This document discusses human capital perspective and valuation approaches. It defines human capital as the knowledge and skills individuals acquire. There are three types of capital: customer, structural, and human. Human capital refers to employee expertise. Valuing human capital is important for management. Approaches include cost and economic models like present value, reward valuation, net benefit, and certainty equivalent net benefit models. These approaches discount future earnings to calculate current value but have limitations. Companies like Infosys use models like Lev and Schwartz to value human resources in financial reports. In conclusion, accurately valuing human capital is beneficial for management decisions.

1. Human Capital Perspective Presented By: Group D2 Ajay Kumar Verma Anusha John Ruchi Gupta Sagar Saxena Sumit Agarwala

2. Flow of Presentation Introduction Capital Redefined Why is Human Capital Key? Valuation of Human Capital Human Resource Accounting Why valuation of Human Resource Essential? Approaches for valuation - Present Value Model - Reward Valuation Model - Net Benefit Model - Certainty Equivalent Net Benefit Model Conclusion

3. Introduction Human Capital is defined as “the knowledge that individuals acquire during their life and use to produce goods services or ideas in market or non-market circumstances“. It is the embodiment of productive capacity within people. It is the sum of people’s skills, knowledge, attributes, motivations, and fortitude. Human capital cannot be owned or transferred.

5. Why is Human Capital Key? New economy is often called the knowledge economy Valuation of Microsoft > GM + Ford + Boeing + Lockheed-Martin + Deere + Caterpillar + USX + Weyerhauser + Union Pacific + Kodak + Sears + Marriott + Safeway + Kellogg. Yet, the only value at Microsoft resides in the heads of its employees!

6. Valuation of Human Capital “What gets measured gets managed.” This suggests then that the fundamental source of wealth creation—human capital—is seriously under managed in most organizations. Expenditures associated with the development of people such as education and training are treated as costs though these expenditures possess the attributes of an investment

7. Human Resource Accounting The process of identifying and measuring data about human resources and communicating this information to interested parties Flamholtz (1971) define HRA as “the measurement and reporting of the cost and value of people in organizational resources”.

8. Why valuation of Human Resource is essential? Increases managerial awareness of the value of human resource. Facilitates logical computation of return on capital employed. The maintenance of detailed records relating to the human resources improves managerial decision making. Increases productivity of human resources. Helps potential investors and other users in making long-term investment decisions

11. Total earnings which each group will get up to retirement are calculated and discounted at the rate of cost of capital. The value thus arrived will be value of HR as an asset

12. Present Value Model Vr= value of an individual r year old I(t)= The individual’s average earnings up to retirement t= Retirement age r= Present age of employee R= discount rate specific to cost of capital of the company

13. Limitations It ignores person’s inherent qualities, traits and skills while calculating human resource value This model considers role of an employee stable and of unchanging nature It fails to correctly evaluate the team work involved It ignores reasons other than death or retirement due to which a person may leave the job

15. Identifying service status, i.e. the role he might occupy, time at which he will leave the organization

16. Estimating the value derived by the organization when a person occupies a particular position for a specific time period

17. Estimating the probable period for which the person will occupy each possible service status in future

20. The value of direct and indirect future payments to the employee is determined

21. The excess of value of the future services (as per step 1) over the value of future payments (as per step 2) is calculated. This gives net benefit to the enterprise

23. Certainty factor at which the benefit will be available

24. The net benefit from all the employees multiplied by their certainty-equivalent net benefits.Limitation : Computational difficulty

25. HRA in INFOSYS The HRA Method used is Lev And Schwartz Accounting Model The software deliver staffs are valued at Rs.26,550 crores while those in the support function are valued at Rs.1,784 crores. Infosys had to take the following assumptions: employee compensation, incremental earnings based on group and age. The FY 2005 annual report on HRA of Infosys mentioned the dichotomy in accounting between human and no-human capital is fundamental.

26. Conclusion Human capital is the sum of people’s skills, knowledge, attributes, motivations, and fortitude. BHEL pioneered in human resource valuation using Lev and Schwartz model. The other companies like Infosys, BPCL etc have followed the suite.

27. References Human Capital Accounting: Should Employees be Classified as Assets? , By Ezewuchi F. Amaefule Valuation of Human Capital, By NavinBhutoria http://thepublicistsassistant.com/jobs-and-careers/human-resource-accounting-hra-practices-in-india/ http://www.infosys.com/hcm/pages/index.aspx