Release 16

“ Determining the worth of people Treating People as Assets.”

      In the last two releases we have seen how people can perform as Quantum Beings & capable of Quantum Performance. This means their worth to the company can be enormous. In this release, we will see one method of determining the intrinsic worth of people.
There are several attempts over the last 30 years to value people, going under the general heading of human asset accounting or human resource accounting. However, none of the methods proposed has become widely adopted. One has to conclude that attempts to use financial valuation methods in respect of people have too many pitfalls.
       In this release, a way of calculating the relative worth of people is proposed base on the combination of their costs ( this being some indicator of their market value ) and an “ individual asset multiplier”, looking at four aspects of personal human capital that bring value to an organization. Very few organizations have a systematic, integrated way of balancing the costs of their people with a measure of the value they are able to contribute.
         Why should we bother to find a way to describe the asset worth for people, individually & collectively given the difficulties attached to such so called assets. After all, many organizations have delivered increasing value over the decades without solving this dilemma ________ is it a real problem ?
Years of growth and progress may yet hide a multitude of poor decisions that have subtracted potential value from stakeholders, including the owners & shareholders. Precious assets and knowledge may have been lost through restructuring and mergers.

      To manage effectively for value creation, we need to :
1.Be able to counter the one- sidedness of “people as costs” with they also have worth as assets and they add value. It will always be necessary to adjust manpower levels, but resourcing decisions should be more about value than about cost.
2.Understand the relative value of individuals and teams, and make choices regarding who we must retain if at all possible. It is not just performance over one year that should shape our judgment; there is much more to human capital than that.
3.Make informed and intelligent investment decisions, and understand the relative benefits of investing in people compared to other assets.
4.Most of all, “keep stock” of talent and expertise in a much more meaningful way than counting heads, and know whether the human capital available to us is increasing or decreasing. The management of talent has rightly become one of the great priorities in this era of managing intellectual capital.

Very few organizations can say that they know how to balance the expense of people with their respective value. They may have lists of people with potential , perhaps also of key people who make a special contribution. Most are conscious of their significant talent and where it resides. What is lacking is a systematic , rigorous approach to understanding the value of people.

Human Asset Worth: A Practical Formula

What is that makes one person more valuable than another.? The answer is very organization specific .For some, it is finding people who will fit in well and make good team members. For others, the ability to get certain kinds of results is all that matters. So any approach has to have some flexibility to meet different situations.
A general formula is suggested as given below :
HAW = EC * IAM / 1000
Human Asset Worth = Employment Cost * Individual Asset Multiplier / 1000.

We divide by 1000 so that the end result will not look like a monetary amount that can be directly compared with cost as this would be misleading . The purpose is to be able to understand relativities and provide a guide to taking appropriate actions.

Employment Cost. ( EC)
This is the cost of employing a person, including taxes such as social security, insurance and the value of benefits package.
EC = Base Salary + Value of Benefits + Employer Taxes.

IAM = Individual Asset Multiplier

Every person is an individual , not just another “head”. The people bring different level of present or potential value to their current role and to the organization. IAM is designed to reflect this.

Four important factors predominate in determining the worth of people .
IAM is the weighted average assessment of :

1> Capability ___ The cumulative skills , knowledge, experience and useful networks.
2> Potential ___ To grow and contribute at a higher level
3> Contribution ___ To stakeholder value
4> Alignment ____ To organizational values.

Each of the above factors is assessed on a scale of 0.1 to 2.0

We will continue the discussion with an example of HAW in the next release.

 

Article by: Prof.S.V. Khambete