Formed in 2007 Human Potential Accounting (HPA) measures the financial impact of an organisations HR investment, in terms of both the value which is created by individuals and the risks to the business which they represent, simply because they are people and not any other kind of asset.
The development of such a twin audit was the impetus behind the creation of HPA.
Dr Michael Reddy, Director of Human Potential Accounting
Michael Reddy, the Director of Human Potential Accounting, is probably best known as the Founder and former Chairman of ICAS, the psychological services company, which he ran for 20 years and brought to international status with 17 offices overseas. The business has now been merged with AXA-PPP, the health services group, to form an integrated physical and mental health services provider.
"My years with ICAS were fruitful and enjoyable, and left me with one more thing to do," says Dr Reddy. "AXA-ICAS takes 300 calls a day from employees with practical, emotional and health needs, so we've always known we were giving an enormous amount of help, as well as saving the NHS a great deal of money. One thing that was more difficult was to tackle problems where the source was as much within the organisation as in the individual."
"Part of the problem was the lack of clear audit tools to demonstrate, measurably and predictably, the impact of Human Resource Management policy and practice on the bottom line - supposedly, and tantalisingly for me, an impossible challenge."
"A lot has been done in recent years, and sophisticated models built by HR specialists. Human Potential Accounting, with its dual approach to measuring value creation on the one hand, and behavioural risk on the other is part of this movement, connecting HR and Finance in a new way and designed eventually to bring changes to standard balance sheet and P&L accounting."
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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.
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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."
HPA is continually working on new research. Concept research soon to be released and available to download include:
- The History of Human Capital Management.
Summary of the use and development of Human Capital Management over the last 20 years. Available to download December 2008 - Behavioural Risk Explored and Reviewed.
Offers a summary of the most prevalent and destructive behavioural risks currently threaten today’s organisation. Available to download January 2008. - Book Review of “Understanding psychological contracts at work;
A critical evaluation of theory and research” by Neil Conway and Rob B.Briner
If you would like to see some of the research from HPA and it partners click here.
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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.
