Professional Documents
Culture Documents
Case
Case
Case
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You are to assume the newly created position of Human Resource Director for a medium-sized
firm with over 600 employees. The firm has experienced significant expansion in the past few
years; the Human Resources Department and its functions have not kept pace with company
growth. The chief executive officer (CEO) has instructed you to get the Human Resources
Department organized and build a strong HR function. You have wide latitude in this area, and
the CEO has encouraged you to “get this organization moving.” You will want to set some
ambitious, yet realistic and quantifiable, goals for the Human Resources Department.
Although some of the employees at your firm belong to a union, currently this has no impact on
your firm. At the lower job level, your workforce has both skilled and semi-skilled workers
(numbering about 500). The firm has no policy on promotions and has hired into the upper levels
of management from the outside as well as promoted from within. Employee training is currently
the responsibility of each department head and consists solely of on-the-job learning; no formal
instruction is provided. Economic conditions in your region are good and unemployment rates
are average.
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Last year’s HR budget was $1.0 million, and nearly all of that amount was used to fund staffing
needs. This year, the annual budget has been increased to $1.4 million to provide you with the
extra resources you will need to strengthen the HR function. Future budget amounts will be made
available as the simulation progresses. Each quarter, your remaining annual budget will be
displayed in the Budget report. As in the real world, budgets are not guaranteed, and the
financial officer may need to modify your budget if conditions change. If so, you will be notified
via the Dashboard.
Your yearly budget will need to cover expenses for hiring, wages, benefits, training, and HR
programs. For hiring, training, and program decisions, the related expenses are charged against
the budget in the period in which they are incurred, and you can adjust your decisions from
quarter to quarter. Compensation decisions are handled a little differently, since they affect
results from that period on. When you add a benefit to the employee compensation package or
increase wages, your budget will be charged for the additional benefit expense or wage increase
for that first quarter and that quarter only; in subsequent quarters, the firm will absorb these
expenses.
Carefully analyze your budget to ensure that you do not overspend. You might have to drop
critical programs in the last quarter of the year if you do not have enough funds in the budget.
Dropping programs will have a negative effect on employee morale or safety, which could result
in increased turnover, decreased productivity, and more accidents.
Quarterly decisions must be made within these budgetary constraints:
For the first year, your budget is $1,400,000. Twenty-five percent ($350,000) should be your target
spending for the first quarter.
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Decisions
Staffing
It is important for you to provide enough employees at all job levels to meet production goals
each quarter. This means replacing workers lost to turnover while adjusting for changes in
productivity and required units of production.
Methods
There are two methods of filling positions. The first method is to hire qualified people on the
open market; the second is to promote employees from within. Although the latter method has
been a primary method of filling management positions in the past, a lack of formal training has
often resulted in less-than-desired performance by promoted employees. One advantage to
hiring from outside the firm is new hires can bring fresh ideas and new methods into the firm.
There is a distinct cost difference between the methods of filling positions. The table below
displays the outside hiring costs for each job level. Hiring costs are automatically charged against
your budget when you hire a new employee (you will not need to enter hiring costs into the
simulation) and should be considered while planning your budget. Hiring expenses include costs
for recruiting, interviewing, and testing, and they may include additional costs for employment
agency fees and travel expenses.
Outside Hiring Costs
Automatic
Job
Charge per
Level
Employee
5 $15,000
4 $12,000
3 $10,000
2 $7,000
1 $2,000
There is no direct cost for promoting an employee within the firm. Keep in mind, however, that
employees promoted to a higher position may need to be replaced. They may also need more
training than candidates recruited from outside the firm.
Overtime
If you do not have enough employees to meet the production quota while working standard
shifts, employees will have to put in extra hours to make the units required to meet sales. The
firm will be charged $45 per overtime unit produced, increasing unit labor cost for the quarter.
Some of the overtime cost will be charged to the HR Department budget and excessive overtime
may result in a negative evaluation of HR.
Demographics
One of the problems facing the human resources director in your organization is the lack of
females and minorities at all job levels. The firm has fewer female and minority workers than
would be expected given the local working population. Because of the rapid growth of the firm,
little effort has been made to have a representative workforce. Although there is no litigation
concerning this imbalance at the present time, the new human resource director has been
directed by the CEO to begin diversifying the workforce.
A percentage of total hires is established in each quarter for hiring minorities and females. The
percentage represents a policy that should be considered something between an optimum and
a minimum percentage. There is no guarantee that the exact number of females and minorities
can be hired as other firms are also attempting to correct imbalances. Males or females can do
all the jobs in the firm.
The table below gives the current workforce demographics. The “Community” columns show
percentages of females and minorities the firm should have as a long-term goal.
