MODELS AND METHODS OF HR

ACCOUNTING-
MONETARY MODELS

SUBMITTED BY :
RAM GOPE
VAIBHAV KUMAR
MBA SEM-3 SUBMITTED TO : DR.ARVIND HANS
 WHAT ARE MONETARY METHODS

 These methods are based on cost or economic value of human resources.

 Under these methods human resources of an organisation are translated into a

common denominator, i.e., money on which organisational decisions are taken.
 MONETARY MODELS OF HR
ACCOUNTING

THE LEV AND SCHWARTZ MODEL

 It advocates the estimation of future
earnings during remaining service life of
employee and arriving at present value by
discounting the estimated earnings at the
cost of capital.
 This method has practical applicability
when availability of quantifiable and
analyzable data is concerned.
 This method only considers wages and
salaries,but wages and salaries are not only
the costs associated with the employees.
 THE ERIC FLAMHOLTZ MODEL

 This is an improvement on the present value of future earnings model since it

considers possibility of an employees movement from one role to another in his
careerand his leaving the firm.
 This method forecast the expected service life of the employee.
 It identifies the service states, the roles that they might occupy including the
time at which employee will leave the organization.
 It estimates the probability of occupying each possible mutually exclusive state
at specified future times.
 MORSE MODEL

 Under this model, the value of human resources is equivalent to present value of
net benefits derived by the enterprise from service of its employees. The steps
steps involved in this approach :
 The gross value of the services to be rendered in the future by the employees in
their individual and collective capacity.
 The value of direct and indirect future payments to the employees is determined.
 The excess of value of future human resources over the value of future
payments is ascertained.
 LIKERT MODEL

 Rensis Likert, in the 1960s, was the first to research in HRA and emphasized the
importance of strong pressures on HR’s qualitative variables and its benefits in
the long run.
 It is a non- monetary value- based model.
 OGAN’S MODEL

 Pekin Ogan(1976) was the pioneer of net benefit model. This is an extension of
“net benefit approach,” as suggested by Morse.
 According to this approach, the certainty with which the net benefits in the
future will accrue should also be taken into account while determing the value
of human resources. The approach requires the determination of the following:
• Net benefit from each employee.
• The net benefits from all employees multiplied by their certainty factors will
give certainty equivalent net benefits.
 MONETARY METHODS OF HR
ACCOUNTING

Human Resource Accounting : It involves measuring the data of human resources,

the cost involved in recruiting and maintaining them, and the returns achieved from
them.
Methods of Human Resource Accounting are discussed below:
• Historical Cost Method
• Replacement Cost Method
• Present Value Method and Economic Value Method
• Asset Multiplier Method
 HISTORICAL COST METHOD

 Under this method, the sum total of all the costs related to human resources is
calculated to find out the value of a human resource.
 These costs include the cost of recruitment, training, placement, and
development of human resources of an organization.
 This method is very easy to calculate the value of a human resource.
 This method follows the traditional accounting concept of matching costs with
revenue.
 REPLACEMENT COST METHOD

 It is that cost which is incurred on replacing the existing human resource by an

identical one i.e. human resource capable of rendering similar services.
 The replacement cost method is very realistic as it considers the current value of
human resources in its financial statement.
 This method is very logical and representative.
 This method can easily adjust the human value of price trends and can provide
real value at the time of rise in prices.
 PRESENT VALUE METHOD AND
ECONOMIC VALUE METHOD

 In this method, the future earnings of the employees are estimated up to the
retirement period and is discounted at a discount rate which is usually the cost
of capital.
 Economic value method present worth of employee is calculated on the basis of
future service that is expected from him till his retirement.
 The payment due to the employees in the form of pay, allowance, and benefit
etc. are estimated and then discounted to arrive at a present economic value of
the individual.
 ASSET MULTIPLIER METHOD

 It considers that there is no direct relationship between the cost incurred on

human resource and how much value he is for the organization.
 The value of human resource depends on various factors like level of motivation
and employee attitude towards work and the organization.
 Here multiplier refers to instruments that relate personal worth of human
resource to the total asset value of the organization.
 Asset Multiplier reflects technical, qualification and experience of employees,
loyalty and expectation of future services.
 CONCLUSION

 Models of Human Resource Accounting helps the

organisation to plan an estimated budget for human
resource expenses well in advance which include
acquisition cost, training cost, cost for expansion of the
human assets, salaries and wages etc.
 Hr Accounting helps management in employment &
utilization of human resources in a cost- effective
manner, helps management in deciding promotion,
demotion, transfers, retrenchment, and VRS schemes.
 Helps in identifying key employees, their cost and
benefits.
 REFERENCES

 Book by Raymond A. Noe of Human Resource Planning & Development

 www.wikipedia.com/monetary models of hr accounting
THANK YOU