15% .10% .10% .10%

Percentage of payroll

The development costs as percentage to payroll is only 0.20% in 1995 and down

to 0.10% in 1999. The development costs looked insignificant as compared to payroll. In

showed that not so many faculties were availing of this benefit.

Human Capital Revenue Factor (HCRF)

Human capital revenue (HCRF) is obtained by dividing revenue by full-time

equivalent, (FTE). FTE is a surrogate for total labor hours invested (in this study, total

units taught, i.e., on the average 21 units per week). It is a basic measure of human

productivity, in that it tells how much time was spent to generate a given amount of

revenue. Table 3.13 summarizes the HCRF for the University.

Table 3.13
Human Capital Revenue FACTOR (HCRF)
SY 1995-1999

1995 1996 1997 1998 1999 Average

HCR 233.9 269.0 446.4 689.4 774.3 482.66

7 9 1 9 3

Growth - 15% 66% 54% 12% 37%

Rate

The revenue per invested FTE in SY 1995 was Php233.97, i.e., for every unit

invested by the University; the return on revenue was Php233.97. For SY 1996, HCRF

was Php269.09 or an increase of 15% from SY 1995. In 1997, HCR was Php446.41,

which had increased by 66% from the previous year. For 1998, the productivity to
generate revenue for each unit investment was Php689.49, an increased of 54% from

1997. For 1999, the HCRF was Php774.33, an increased of 12% from 1998 level. On the

average, HCRF was Php482.66 with a growth rate over the five-year period equal to

37%. It can be noted that for every 1 unit taught, the revenue generated was on the

average, Php482.66. HCRF peaked in 1996 then declined to 12% in 1999.

A regression equation is fitted to determine the significance of the trend in human

capital revenue factor, that is, how much does each faculty can generate in terms of

revenue per unit load that he handles. The derived regression equation is shown as

follows:

Human Capital Revenue Factor = 32.319 + 150.113 (TIME)

F-value = 59.894 t-value = 7.739

sig. = .004a sig. = .004a
a
significant at α = .01

The minimum HCRF was Php32.319, that is, a faculty generated a minimum of

Php32.319 for each unit load he handled. This minimum HCRF also increased by

Php150.113 annually. This increase is significant at α = .01, that is, if the trend

continues, the faculty should be able to make this marginal increase annually. The

regression equation is also significant at α = .01, thus making it a valid predictor to

forecast HCRF for a faculty.

While HCRF is a better starting point than revenue per employee, it is necessary

to use more sophisticated metrics to understand the relationship of human capital to

financial outcomes.

Human Economic Value Added (HEVA)

 HEVA is defined as net operating profit after tax minus the cost of capital divided

by FTE. For an academic institution, since it is not subjected to income tax, it is defined

as net operating income for the period minus cost of capital divided by FTE. In this study,

the cost of capital is defined as depreciation cost. The reason, is that, fixed assets are used

over a long period of time while depreciation cost represent the cost spent on the use of

fixed assets for that period, which in this case, annual utilization. As Stewart (1997) has

pointed out, HEVA is a revealing measure of managerial performance. Table 3.14

summarizes the human economic value added for the period 1995-1999.

Table 3.14
Human Economic Value Added (HEVA)
SY 1995-199

1995 1996 1997 1998 1999 Average

HEVA 91.1 104.7 173.8 268.5 301.5 187.96

1 9 4 1 5

Growth - 15% 66% 54% 12% 37%

Rate

HEVA provides how much economic value can be ascribed to the average amount

of units contracted for labor. In 1995, the economic value added for each unit contracted

was Php91.11. This was increased by 15% amounting to Php104.79 in 1996. For 1997,

HEVA amounted to Php173.84, an increased of 66% from 1996. In 1998, the growth rate

was 54% with a HEVA equal to Php268.51. The growth rate dropped farther to 12% in

1999 but with a HEVA equal to Php301.55. On the average, HEVA was Php187.96 or a

growth rate of 37% over a five-year period.

 As mentioned earlier, HEVA is a measure of managerial performance. With a

growth rate of 37% and HEVA = Php187.96, management managed to generate an

economic value added of Php187.96 for every unit contracted to be offered or taught.