Firm
Job Firm Firm Community Community
Number of
Level Females Minorities Females Minorities
Employees
5 20 0 (0%) 0 (0%) 25% 20%
4 25 1 (4%) 0 (0%) 20% 25%
3 50 10 (20%) 5 (10%) 30% 25%
2 60 12 (20%) 6 (10%) 35% 25%
1 500 60 (12%) 40 (8%) 40% 30%
Employee Turnover
The firm’s current turnover rate of 9.8% per quarter is comparatively high. Employee morale
could be a factor contributing to high turnover. Department heads estimate that morale is 50 on
a scale of 0 to 100. A rating of 50 indicates morale is lackluster and many employees are coming
to work with indifferent attitudes. Some managers in the firm have mentioned one or more of
the following as possible causes of the low morale: the lack of a formal performance appraisal
program, wage rates and employee benefits lower than local equivalents, the lack of a grievance
procedure, and poor training.
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Productivity
Direct production of your product or service is performed by Level 1 workers. Productivity at the
start of the simulation is 200 units per employee. Although industry-wide figures are not
available, it is felt that improvements of 10–20% can be made. Productivity is not normally the
responsibility of the human resources director; it is included in the simulation because of its close
relationship to key human resource areas such as turnover, quality, grievances, etc.
As you might expect, the higher the productivity per employee, the fewer employees are needed.
If productivity increases, there will be fewer Level 1 and Level 2 workers to employ; therefore,
hiring costs as well as the cost of wages and employee benefits will be lower. Be aware that
productivity can drop suddenly when there is a drop in employee morale.
Wages
Wage rates for the firm are below average for the local community. Decisions concerning the
level of wages and benefits are not traditionally the sole responsibility of a human resource
director, but the CEO has given you the responsibility of making these decisions. However, you
are limited to a 10% increase each quarter, and the increases must be within budget. Be careful
when increasing wages in a quarter because the cost can have a significant impact on your entire
annual budget. The lowest level employees are paid on an hourly basis, while the other
employees are salaried. The following table illustrates the wage rates (excluding benefits) that
are currently in effect at the firm, along with the median wage rates in the local area.
Job Titles and Quarterly Wage Rates
Level Local Area Wages Wages at this Firm Typical Job Titles
5 $19,000 per quarter $18,000 per quarter executive managers, engineers
4 $16,000 per quarter $14,000 per quarter department heads, staff specialists
3 $14,000 per quarter $12,000 per quarter department supervisors, technicians
2 $11,400 per quarter $10,000 per quarter direct supervisors, skilled positions
$17.31 per hour $15.38 per hour
1 semi-skilled positions
($9,000 per quarter) ($8,000 per quarter)
Employee Benefits
The firm has very meager benefits; these are presently 20% of wages. Employees do not pay any
part of these benefits. An analysis of your current benefits and costs (as a proportion of payroll)
is shown in the next table.
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Proportion
Employee Benefits
of Payroll
Social Insurance Program 7.65%
Unemployment Insurance 1.00%
Health Care Costs (Tier 1) 4.35%
Workers’ Compensation Benefits (injuries on-the-job) 1.00%
Vacation/Holiday Policy 5.00%
Sickness Pool 1.00%
Total % of Payroll Cost: 20.00%
Vacation/Personal/Sick days earned are 10 days after one year for Level 1 and 2 employees and
15 days for Levels 3–5, with 6 paid holidays for all.
Each “Add another Vacation/Personal/Sick Day” will add one additional non-work day to be
accrued and used appropriately. For example, if 4 days are added, a beginning employee would
have 14 days to use as vacation, personal, or sick days (10 base + 4 new). Adding one of these
days could also be assumed to be another paid holiday.
You will have the opportunity to add other benefits to the employee compensation package.
Additional employee benefits and their associated cost (as a proportion of payroll) are shown
below.
Employee Benefit Options
Benefit Proportion of Payroll
1 additional Vacation/Personal/Sick Day 1.60%
2 additional Vacation/Personal/Sick Days 3.21%
3 additional Vacation/Personal/Sick Days 4.83%
4 additional Vacation/Personal/Sick Days 6.46%
5 additional Vacation/Personal/Sick Days 8.10%
Employee-Funded Pension 0.40%
Employer Sponsored Pension—Low Contributions 3.40%
Employer Sponsored Pension—Moderate Contributions 4.15%
Employer Sponsored Pension—High Contributions 6.80%
*Tier 1 Health Plan (Lowest Coverage / High Deductible) 0.00%
Tier 2 Health Plan (Low Coverage / Moderate Deductible) 3.27%
Tier 3 Health Plan (Moderate Coverage / Low Deductible) 6.81%
Tier 4 Health Plan (High Coverage / No Deductible) 9.66%
Dental Care and Eye Care 0.20%
Prescription Drug Plan 3.20%
Term Life and Legal Services 0.10%
Tuition Reimbursement 0.80%
Incentive Plan 3.26%
*Note: This is the default health care plan with the cost built into the basic benefits package;
there is no additional cost charged against your budget.
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Training
At present, the firm does not have any formal training programs. You have the opportunity to
select from a variety of training options, described in detail below. Any training funds you allocate
will be reported in your quarterly Budget.
When promoting, do not forget to hire new people for the positions vacated by workers who are moving
up the corporate ladder. The most common error made by students is failing to hire the correct number
of employees to replace those who have resigned or been promoted.
