The human resource department within an organization are by far an asset that is the highest value and it is a fact that everyone acknowledges this fact, isn’t it? This is exactly the place Human Resource Accounting comes into the picture, however it is an entirely different kind of accounting procedure than the one you’ve encountered or heard about in any the world. According to the definition, it is an accounting process that involves the determination, measurement and reporting of people resources within an organisation is done. There are a lot of excellent reasons to employ it however there are some disadvantages that come with it that most people tend to ignore. But don’t fret as we will not, because we will examine the advantages and disadvantages of human resources accounting, also known as HRA in short. We will take a look.
Advantages of Human Resource Accounting
1. Smarter Decisions
Simply put it’s a hundred percent fact the fact that Human Resource Accounting (HRA) is a vital tool that helps improve decisions in any company. This provides a sense for businesses of what their employees are actually worth. The information can help leaders make informed decisions on the people they should hire or train and who to develop.
2. Easier Workforce Planning
HRA can assist in coordinating the employees of an organization. Comprehensive information on the skills of employees as well as their training and performance will help to predict future HR needs and steps that must be planned ahead. This will eventually result in the correct number of employees and the best employees with the appropriate roles within the company, which will ultimately be a great factor for the overall development.
3. Increased Employee Motivation
One important benefit of HRA is the increased motivation for staff. If employers can demonstrate that they are aware and appreciate the work of an employee They are also likely to attach the rewards and pay directly to the employee’s performance. The realization of this boosts motivation dramatically, leaving employees feeling valued and motivated to do even better. HRA are a key back-stage role in creating an environment that encourages the teamwork.
4. Better Training Programs
Human Resource Accounting allows an company to develop more efficient plans for training. For instance when it is clear in which area employees excel or are weak in and what areas they are weak in, then training can be tailored to suit particular needs and improve the overall performance, surely? This ensures that the that the money invested in training is efficient, and employees get the skills to allow for career advancement.
5. Attracts and Keeps Top Talent
HRA utilization can improve the image of your company an attractive one to those with the most talent. Being honest and open about the value you place on employees’ work can attract highly skilled individuals. HRA helps to retain the talents already exists in employees by making them feel valued and properly recognized and this is also for the long run. A solid reputation for the quality of your human resource is a benefit in the job market as it can help you attract and retain the best employees.
6. Clearer Financial Reports
HRA provides a precise and accurate picture of the value of human resources which, in turn it improves the quality of reporting that is done for the financials of your business. This broad view lets anyone to understand the true extent of your company’s assets and that extends to individuals as well. Financial reporting that is more accurate is vital for investors, stakeholders as well as regulators since it’s the best method to provide a clear assessment of the value of a business and an accurate estimation of its growth potential.
7. Supports Strategic Planning
Finally, HR Accounting facilitates strategic planning by providing the necessary details regarding what the workforce is able to and cannot do. This information can help align the HR strategy to the general goals of the company. When you do this, by discovering the potential and value within human capital, HR professionals will be able to take strategic decisions that will improve the performance of your business over the long term.
Disadvantages of Human Resource Accounting
1. Guesswork and No Set Rules
The biggest issue in HR Accounting is how subjective it is in assessing the human capital. It is very difficult to establish an accurate value for human resources in comparison with physical resources. Utilizing different approaches and assumptions could cause the results to differ greatly, making it difficult to assess the numbers of different firms. These kinds of inconsistencies could result in errors and compromise the accuracy of the data obtained from HRA.
2. Expensive to Implement
There is a cost associated with HRA’s implementation HRA which, in some cases, can be expensive, particularly for small and medium businesses (SMEs). A large amount of money is utilized for the development of specific tools and software, and there’s a lot of education that must be completed by HR personnel too. In addition upgrading HRA systems and tools HRA system and constant data collection can be extremely expensive for a business.
3. Complicated and Time-Consuming
We can all acknowledge on the fact that HRA is a difficult task and requires a vast process of analyzing and collecting information. It includes recruitment costs, training expenses and how employees perform and more. It takes a lot of energy, time and cash, which is usually out of overheads company, and especially for smaller HR departments.
4. Privacy and Fairness Issues
The legal and ethical issues pertaining to HRA mostly revolve around confidentiality and the discrimination issue. HRA is believed to collect details about employees which is why it’s viewed as an infringement of privacy and should be handled with care and with care. There’s always the issue that considering employees as assets may cause them to be treated as just numbers and it always feels unfair and could cause massive legal issues regarding unfairness and discrimination.
5. Constant Updating Needed
Human Resource Accounting is not an one-time event however, it is in fact it is a continual updating process that ensures that the information is always accurate. Human resources are always changing which is the reason the data must be frequently updated to keep pace which is not less of a hassle.
6. No Common Standards
It is evident that different companies may have different methods to assess their human capital. This means that results can’t be easily compared. In the absence of standard methods, it’s difficult to evaluate the performance against the competition or to provide transparent and consistent data to all the stakeholders within the company.
Conclusion
This is pretty much it. You now know the reasons why firms or companies choose to follow the road of using HRA. We’d like to think that today’s blog has provided a variety of facts regarding the whole HRA matter in the most simple method feasible.
