The fact that people, supposedly our biggest asset, are nowhere to be found on the balance sheet makes no sense. It is equally surprising that, on the Profit and Loss Account (P&L), employees are accounted for not as human capital but among a miscellany of expenses and costs.
In today’s ‘knowledge era’, the P&L in its present form struggles to account for value creation. Human Potential Accounting (HPA) brings into play not only the people drivers of business success but also the behavioural risks and costs, which are the other side of the equation. HPA separates out the people component of costs, and supports strategic and operational change to optimise financial performance.
People know intuitively that the way employees are managed and supported has a significant impact on the bottom line. Numerous measures have been devised, (ROI, employee surveys, balanced scorecards) connecting HRM practices with financial results.
Human Potential Accounting (HPA) favours an alternative approach which starts with a set of good business results and works backwards to the HRM practices which made them possible.
HPA complements this approach to measuring value creation with its own emphasis on behavioural risk analysis, the other side of the asset coin.
Measures of value creation attributed to people have thus far proved challenging for HR leaders, measures of behavioural risk on the other hand are comparatively straight forward. The HPA behavioural risk audit identifies a number of ways in which the behaviour of employees poses a risk to the business, the cost of which, wittingly or unwittingly is often overlooked even when relevant data is available.
HPA helps quantify in monetary terms a range of typical behavioural risks which if attended to could bear immediate fruit and attract the favourable attention of the Finance Director.
In an initial phase, HPA can also coordinate relevant data as the starting point for an effective audit. In the words of one Senior HR Director, “I have a shed full of data scattered in various places throughout the business, but no time to pull it together and make practical use of it."
In losses borne by companies the front runner in behavioural risk terms is very often sickness absence, especially if we accept that more than 50% of medical problems should probably be considered largely behavioural in nature.
Although sickness absence is only one outstanding example of behavioural risk, HPA is equipped to source solutions to a range of organisational issues where the psychological or behavioural component of a situation predominates. This could be a procurement challenge, an apparently intractable conflict, or one which calls in the first place for independent investigation. Using the power of crowdsourcing, from 2009 Human Potential Accounting (HPA) will also be able to draw on a strong global network of expertise to help solve such issues.
