Model 1:
The basis of this approach is what has been tried and tested in several companies, including SAIL, and is in conformity with the model proposed by Flamholtz in 1972. According to this, HR value is defined as the "value of the current wages payable to employees currently on the payroll for the remaining years of their tenure with the company."
Assumptions: The quality of manpower is critical to the success of a business; human resources constitute an important raw material in their own right. Therefore, it is necessary to regularly monitor the skills level of the people so as to upgrade them whenever necessary. This cannot be done alone; once the HR are measured and a value determined, it gives you control.
Steps in this model:
STEP I: Employee Mapping into Service States
STEP II: Determination of the number of years of tenure in each service state
STEP III: Estimate the wage rates relevant to each service state.
STEP IV: Estimation of the HR value.
Advantages of this model:
First is the link with corporate strategy, not in terms of day-to-day operations, but in terms of our expansion and diversification plans. For instance, while tapping different markets for funds, a corporate requires a credit rating, and an HRA in place will enable a corporate to secure a better grade from credit rating agencies and a better rate on debt instruments. Second, in a technology-intensive business, it brings to light the value of the R&D workers' value who will make all the difference tomorrow.
Model 2:
This is an alternative model based on the premise that a business firm is an economic entity with all the characteristics of a living organism.
Assumptions:
Commercial law does, indeed, recognize an incorporated business firm as a distinct legal entity. But it misses out on the fact that a business firm is an amalgam of men, machines, and materials; it is the organic component of this amalgam which breathes life into the firm and imparts to it the attributes of a 'going concern.' HR value is thus the value addition made by the organic component (men) to inorganic components. Evidently, a business firm devoid of human resources is a dead assemblage of physical assets. The HR value of a firm is, therefore, the difference between the firm as a 'going concern' and the net realizable value of its assets.
The measurement proposed is that of the HR value for the organization as a whole, and not of a single individual or a homogeneous group of individuals. The premise is that an individual has no value independent of the organization of which he is a part. It is the congregation of the various groups that generates HR value in an organization.
Steps in this model: Click each step to explode further.
STEP I => STEP II => STEP III
Advantages of this model:
The HRA model is in conformity with traditional accounting practices and is easy to implement. It does not use a surrogate measure of HR value but calculates them through specific formulas. The degree of subjectivity is also within tolerable limits.