Valuation of Human Capital – Measure What Matters
In HR, we frequently focus on metrics which – in isolation – have little relevance to the rest of the organization. But there are many human capital investment decisions that have a huge impact on the firm’s financial well-being.
Author Dr. Robert P. Yerex proposes employee metrics that view an employee as an asset as opposed to an expense. This is not simply semantics; an asset is acquired at some measurable cost, has a life cycle, is engaged in a process that requires inputs, and provides some value in return.
In this article, Yerex shows how capturing costs associated with the employee asset and building financial models can help us answer questions such as:
• What percent of our new employees reach fully effective levels of performance?
• What percent of our new employees make it to break-even status?
• What is the value of improving employee retention statistics?
The Workforce Institute agrees that it’s useful to round out our perspective of employees by viewing them as assets that should deliver a return on investment. Using a rigorous model, like the one suggested by Yerex, can help us determine the value of investing in employee training and other development programs.
What do you think? We encourage you to comment on the site and share your tips and tricks with other managers.
If you want to learn more about how to build a model, start here and now by downloading this article: Valuation of Human Capital: Measure What Matters.