A regression analysis was made to determine the significance of the trend of the

human economic value added by management. Then derived regression equation is

shown below:

Human Economic Value Added = 12.586 + 58.458 (TIME)

F-value = 59.894 t-value = 7.739

sig. = .004a sig. = .004a
a
significant at α = .01

The result of the derived regression equation shows that the minimum human

capital value added to the University was Php12.586 and increased by Php58.458

annually. The increase is significant at α = .01 while the regression equation is also

significant at α = .01. This indicates that the derived regression equation is a valid

predictor to forecast human capital value added for the University.

The result of the regression analysis shows that for every unit load

investment made by the University, management will be able to generate a human capital

value added equivalent to a minimum of Php12.586 and to increase by Php58.458

annually.

Also, for the University to be considered efficient in managing its human capital

resources, the human economic value added generated by the University must be higher

than the human capital value added, costs that are incurred by the University in

maintaining the human resource.

Human Capital Cost Factor (HCCF)

 The principal costs of human capital are four: pay and benefits for employees, pay

costs of contingents, the cost of absenteeism, and the cost of turnover. However, in this

study, pay costs of contingents, cost of absenteeism, and cost of turnover showed to be

very minimal and consequently were not accounted for in the books of the University,

and therefore, were not considered. What were considered was pay and benefit costs.

Thus, in this study, HCCF is defined as the sum of pay and benefit costs. Table 3.15

summarizes this information. Obviously, there are equipment and facility costs implied

with the employment of labor, but these are not truly human capital costs. It is the

responsibility of management to control these costs of human capital, just as it controls

the cost of other resources. The HCCF is a convenient, tested metric for monitoring the

base costs of an organizations capital over time.

Table 3.15
Human Capital Cost Factor (HCCF)
SY 1995-1999

1995 1996 1997 1998 1999 Average

HCCF 13,809,25 14,560,13 15,151,39 19,239,33 20,414,28 16,634,881

7 1 8 6 5

Growth - 5.4% 4.1% 27% 6% 10.6%

Rate

The HCCF growth rate for 1996 over 1995 figures was very manageable as the

growth was only 5.4%. Management became more efficient in 1997 since the increase

was only 4.1% from the previous year. For 1998, management was not able to control

human capital costs as it jumped by 27% from the following year. Nevertheless, in 1999,

management was able to decreased human capital costs to 6%, which should be very
manageable. On the average, the growth rate in HCCF was 10.6%. This growth can still

be considered to be moderate.

A regression analysis was made to determine the significance of the trend in the

growth rate of human capital cost factor for the University. The derived equation is as

follows:

Human Capital Cost Factor = Php11,268,103 + Php1,788,926 (TIME)

F-value = 27.014 t-value = 5.198

sig. = .014a sig. = .014a
s
significant at α = .05

The regression equation shows that the minimum human capital cost factor that

the University incurred at any given year was Php11,268,103 and increased annually by

Php1,788,926. This increase is significant at α = .05. The derived equation is also

significant at α = .05.

This information will help the University monitor its annual working capital

requirements. A well-defined level of working capital level requirements will enable the

University to plan effectively for its human resource salaries and other pay requirements.

Human Capital Value Added (HCVA)

The issue of human capital productivity was seen in a simplistic form as revenue

per employee. Then, it was presented a more accurate form in revenue per FTE (HCRF).

Next, to be presented was the cost HCCF. What follows now is to move to profitability

per FTE. Human capital value added (HCVA) is defined as revenue minus expenses and

adding back pay and benefits then dividing by FTE. In this case, HCVA is the

profitability of the average employee. By subtracting all expenses, except for pay and

benefits, what is obtained is an adjusted profit figure. In effect, non-human expenses are
taken out. When this value is divided by FTE, what is obtained is an adjusted profit

figure, that is, an average profit per FTE. Note that this can be set up to include or

exclude the cost of contingents, absence, and turnover (Stewart, 1997). In this study, cost

of contingents, absence and turnover were not included. The computed HCVA is

tabulated in Table 3.16.

Table 3.16
Human Capital Value Added (HCVA)
SY 1995-1999

1995 1996 1997 1998 1999 Average

HCVA 90.2 103.8 172.2 265.9 298.7 186.19

6 1 0 7 1

Growth Rate - 15% 66% 54% 12% 37%

HCVA is a measure of profitability of the average employee per FTE, i.e., per

unit subject handled by the faculty; he delivers an acceptable profitability that must be

greater than HEVA. For SY 1995, HCVA was Php90.26 per FTE unit. This had increased

by 15% in 1996 equivalent to Php103.81. SY 1997 saw a surprisingly large increase of

66% with HCVA equivalent of Php172.20. From a high level in 1997 HCVA dropped to

54% increase in 1998 with HCVA equivalent of Php265.97. In 1999, HCVA growth rate

dropped significantly to 12% that is equivalent to Php186.19.

