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HR Measurement Models
Human Resources » HR Metrics & Measurement

Chrm Message From: tashu Total Posts: 45 Join Date: 15/08/2006
Rank: Executive Post Date: 07/05/2007 10:07:34 Points: 225 Location: United States

Dear Colleagues,

You may want to look at various models of human resource measurement. A couple of Indian companies like GTL, Satyam, Rolta, etc have used this.

One link which gives general gyaan about all this..\ge%20in%20HR.pdf

This summary on HR valuation models should also help..

Cost based approaches

Brummet, Flamholtz and Pyle

Model in brief:
The cost of acquisition, training and development of individuals capitalized with subsequent amortization over the years to reflect the value of the individuals and the organization.


It’s based on historical cost.


Capitalization of the cost, contrary to its expense nature in traditional accounting practices, may not be acceptable.

Accumulated cost of HR acquisition and development may not reflect their value. Cost amortization inappropriate, due to performance rating of individuals.

It is based on historic cost approach. This may not truly represent the HR value of an organization.

Replacement cost method- Flamholtz method

Model in brief:
The cost replacing individuals and rebuilding cost of human organization to reflect the HR asset value.

The replacement cost may be relevant only for key individuals.


Human resource is not traded in the market, hence replacement cost may not exist.

Replacement alternatives may be many and assessment of correct alternative may be subjective.

In the absence of arriving at proper replacement cost of an employee, this model is not useful.

Opportunity cost-based approaches:

Competitive bidding model – Hekimian & Jones

Model in brief:
It is based on competitive bidding amongst the investment center managers to win the individual employees for use, based on the highest bid price to be included as value of human asset along with investment in physical assets while assessing the return on investment by individual investment centers.

More and more individuals may be out of the bidding process and may have no value in the organization.


It requires assessing the likely contribution from each individual for future assignments.

It is more subjective and may not be uniform across the company. The assessment may be based on the perception of the individuals involved in bidding.

It is more subjective and hence cannot be used effectively.

Economic models:

Goodwill method – Harmonson model

Model in brief:
Extra profits earned by organization as compared to industry average rate. i.e, HR value = goodwill* investment in HR / total investments.

The rate of earnings may be influenced by other external factors also and cannot be purely linked to HR .


Goodwill may not be attributable to investment in suppliers, the customers, the public image, etc.

This model cannot be implemented if the rate of earnings of the company is less than the industry average.

This model is more subjective and unless relationship of various factors to the company’s goodwill is established, this model is debatable.

Adjustment discounted future wages method – Harmanson model

Model in brief:
PV of future wages payable for next 5 years discounted at the adjusted rate of return is the HR value. The adjustment rate of return refers to average rate of return on owned assets of all firms in the economy multiplied by the efficiency ratio of the organization during the last five years on weighted average basis.

Rate of return of a specific organization may not be comparable with other firms in the economy.


The model is subjective with respect to PV being restricted for five years, efficiency ratio calculated in past five years, and assignment of weightless for past rate of return.

It is too subjective and hence cannot be used.

Lev & Schwartz model

Model in brief:
PV of likely future earning of an employee till his retirement. The estimation of wages and consequently HR value on a group basis. Wages are calculated as a function of age alone.

Possibility of employee leaving the organization is not considered.


It has to be seen with the PV of future contribution receivable from the employee.

This is easy to implement and use.

Also it is the most widely used model as it can be easily adopted.

Jaggi & Lau

Model in brief:
HR value dependent on rank and performance rating. Assuming the past trend to continue in future estimation on retirement, death and service movements need to be arrived at.

The PV of the likely services from employees relevant to different service states considered as HR value.


Past trend is not an indication for the future.

The model does not recommend any method to evaluate the extent of services that
may be available from the employees.

It is based on the past trend. In a technology-intensive industry like software, past trends may not be representative of the future likelihoods.

Myers and Flowers

Model in brief:
An employee’s attitude governs his productive behavior on the job. The employee’s attitude index multiplied by the wages payable should reflect the likely benefits to the organization and hence the HR asset.

Individual’s attitude matters more then the group’s attitude.


Weightings based on the job grade level and tenure of service may not be appropriate.

Attitude is not the only parameter to influence employee behavior.

Difficult to assess the attitudes of the individual employees and is more subjective.

Behavioral model:

Likert model

Model in brief:
The model aims to establish through psychological test results, how a set of casual variables reflecting the management systems adopted by an organization determine the depreciating or appreciating of human asset.

Establishing valid relationships between organizational health and performance is difficult.


In the absence of a valid relationship, the condition of HR may not be a true reflector of the HR performance.

More difficult to implement and is more subjective.



Chrm Message From: ayeshaa Total Posts: 36 Join Date: 15/08/2006  
Rank: Executive Post Date: 07/05/2007 10:10:36 Points: 180 Location: United States

Hi Tashu,

Your message was surely an interesting read and am sure that it  might have raised a few eye brows on its inttelectual capacity and message. Actually, where can one understand these models mentioned by you like the Lev Schwartz model for this initiative or the Brummet, flamholtz and Pyle model. looking forward to hear from you.

Warm Regards


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