HR Strategy

Moving Beyond Traditional Accounting for Human Capital Costs

Traditional personnel cost accounting principles do not take into account productivity efficiencies. Accounting for activity costs can reveal some surprising results.

- By Malibu Kothari

There are certain assumptions in traditional cost accounting approaches. For example, traditional accounting assumes that costs this year should be equivalent to costs last year after adjustment for inflation or some other factor directly influencing labor rates, like cost-of-living increases. The real issue with this approach is that it does not reflect real world changes, expectations, activities, and results in which workforce members must increase productivity, contribute to innovation, or bring some other kind of value to the organization. Traditional accounting calculates a homogenous cost-per-labor-unit figure that reveals no information about the cost or efficiencies of specific work activities. On the other hand, activity-based costing concentrates on work by sorting and m...

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