New financial statements can account for your organization’s biggest asset
Valuing the people inside your organization is usually something the HR team talks about in team meetings. The accounting department, on the other hand, writes off personnel as an expense. However, this gap between treating employees as items of value and deducting them as an expense clouds the value proposition for your company. If you’re only as good as your people, then what are those people worth?
Assessing the value of human capital has been done in a number of ways in the past. Minority and women-owned businesses are no strangers to the concept of billable hours, productivity, and wage costs, common workforce metrics. Yet these measures don’t provide anything more than a surface look at the value of your staff, meaning that you need a more robust tool to communicate the value of your team to the market. This more robust tool may well be a Human Capital Financial Statement (HCF$).
Human Capital Financial Statements
Given the trend in the HR space for more and more metrics to define the workspace, it is no surprise that the market has been calling for something more robust when it is time to discuss human capital analytics. Any MWBE manager with a super star on his or her team knows that workers are worth much more than the number written on their pay stubs. To acknowledge this reality and meet the market’s needs, the Human Capital Management Institute developed Human Capital Financial Statements (HCF$™).
HCF$™ documents provide a standardized way to measure, report, and disclose human capital. The goal is to provide transparency for both would-be investors and management teams around the value of the workforce as a whole and specific individuals as line items where needed. Job roles at different levels are evaluated in terms of their value contribution to the organization, while HR programming for workers can simultaneously be evaluated for effectiveness.
The net result is that, instead of wondering what something is worth or arguing over what is right, an objective answer is available. There’s an end to second guessing or faulty assumptions. Companies can be evaluated in terms of their human values as well as their broader reputations.
Linking HCF$ Metrics to Business Results
In a financial environment, everything needs to have its value. Nature abhors a vacuum, but not nearly as much as financial planners and investors hate undefined assets or expenses. Whether doing internal strategic planning or seeking out potential investors, the more clarity and transparency about operational levers, the better!
The power of a HCF$™ is that it can be tied directly back to key business results. Human capital ceases to be an unknown and starts being a real measure of success or failure. The components in the statement help show the same trends and indicator points you might find in any other financial document: What’s working well, where are there issues, and what areas are most profitable for investment?
Making this connection is critical for MWBEs. Access to capital is an issue that is discussed over and over again in the MWBE community, but securing capital requires the assets to back it. Without a HCF$™, there is no way to show a banker or potential investor the value of your team. They just have to take your word for it, something almost no one will do in this economic climate. With a HCF$™, there is a standardized and independent measure of staff value, allowing that value to be added to your total company profile to help you get credit, support, and clients.
Along with value for capital backing, an HCF$™ can also help fill in the blanks for why initiatives are or aren’t working. Why aren’t profits better? It’s not just ‘personnel costs’ or other vague HR speak. Instead, it can all be laid out in a robust financial statement that gives a full picture of which groups or measures aren’t living up to their potential. From there, everyone can make more informed decisions about next investments or next developmental steps.
More metrics, more respect
Building out the value of team members with HCF$™ documents, MWBEs can also garner more respect for everything that they do. This can provide internal leverage with management team members and exterior leverage in the community. Numbers which are vague don’t get any power, but hard data demands attention and appropriate treatment.
Internally, using HCF$™ documents to assess the value of human capital can combat mindsets that take workers for granted. Yes, to a certain extent everyone is replaceable, but who wants to really test that adage with sky-high turnover rates? Once the hard dollar amounts and cash flows are called out clearly in an HCF$™ report, managers at all levels will need to give more respect to their workers.
Externally, using the HCF$™ could help build up respect and consideration in the community. Once a hard number is set for the value of people, how can that group be taken for granted or ignored? The number represents real economic potential for the community and real economic achievement for MWBEs.
If your company is only as good as its people, it is important to know the value of that asset. In the past, there wasn’t a clear system to do this. HR valued team members one way and accountants valued people in another. With HCF$™ tools, it is possible to put a standardized value on human capital and give fair consideration of any organization’s biggest asset class.