Know the Numbers! Finance for the HR Professional

Transcription

1 Know the Numbers! Finance for the HR Professional Beverly Holmes Associate Professor of Business Administration and Management Alaska Pacific University 1

2 Understand financial challenges a business faces Learn to create a financial argument for management approval Learn HR s role in preventing employee theft 1-2 2

3 I don t do numbers. I m HR! 1-3

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6 Identify personnel needs What will it cost to fill all the positions needed? Maintain an adequate supply to fulfill those needs How do we manage turnover? 1-6

7 Match abilities and interests with specific jobs The wrong fit can become costly Provide training and development Promoting from within often pays off Showing the value of training is often a challenge 1-7

8 Develop plans to compensate personnel Usually the main focus of management Protect health & well being of employees Often considered a burden Maintain productive and satisfying work environment Is the paycheck enough? 1-8

9 1. Historical Cost Principle 2. Double Entry Bookkeeping 3. Accrual vs. Cash Basis 4. Matching 1.Revenue Recognition Rules 2.Expense Recognition Rules GAAP makes all the rules! 1-9 9

10 The Trial Balance A listing of all accounts 10

11 Balance Sheet At 12/31 Cash 300 Other Current Assets 990 Current Assets 1290 Property 825 Other Assets 225 Total Assets 2340 Current Liabilities 790 Long Term Liabilities 650 Total Liabilities 1440 Owner s Equity 900 Total Liabilities/Equity 2340 Income Statement YE 12/31 Net Sales 3550 Cost of Sales 2550 Gross Profit 1050 Operating Expenses 860 Operating Income 190 Non-Operating Items 40 Income Taxes 50 Net Income 100 Statement of Cash Flow YE 12/31 Net Income Less: Depreciation, Accruals (50) 100 Cash from Operating Activities 50 Cash from Investing Activities (350) Cash from Financing Activities 150 In crease (Decrease) in Cash (150) Cash at Beginning of Year 450 Cash at End of Year

12 1. How much cash will we really need? 2. What do the 5 year financials look like? 3. What s the path to profitability? 4. What are the risks and rewards? 5. How can these be managed successfully? 1-12

13 Helps management show how they intend to achieve goals set for the year Often considered more rigid than it actually is 1-13

14 You need to be able to prove the worth of your actions Show a Return on Investment for your initiatives Show what it may cost if they do not do what you propose 1-14

15 Showing an understanding of the financial implications improves the credibility of the HR professional You show that you understand the numbers and are on board in achieving management s objectives Upper management can then identify specific, measurable ways that HR services benefit the organization To get movement from the budget constraints, there has to be a compelling argument

16 How do HR services directly impact the bottom line? Make the case and understand that you will have to promote long-term thinking in some cases What programs can be identified and eliminated because they are not financially efficient? As you add programs, show that you can also remove some of them

17 Revenue per Employee Important when evaluating the cost of a lost employee due to turnover HR to Staff Ratio Important because HR serves as the internal customer support staff Employee Absence Rate Evaluating the percentage of absences by department may show a problem in a particular area

18 Worker s Compensation Cost Per Employee Directly links to safety training Overtime per Individual Contributor Headcount Can show burnout or areas that are understaffed Return on Investment (ROI) Management s favorite! Can be creative and still be effective

19 6 Steps to Showing HR s ROI Measuring Human Capital in 6 Steps 1. Identify a specific business problem that HR can impact 2. Calculate the actual cost of the problem to the organization 3. Chose the HR solutions that addresses all or part of the problem 4. Calculate the cost of the solution 5. 6 to 24 months after implementation, calculate the value of the improvement for organizations 6. Calculate the specific return on investment (ROI) metrics Mello, E. (2001) Strategic Human Resource Management 1-19

20 The Problem: High worker s comp rates HR introduces a new health and safety program Effectiveness can be measured by the associated reduction in costs of work-related injuries

21 1. Calculate the cost of the Work Comp claims 2. Show the needed training to address the problem 3. Calculate the cost of the training 4. Show how a reduced accident rate over 6-24 months will provide real savings 1. Experience rating reduction 2. Less lost time on the job 3. Reduced overtime of others who had to cover the job 1-21

22 The Problem: Excessive employee turnover New employee orientation program What are the costs saved by correlated reductions in turnover?

23 Diversity programs HR information systems Wellness and health initiatives Training, development and mentoring programs

24 Please discuss a proposal that you would like to make to management What is the ROI? What is lost if they don t accept your proposal? 1-24

25 Employee fraud is a $20 to $50 billion dollar problem The typical organization loses 5% of its revenues to fraud each year The frauds lasted an average of 18 months before being detected The smallest organizations suffered the largest losses because they typically employ fewer antifraud controls. ACFE,

26 The longer a perpetrator had worked for an organization, the higher fraud losses tended to be Most occupational fraudsters are first-time offenders with clean employment histories Occupational fraud is more likely to be detected by a tip from another employee than by any other method Incorp.com,

27 1.Debt 2.Divorce 3.Drugs 4.Disgruntlement

28 Law 10% will Never commit fraud 80% will under the right circumstances 10% will no matter what you do Opportunity Weakness in internal controls or the person is in a position of trust Pressure Unrealistic corporate goals, desire for revenge Rationalization Believing the act is not really criminal

29 Cash or property thefts Payroll falsification Fraudulent refunds Kickbacks Embezzlement Billing schemes Time theft Information theft Incorp.com,

30 Understand your organization s culture Support internal controls Promote fraud awareness training Help draft a fraud policy Encourage employees in reporting any suspected fraud

31 Understanding financial implications makes a powerful argument Speaking the language adds credibility Using quantifiable metrics allows management to identify measurable ways HR services benefit the organization Know how HR services directly impact the bottom line 1-31

32 Business savvy Align with strategy Bench strength Change catalyst Help management achieve objectives 1-32

33 Thank you for attending my session! Beverly Holmes 1-33

34 AICPA (2001). Why employees commit fraud. Retrieved from Dlabay, J., Burrow, L., Kleindl, M. (2012). Principles of business, 8 th edition. New York: Cengage IIA (n.d.) Fraud detection and prevention. Retrieved from InCorp (2012) How big of a problem is employee theft and fraud? Retrieved from Mello, E. (2001) Strategic Human Resource Management. New York: Pearson Small Business Chronicle (n.d.) Return on investment in human resources. Retrieved from Workology (n.d.) Human Resource metrics examples. Retrieved from Zh coursework.(n.d.). An overview of the roles of human resource personnel in a company Retrieved from