Why is it important to measure HR costs and how can it be measured
Human Resource (HR) costs are costs incurred to hire or substitute people and they have an asset and expense element. Hr costing is a vital constituent of HR accounting which was developed from the need to cut down on excess organizational expenditure on the workforce. Companies need to invest a significant amount of both time and money to utilize their human resources as efficiently as possible. But this cannot be done without measuring the costs of hiring and letting people go. This exam assignment question looks at the importance of measuring HR costs and the methodologies employed to measure such costs.
Key Learning Outcomes
- Understand the importance of measuring HR costs to organizations.
- Gain insight into the different methods used to cost HR expenses.
- Apply HR theory to practice and organizational settings.
Human Resource costs are costs incurred to hire or substitute people and they have an asset and expense element. Human Resource costing is a vital constituent of HR accounting which developed from the need to cut down on the expenditure on HR.
One of the major reasons why human resource costs are measured is to observe departmental costs. All department heads should have knowledge of their costs for planning and budgeting purposes because as the financial year begins, departments are allocated a budget and at the close of the year, accountability is required for the allocated finances. Therefore, carefully studying HR costs can demonstrate how they are evolving.
Secondly, it helps to determine the efficiency of HR costs and activities. An increment in HR costs coupled with a decline in efficiency indicates a decline in effectiveness. Moreover, a company that uses more resources than the other to achieve efficiency has low efficiency.
The other reason it is important to measure HR costs is that it enables a forecast of future costs. An HR practitioner is able to for example forecast the cost that would be incurred by an additional employee. HR costing also helps human resource practitioners in calculating the return on an investment in order to determine the risk factor associated with an investment (Vulpen, 2018).
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