On the average, the growth rate over the five-year period was 37% with HCVA

amount of Php186.19. On the average, each employee under study was able to generate a

human capital value added of Php186.19 per FTE.

 A regression analysis was made to determine the significance of the trend of the

human capital value added by the faculty. This trend indicates the productivity of the

faculty in terms of economic contribution to the University. The derived regression

equation is shown as follows:

Human Capital Value Added = Php12.476 + Php57.905 (TIME)

F-value = 59.893 t-value = 7.739

sig. = .004a sig. = .004a
a
significant at α = .01

The derived regression equation shows that the minimum human capital value

added by a faculty was Php12.476 and increased annually by Php57.905. The increase is

significant at α = .01. The derived regression equation is also significant at α = .01. The

regression equation is therefore considered to be a valid predictor to forecast human

capital value added by a faculty.

The result of the regression analysis shows that for every unit load carried by a

faculty, he was able to generate revenue equivalent to a minimum of Php12.476 and

increasing by Php57.905 annually.

Human Capital Return on Investment (HCROI)

Another relationship of human capital investments to profitability can be made

visible through a ratio that follows from the formula for HCVA. HCROI looks at the ROI

in terms of profit for monies spent on employee pay and benefits. HCROI is defined as

revenue minus expenses except pay and benefits and dividing by pay and benefits. Again,

by subtracting expenses except for pay and benefits, the profit figure is adjusted. In

effect, non-human expenses are taken out. When the adjusted profit figure is divided by

human capital costs (pay and benefits), what is obtained is the amount of profit derived
for every peso invested in human capital compensation (not counting training and the

like), in effect, the leverage on pay and benefits. Table 3.17 shows the computed HCROI

for the University.

Table 3.17
Human Capital Return on Investment
SY 1995-1999

1995 1996 1997 1998 1999 Average

HCROI 90.2 103.7 172.1 265.9 298.6 186.17

5 9 9 5 7

Growth Rate - 15% 66% 54% 12% 37%

The University invested one peso for one unit of FTE as a human capital. The

return on this investment is reflected in Table 3.12. In 1995, the return on human capital

was Php90.25. This increased to Php103.79 in 1996, a percentage change of 15%. The

highest increase in return on human capital was in 1997 when the return increased by

66% from 1996 level, equivalent to Php172.19. The return on human capital increased to

Php265.95 in 1998 from 1997 level at a rate of 54%. Although the rate of increase

declined to 12% in 1999 from 1998 level, the return on human capital in 1999 is still the

highest at Php298.67.

On the average over the five-year period, the human capital return on investment

was Php186.17 with an average growth rate of 37%.

 A regression analysis was made to determine the significance in the trend of

human capital return on investment achieved by a faculty. The derived regression

equation is shown as follows:

Human Capital Return on Investment = Php12.466 + Php57.901 (TIME)

F-value = 59.894 t-value = 7.739

sig. = .004a sig. = .004a
a
significant at α = .01

The regression equation shows that the minimum human capital return on

investment achieved by a faculty was Php12.466 and increased by Php57.901 annually.

The increase is significant at α = .01. The regression equation is also significant at α = .

01, thus it can be considered as a valid predictor to forecast human capital return on

investment of a faculty.

Comparative Analysis of HEVA, HCVA and HCROI

The objective of HEVA is to determine whether the actions of management have

added true economic value rather than simply generated the typical financial statements,

which can mask actual outcomes. HCVA is a measure of the profitability of the

employee, vis-à-vis, in terms of FTE. HCROI looks at the ROI in terms of profit for

monies spent on employee pay and benefits. Given these objectives, is imperative to

compare the results to be able to determine if the cost of investing in human resources are

equal to, less than, or greater than the benefits derived from the services by such human

resources to the University.

