The document discusses whether the human resources (HR) department is considered a cost center or profit center. It notes that traditionally HR has been viewed as a cost center as it does not directly generate revenue. However, HR can help reduce costs through initiatives like self-service technology and help increase revenue by improving employee performance and retention. Empirical evidence also shows that companies with strong HR practices have higher profits and returns. By quantifying its impact, HR can demonstrate its value and transition from a cost center to a profit center.

1. HR DEPARTMENT :
COST OR
PROFIT CENTER

2. HUMAN RESOURCE MANAGEMENT
• It is a function in the organizations designed to maximize employee performance
in service of an employer's strategic objectives.
• Hr is primarily concerned with the management of people within organizations,
focusing on policies and on systems.
• It involves all management decisions & practices that directly affect or influence
the people or human resources who work for the organization.

3.  The division of a company that is focused on activities relating to employees.
these activities normally include recruiting and hiring of new employees,
orientation and training of current employees, employee benefits, and retention
 HR is the most valued department in an organization since they are the guardian
of people’s interest and people are the company’s important assets.
 Human resource management is essential for overall productivity and efficiency
of the strong work force in any flourishing organization.

4. • A cost center is part of an organization that does not produce direct profit and
adds to the cost of running a company.
• A profit center is a unit of a company that generates revenue in excess of its
expenses.

6. • The human resources function is often considered a cost centre, because technically it
does not directly generate revenue .
• A prominent target for cost reductions.
• By monetising various aspects of the hr function within the company, and showing how
those functions impact and add to the bottom line financial outcome of an organization ,
hr can easily turn from being a cost centre to a profit centre.
• Management has come to realize the importance of human capital management and its
overall value in driving business profitability.
• Hr is now no longer considered to be a cost centre.
• In fact, its role has evolved into one of a profit center, where it now makes strategic
decisions that drive company’s growth and profit.
How HR has evolved from a Cost Centre to a Profit Centre

8. HOW HR DRIVES PROFIT

9. • HR certainly improves the effectiveness of the organization, which allows the
company to find new business or open new markets
• In order to boost corporate profitability, hr has two ways of looking at building
profit:
1) cutting costs
 utilizing technology to provide employee self-service.
 self-service technology enables employees — and their managers — to do such
things as pursue e-learning, get answers to stock and compensation questions,
and manage performance without the help of hr professionals or expensive hr
handbooks.

10. 2) Helping to generate revenue
eg:-
Valassis, a marketing services company based in Livonia, Michigan. this 1,400-
person company helps other companies market their products and services, most
notably through coupon inserts in sunday newspapers around the country. Valassis
posted 10 percent net growth last year and continues to grow despite the tough
climate for advertisers.

11. Hr activities must work together to create an overall culture that is conducive to
profit-making.
Profitable companies have the following hr initiatives in common:
 They communicate extensively
 Employees are involved in setting goals
 Employees understand how their jobs affect the bottom line and how the
bottom line affects their paychecks

12. Empirical evidence that is readily available to quantify the value of HR based
initiatives :-
• Companies that invest in talent management initiatives yield 27% greater
shareholder return
• Increases employee engagement by 5 per cent can add 2.4 per cent to a business
operating margin
• Shareholder returns are 3 times at companies with superior human capital
practices than at companies with weak human capital practices.

13. WAYS OF HR TO CHANGE FROM COST CENTER
TO PROFIT CENTER

14. USE THE TOOLS ALREADY AVAILABLE
• Department can tap on existing employees to streamline human
capital management and organizational development.
 When recruiting for new talent ,utilize an employee referral system to help
identify and attract top talent.
 Harness employee hidden talents.
• Conduct an employee skills and interest survey.
Opportunity to learn new skills to hone abilities that was underdeveloped

15. RETENTION THROUGH RETRAINING
• Employee training and professional development have a cost associated with it
,but it also gives back.
• Employee satisfaction and engagement leads to customer satisfaction.
• Employee loyalty depends upon perceived job security and future employability.
• Inhouse training

16. INVENT REVENUE
• Cost centre is able to offset some of their expenses by creatively generating unexpected
revenue.
• Charging back other departments for services.
Eg:- training course, succession planning for different department, conflict resolution,
compensation analysis and employee surveys.
• Inhouse Hr-better option than outsourcing
• Sell Hr services externally-training
If you can cover all your costs with offsetting revenue , it is not a cost centre
anymore.

17. Recruiting right people at right time.
Proper training and development sessions can helps in enhancing their
employability and visibility in the company.
There should be a proper communication between the superior and the
subordinates.
Motivation can lead to better work efficiency.

18. HOW TO MEASURE WHETHER IT IS PROFIT
OR A COST CENTER?

19. 1. Split sample contrast — use a split sample or a control group. Instead of
applying a new HR program to the entire team or division, apply it to only half to
demonstrate the relative impact of the program.
2. Before and after contrast – measure employee performance just prior to
program implementation and again after implementation, show the contrast in
performance.

20. 3. Demonstrate a correlation — show a direct correlation between the increased
usage of a tool by managers and employees and an increase in productivity,
revenue or profit. Also demonstrate that when usage goes down, so does
productivity.
4. Results after implementation — show that employee performance is high
immediately after the program is implemented (in this case you do not have
“before” performance data (as in #2) for precise comparisons)

21. GRAND HYATT
Grand Hyatt hotels are large luxury hotels in major cities and holiday
destinations.
Mission & vision
To provide authentic hospitality.
To make difference in the lives of those they “touch” everyday.
To do this in an environment that respects all people and all ideas.
To do it in an efficient way that leads to superior results.

22.  According to their company policies and from the economic point of view HR
is considered as cost center.
 A cost center is created when overhead cost are directly allocated to
departments, outlets or individual products.
 Hr does not generate any revenue nor does it have any source to generate one.
 Hr takes care of resources [people] but the returns from this department cannot
be calculated in monetary terms.

23. HEWITT
• Is one of the world's leading HR consulting and outsourcing companies.
Mission & vision
To enhance associate engagement
To strengthen our business
Discover ways to reduce their HR costs
Process millions of HR customer interactions, freeing them to focus on their core
business

24. From the company’s point of view HR is indirectly a profit center.
Hr can generate profit by reducing the cost involved in hiring, absenteeism,
attrition and by raising the productivity level of people through proper training
programmes in order to improve the skills.
Every department, be it production, marketing, finance etc.. Incurs cost while
performing their functions. Likewise HR also incurs cost while performing HR
functions.

25. HR is a bridge between cost center and business segment.
Though one cannot calculate its benefits in monetary terms but the department
has its huge impact.
Hr is also considered as a resource center.
“ If finance is heart of the organization, marketing is considered as brain of the
organization then hr is definitely the soul of the organization.”

26. THANK
YOU