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Unit 7: Approaches of HRA

(a) The gross value of services to be rendered in future by the employees in their Notes
individual as well as their collective capacity is determined.

(b) The value of future payments (both direct and indirect) to the employees is
determined.

(c) The progress of the value of future human resources (as per 1 above) over the value
of future payments (as per 2 above) is ascertained. This, as a matter of fact, represents
the net benefit to the organisation on account of human resources.
(d) The present value of the net benefit is determined by applying a predetermined
discount rate (generally the cost of capital). This amount represents the value of
human resources to the organisation.
4. Certainty Equivalent Net Benefit Model: This approach has been suggested by Pekin Ogan
(1976). This, as a matter of fact, is an extension of “net benefit approach” as suggested by
Morse. According to this approach, the certainty with which the net benefits in future will
accrue should also be taken into account while determining the value of human resources.
The approach requires determination of the following:
(a) Certainty factor at which the benefits will be available.
(b) The net benefits from all employees multiplied by their certainty factor will give
certainty-equivalent net benefits. This will be the value of human resources of the
organisation.

5. Aggregate Payment Approach: This approach has been suggested by Prof. S.K. Chakraborty
(1976). As a matter of fact, he is the first Indian to suggest a model for valuation of human
resources of an organisation. According to his model, the human resources are to be
valued as a group and not on individual basis.

Professor Chakraborty’s model for valuation of human resources involves the following
steps:

(a) All the employees of an organisation are divided in two groups, managerial and
non-managerial.
(b) The average tenure of the employment of the employees in the group is estimated
on the basis of past experience.
(c) The average salary of the group is determined on the basis of the salary wage
structure prevalent in the organisation.
(d) The value of human resources is now determined by multiplying the average salary
of the group with the average tenure of the employees in that group.
6. Total Cost Concept: This approach has been suggested by Prof. N. Dasgupta (1978).
According to him the various approaches suggested in the previous pages take into account
only those persons, who are employed and ignore those who are unemployed. In case the
value of human resources of the nation is to be determined, it should be done in a manner
that brings in its purview both employed and unemployed persons. The system should be
such that it fits in preparation of a balance sheet showing the human resources not only of
a firm but also of the whole nation.

Example: From the following details, compute the value of human resources of an
employee group with an average age of 58 years.

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