Table 3.18
Comparative Analysis
HEVA, HCVA, HCROI

HEVA HCVA HCROI

 1995 91.11 90.26 90.25

1996 104.79 103.81 103.79

1997 173.84 172.20 172.19

1998 268.51 265.97 265.95

1999 301.55 298.71 298.67

AVERAGE 187.96 186.19 186.17

On the part of management, it was able to generate a human economic value

added to its faculty having attained a slightly higher value compared to HCVA and

HCROI. On the part of the faculty, he had generated HCVA, revenue that was

approximately equal to his HCROI, i.e., the profitability of the faculty is just equal to his

return on investment made by the University. Consequently, management had achieved

its objective of generating human economic value added to its faculty. On the other hand,

the faculty had only generated a return, which was equal to the revenue he generated. The

faculty, on the average, was not able to contribute added economic value to the

University while management was able to achieved added economic value.

Comparative Analysis of Marginal Contributions

Finally, it is important to make a comparative analysis on the marginal change

contributed by management and faculty. The information was derived from the results of

the regression equations for human capital value added (HCVA), human economic value

added (HEVA), and human capital return on investment (HCROI). Table 3.19 presents

this comparison.

Table 3.19
Comparative Analysis
Minimum and Annual Marginal Increase
 HEVA, HCVA, and HCROI

Minimum Level Increase Annually

HEVA Php12.586 Php58.458

HCVA Php12.476 Php57.905

HCROI Php12.466 Php57.901

Minimum level. The minimum level spent by the University is HEVA =

Php12.586 which was greater than the minimum level that the faculty was able to

generate in terms of revenue, HCVA = Php12.476 and his human capital return on

investment, HCROI = Php12.466. Apparently, the University was more efficient than the

faculty. For the faculty to be able to contribute a marginal economic value added to the

University, both his HCVA and HCROI must be greater than the University’s HEVA.

Annual Increases. The minimum marginal increase on HEVA was Php58.458.

This was the cost that the University spent for every unit load given to a faculty. It is

important to note, however, that the faculty was able to achieve only a HCVA =

Php57.905 and a HCROI = Php57.901. Both figures were lower than the HEVA incurred

by the University. This information shows that the faculty continued to be unable to

contribute to marginal economic value added greater than what the University was

achieving.

The Proposed Model

From the experiences of the University with the Fitz-enz and Pyle models as a

benchmark, the researcher proposes a human resources accounting system for St. Paul

University, which can be used by other schools.

 The Process Design and Implementation of an HRA. Hand in hand with the cost

evaluation of the human resource, a human resource accounting system (HRAS) for the

university is in order. The track followed by the researcher in tracing the human resource

allowed her to modify and design a HRAS for the university.

The phases in the design and implementation of the proposed HRA system (as

adopted from Fitz-enz and Pyle models with some modifications to suit a university

setting) are shown schematically in Figure 2.3. This process flow is a result of a pilot test

using Fitz-enz and Pyle models as initial framework. These phases are common to the

development of any human resource accounting system.

The five phases in the development of a system are to:

1 Identify human resource accounting objectives.

2 Develop human resource accounting measurements.

3 Develop a database for the system.

4 Pilot test the system and revise it if necessary.

5 Implement the system in the organization.

Identify Human Resource Accounting Objectives. The first step in designing a

human resource accounting system is to identify the specific objectives of the system.

While this may seem too obvious to be stated, it is a neglected step in the design of

systems including human resource accounting systems.

The objective of the system is an outgrowth of management’s requirements for

human resource information. To identify human resource requirements, the human

resource accounting process are identified, and the information required to fulfill these

functions are specified as precisely as possible.

 Develop Human Resource Accounting Measurement. The second step in the

design of the system is to develop human resource accounting measurements. First, the

types of human resource accounting measurements desired are selected. Once the

measurements are selected, their validity and reliability tested.

The proposed human resource capital management scorecard, Figure 3.1, presents

a matrix for the relevant metrics to arrive at the mathematical model. The model has been

tested using the University’s data. It can be seen that the matrix follows the costs relevant

to the human resource from acquisition to retention.

Figure 3.1
Human Capital Management Scorecard*
St. Paul University

ACQUISITION MAINTENANCE
Cost per hire Total labor cost as percentage of
Time to fill jobs operating**
Number of new hires Expense
Number of replacements Average pay per employee
Quality of new hires Benefits cost as percentage of payroll

RETENTION
Total separation rate
Percentage of voluntary separations:
Exempt and nonexempt
Exempt separations by service length
Percentage of exempt separations
Among top-level performers
Cost of turnover
* Human Capital Scorecard
** Includes contingent labor cost
DEVELOPMENT
Training cost as percentage of payroll
Total training hours provided
Average number of hours of training per
Employee
Training hours by function
Training ROI