Quality Program
At the present time, the firm has a mediocre quality rating: 50 on an index ranging from 0
(extremely low quality) to 100 (high quality). Although quality control is not normally the
responsibility of a human resources director, it is incorporated into the simulation because it is
closely related to personnel areas such as grievances, training, and turnover.
The quality of the goods produced (or services rendered) will be found on the quarterly
Development report. Currently, product/service quality is checked at the end of the process
(post-process control). A minimal quality control program can be established with $4,000. A
program to train supervisors to conduct quality checks during the process (concurrent control)
could be established for $5,000 per quarter. An allocation of $13,000 per quarter would need to
be set in order to have a full-time quality control manager. A Total Quality Management (TQM)
program could be established for $25,000 per quarter, which includes a full time manager and
concurrent controls. A more formal quality control system could be established with funds of up
to $40,000 or more. To summarize, you may allocate any amount to this category from $0 to
$80,000, and the more you allocate, the greater the emphasis placed on the quality aspects of
your firm.
Although the simulation allows for large amounts to be allocated in these expenditure categories, there
will be a point of diminishing return. This point is reached when your increased expenditure no longer
produces an increase in benefits as great as the expense.
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Programs
There are six programs available that will have a positive impact on the Human Resources
Department. These programs include (1) an employee participation program, (2) a system for
handling employee grievances, (3) an orientation program for new employees, (4) a
computerized HR Information System, (5) a procedure for evaluating employee performance, and
(6) an affirmative action program. The costs for these programs differ and range from $3,000 to
$12,000 per quarter.
Below each program title is some background information about the firm and some possible
benefits that will result from initiating these programs. Make sure you have room in your budget
to sustain programs you start; you can lose any benefit of a program if you discontinue it.
Employee Participation
Contemporary human resource practices include various employee participation programs that
attempt to give workers more self-direction and control over their work and working conditions.
Programs range from voluntary problem-solving groups to formal quality-circle programs. The
program costs include funds for establishing and supervising new training programs and pay for
employees’ time while they attend training sessions. Results from this type of program are
typically an increase in employee morale and a decrease in turnover.
Grievance Procedure
The firm does not have a grievance procedure; department heads handle grievances informally.
The department heads estimate there were 31 grievances last quarter. It is felt there are probably
many more than this number, but employees either quit or continue working with lower morale
instead of seeking resolution. The high turnover rate and mediocre morale index adds credence
to this theory. A formal grievance procedure should increase employee morale and decrease
turnover.
Orientation Program
The firm does not have an orientation program for new employees. This could contribute to the
higher than average accident and turnover rates. Orientation programs for new employees tend
to reduce accidents and decrease turnover.
Special Decisions
If your instructor selects this option, each quarter you will have a mini-case, which is termed an
incident. Your team will need to debate the issues being presented by the incident and enter the
appropriate response. If you have trouble choosing from the options provided, you must still
select the one closest to your opinion. An incident response is a required decision and is not
optional. Incidents represent a “window of opportunity” for you, and because of simulation
constraints, an incident may only be available during the quarter in which it is offered. Any costs
will be automatically charged and will appear in your Budget report.
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To help you allocate your budget among the different human resource functions for which you
are responsible, HRManagement provides several analysis tools you can use to check your
decisions. For example, the Staffing decision page forecasts how your staffing levels will compare
with what is required to meet production targets. The Training decision page computes the
minimum expenditure for training your new hires and promotions. The Wages decision page
calculates the impact of your wage increases on payroll and the budget. Finally, the budget bar
projects the quarterly cost of your decisions as you enter them and shows your spending
compared to your budget; the Budget page provides more detail.
For information about what is happening in the industry, you can purchase survey reports on
wages, training, and production in other firms. In addition, a report is available that shows
performance on several HR measures—such as employee turnover, accident rates, and morale.
These reports can be very helpful in determining what works well in the industry—and what
doesn’t—as you strive to improve performance in your company.
Next Step
As the new human resources director, challenging decisions will demand your immediate
attention. Be sure to formulate a plan for your department that will guide you in making decisions
each period. To begin the simulation, you must first name your organization and enter that name
into the simulation as your Start-up Decision. Choose a name carefully so it will stand out from
the other firms in the industry. Once you’ve entered a company name, you will be able to enter
decisions for the first quarter in the simulation (Staffing, Wages, Benefits, etc.). See the table on
the next page for a summary of the quarterly decisions.
The CEO of your company has high expectations as you start your new position and is looking for
improvement in a number of key areas—such as higher quality and morale, lower turnover and
accident rates, and a more cost-efficient operation overall. Be sure staffing needs are met to
ensure production continues smoothly, but do not neglect the longer-term goals that will make
your company a better place to work in the years to come.
Good luck as you put your management skills to the test in the world of HRManagement!
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You can purchase a wage, training, production, and performance survey. Each report cost $1,000. It is
available immediately and cannot be undone.