Measurement and management reporting of human capital

Are people really “our most valuable asset” or just another cost on the balance sheet?


By Elizabeth Ferguson

Last week I joined Crelos CEO, Ali Gill, for an evening event at the Soho Hotel, run by Human Potential Accounting. The aim of the evening was to build momentum behind the need for more rigorous measurement, management and reporting of human capital, with the ultimate goal being to raise this issue on to the government’s agenda and instigate legislation to govern how human capital is accounted for in organisational reporting.

There is a misconception that it is difficult to measure people. However, over the last ten years or so, the HR profession has become increasingly proficient at measuring all aspects of HR processes and people. Of the FTSE 100, between 40-50% of organisations regularly run an Employee Engagement Survey. Other widely used measures include attrition, new joiners, promotion, pay and reward, re-location, those with personal development plans, those who have SMART objectives and regular performance reviews and the number of training days attended. More sophisticated organisations might even measure the competency of managers and leaders against a competency framework and go on to measure the impact of the leader’s performance on their team.

However, the amount of information collected by HR departments can be very varied, with some well-known high street names admitting that they cannot even be sure of the total number of employees that they have.

There is increasing “pull” from C level leaders for HR to turn all this data in to useful information that can inform the “C-suite” about how their assets (or people) are being managed, how they are delivering value and how they compare against the competition. Leaders are recognising how people can be their biggest and often their only differentiation in an increasingly service orientated and relationship based market place. However, while people can be an organisation’s biggest asset, they can also be the biggest liability. Statistics show that losing a competent person typically costs an organisation one year of salary.

One of the problems in making use of all this information is that HR professionals, those people who collect the information and have it at their finger tips, are sometimes not the best at interpreting it. Ali Gill recommends that HR Directors should put themselves in the position of Finance Directors, and likewise the FD in the role of the HRD. It seems logical that through these functions working more closely together, Human Capital Management (HCM) can be better aligned to the financial objectives of the organisation.

There is much rhetoric on the importance of people to the success of organisations. People, unlike other assets which only depreciate, can actually appreciate in value. But how can the HR and organisational development communities influence business leaders to officially recognise people as assets?

Crelos will be playing a key role in this campaign and welcomes any thoughts or ideas. Please send comments to Elizabeth.ferguson@crelos.com

Elizabeth Ferguson Client Director for Public Sector and Utilities