The details of the above metrics are defined in Figure 3.2, a human capital

scorecard. The scorecard identifies the different variables needed to compute the metrics.
 Figure 3.2
Human Capital Scorecard
St. Paul University

Financial Human

Human Capital Revenue Exempt Percentage

Revenue divided by FTEs Number of exempt FTEs as a percentage of
(HCRF) Total FTEs

Human Capital Cost (HCCF) Contingent Percentage

Cost of pay, benefit, absence, Number of contingent FTEs as a percentage
Turnover, and contingents total FTEs

Human Capital ROI (HCROI) Accession Rate

Revenue minus (expense minus
Salaries), divided by
Salaries
Human Capital Value Added (HCVA)
Revenue minus (expense minus
Salaries) divided by FTEs
Replacement hires and hires for new positions
as a percentage of the workforce
Separation (loss) Rate
Voluntary and involuntary separations as a
percentage of head count

Human Economic Value Added (HEVA) Salaries Revenue Percentage

Net operating profit after tax Salaries as a percentage of total
Minus depreciation cost, divided by total revenue
FTEs

Employee Development Investment

Cost of all training and development as a
percentage of payroll

The metrics are expressed in mathematical form as follows:

HEVA = (Net operating profit after tax – Depreciation cost)/FTEs

HCCF = Pay + Benefits + Absence + Turnover

HCVA = (Revenue – [ Expenses – Pay and Benefits])/FTEs

HCROI = {Revenue – [Expenses – Pay and Benefits]}/{Pay and Benefits}

Economic value added, EVA, is defined as net operating profit after tax minus the

depreciation cost. The objective of this measure is to determine whether the actions of

management have added true economic value rather than simply generated the typical

financial statements, which can mask actual outcomes. EVA is very useful, in that it
shows how much true profit is left not only after paying all expenses, including taxes, but

also after subtracting the cost of depreciation. This can be a revealing measure of

managerial performance.

EVA can be given a human capital perspective by dividing it by FTE denominator

described earlier to yield HEVA.

By converting EVA into HEVA, one can see how much EVA can be ascribed to

the average amount of labor contracted for.

Human Capital Cost Factor (HCCF) comprises four principal costs of human

capital: pay and benefit costs for employees, the cost of absenteeism, and the cost of

turnover.

Pay is simply the number that appears on an employee’s W-2 form at the end of

the year. It is all current cash compensation. Pay does not include long-term incentives

until they are paid out.

Benefit costs are the monies paid by the company to provide employee benefits.

Portions paid by the employee are not included, since they are not an expense to the

company.

Absenteeism is an expense to the university, in that the work ascribed to the

person paid to do it when he is absent is not doing a given job. A small cost of

absenteeism is factored by taking out one-half of the value generated per hour by all jobs.

Although the cost is miniscule, it is included to keep the issue of managing

absenteeism in view.
 Turnover is cost. It includes the cost of termination, replacement, vacancy, and

learning curve productivity loss. These four variables generally cost a university the

equivalent of at least six months of a nonexempt person’s pay and benefits.

The combination of pay, benefits, contingents, absence, and turnover yields a total

cost of human capital for the university.

The issue of human capital productivity was seen in a simplistic form as revenue

per employee. A more accurate form is revenue per FTE (HCRF). The formula to move

to profitability per FTE is defined as HCVA.

In this case, one is looking at the profitability of the average employee. By

subtracting all operating expenses, except for pay and benefits, one obtains an adjusted

profit figurer. In effect, one has taken out nonhuman expenses. Then, when adjusted

profit figure is divided by FTEs, an average profit per FTE is produced. Note that this can

be set up to include or exclude the cost of contingents, absence, and turnover.

Human Capital Return on Investment (HCROI) is another relationship of human

capital investments to profitability that can be made visible through a ratio that follows

from the formula for HCVA. HCROI looks at the ROI in terms of profit for monies spent

on employee pay and benefits. Again, by subtracting expenses except for pay and

benefits, one has adjusted profit figure. In effect, nonhuman expenses are excluded. Then

adjusted profit figure by human capital costs is divided by human capital costs (pay and

benefits). This results to the amount of profit derived for every peso invested in human

capital compensation (not counting training and the like)- in effect, the leverage on pay

and benefits. This can be expressed as a ratio.

The human resource accounting metric model is summarized as follows:

HEVA = HCROI Equation (1)

HEVA < HCROI Eq. (2)

HEVA < HCVA Eq. (3)

Human Capital Revenue = Revenue / FTEs Eq. (4)

Human Capital Market Value (HCMV)

HCMB = [Market value - Book Value]/ FTEs Eq. (5)

HEVA = (Net operating profit after tax – Cost of capital)/FTEs Eq. (6)

HCCF = [Pay + Benefits + Contingent Labor +

Absence + Turnover] Eq. (7)

HCVA = (Revenue – [Expenses – Pay and Benefits])/FTEs Eq. (8)

HCROI = {Revenue – [Expenses – Pay and Benefits]}

/{Pay and Benefits} Eq. (9)

Economic Value of the Human Resource (EVHR)

EVHR = HEVA – HCROI Eq. (10)

EHVR > 0 Eq. (11)

The interaction of the derived equations is illustrated in Figure 3.3 below.

 Figure 3.4
Interaction Flow Chart of Derived Equations
For Human Resource Accounting
St. Paul University

NOPAT - COC

HEVA ÷

FTE
EVHR −
{REV – [EXP – (PAY + BEN)]}

HCROI ÷

PAY + BEN

REV – [EXP – (PAY + BEN)]

HCVA ÷

FTE

REV

HCR ÷

FTE

Where:

EVHR - economic value of human resource

HCVA - human capital value added

HEVA - human economic value added

HCROI - human capital return on investment

HCR - human capital revenue

REV - educational revenue

EXP - operating expenses

PAY - monthly salaries

BEN - rewards and benefits

NOPAT - net profit after tax

COC - cost of capital

FTE - full time equivalent (actual number of unit loads)

On a break-even point, i.e., cost incurred by the university is equal to the returns

generated by the human resource the corresponding mathematical equation is expressed

as:

HEVA = HCROI

The break-even level, however, only shows that the human resource simply

matches the cost efforts incurred on him by the university. In such case, the human

resource does not contribute any marginal increase in the economic value of the

university. The preferred metric, therefore, is:

HEVA < HCROI

The preferred metric indicates that the human resource is expected to contribute a

marginal increase in the economic value of the university by achieving an (economic

return) HCROI that is greater than the cost, HEVA incurred on him by the university.
 Likewise, the human resource is expected to attain a level of productivity that

must be greater than the costs spent by the university on him, that is,

HEVA < HCVA

As defined earlier, HCVA is a measure of the productivity level of the human

resource in achieving a revenue level given the number of unit loads that he carries. The

university incurs a corresponding cost level to offer the same number of unit loads that

the human resource teaches. In such case, the human resource must maintain a

productivity level that is higher than the university costs spent on the human resource

It must be noted that the derived equations are designed to interact with each other

for any change that is made to any of the variables, the end result of such change will

always determine the level of HEVA, HCVA, HCROI, and EVHR. The decision-maker

can easily determine at any point in time whether or not the human resource contributes a

positive economic value. This capability will empower the decision-maker to create

appropriate interventions in order to maximize the full potential of the human resource.

Develop Human Resource Accounting Database. The next step in designing a human

resource accounting system is to develop the database. The database is simply the source of

inputs required for human resource accounting, including cost data, time sheets, psychological

measurements, etc. Cost data are present in the income statement. Time sheets are found in the

treasurer’s office, specifically time records of employees. Psychological measurements can be

found either in the guidance office or in the research and planning office.

Pilot Test the System and Revise. Once objectives are defined, measurements developed,

and a database constructed, the next step is to pilot test the system. The purpose is to

“experiment” with the system and “debug” it prior to institutionalizing it.

 For the researcher, the metrics used for measurement were used as guides to identify the

relevant data. Since the researcher is using Fitz-enz’ as a benchmark (designed for a business

corporate organization), some of the metrics were modified to suit a school setting but without

discarding any of the metrics used in the benchmark.

Implement the Human Resource Accounting System. The final step involves the actual

implementation of the system. In this phase, the input and output documents are standardized and

instructions for administration of the system are issued. A key step involves the orientation of

personnel to the new system. During the period of this study, the University is undergoing an ISO

9000 certification, thus, the output of this study, which is a manual for administration of the

system, is developed. The instruction for administration of the system is found in Appendix 1.

Modifying the System. Over time, it may become necessary to modify the system,

either because limitations in the system’s design have been observed or because of

changes in management’s human resource accounting needs.