The Value of a Great Workforce

by Glen Birnbaum
Heinold-Banwart Ltd.

Learn to cultivate the greatest asset of your company.

An organization’s workforce is arguably the greatest asset of any organization. As our economy becomes more dependent on human capital, understanding how to create and maintain a solid workforce is increasingly vital. A workforce is an asset capable of being cultivated to maximize its potential and further organizational objectives. It is much more than an accounting asset, however; it is fundamentally a living, breathing organism. This article will first discuss current accounting and valuation methods related to a “trained and assembled workforce.” From this basic economic understanding, further insights and conclusions will be drawn regarding overall human resource management.

Accounting and Appraisal View
The accounting and appraisal community estimates the value of a “trained and assembled workforce” by determining the cost to recruit, hire and train a replacement workforce. Generally, recruiting and hiring costs are calculated separately from training costs. Some examples of these costs include:

Recruiting and Hiring Costs

  • Salaries and benefits of company employees who are involved in recruiting or interviewing replacement employees
  • Overhead costs related to employees who are involved in recruiting and hiring replacement employees
  • Headhunter recruitment fees
  • Direct recruitment and hiring expenditures (advertisements, travel and lodging, relocation costs, sign on bonuses, etc.)

Training Costs

  • Salaries and benefits of company employees who are involved in training replacement employees
  • Overhead costs related to employees who are involved in training the replacement employees
  • Salary and benefits paid to employees during the training process, until they become productive
  • Direct training expenditures (fees paid for replacement employees to attend formal external training courses).

The lists above are certainly not exhaustive. Suffice it to say, the costs associated with crafting and adequately training a workforce are significant. The exact amounts are difficult to quantify, but typical cost ranges as a percentage of compensation are: five to 25 percent for recruitment and hiring, and two to 15 percent for training. The more highly skilled and experienced the workforce, the higher these percentages tend to be.

Recruiting and Hiring: The HR View
Taken in the wrong light, the recruiting and hiring process can be long and arduous. Getting an honest, accurate picture of a job candidate during an interview can be challenging, particularly in this day and age of canned questions and ready-made answers found on the Internet. Who really is the person sitting in that chair or whose name is on that resume? No one ever said the process of finding good, hardworking, qualified candidates was easy, yet the results are clearly worth it.

In order to get a better sense of the person, companies are increasingly relying upon internships. What better way to evaluate a candidate than by putting him or her to work inside your company? Allow the potential employee to experience your culture and processes and interact with your existing workforce. Further, an internship also benefits the candidate by serving as a testing ground to see if the company is a good match for the individual’s preferences and talents.

Ultimately, both candidates and organizations will be judged upon whom they actually are, not what they want to be, or think or say they are. While it is tempting to oversell yourself as a candidate or even as an organization, setting false expectations is never a good idea. Be honest about your capabilities and the other side will respect you for your candor.

Orientation and Training: The HR View
So you have hired who you believe to be the best candidate for the position. Your job is done, right? In reality, the real work has just begun. After all of the time and energy (costs) invested so far, it can be tempting to throw the new hire into the proverbial pool and let him/her “sink or swim.” However, in order for any organization to have true, lasting, staying power, there needs to be adequate processes and procedures in place to give the employee the best chance of succeeding. In order to sufficiently capitalize upon this investment, a well-implemented training program is essential. This includes orientation, where organizational history and culture are communicated, and formal training programs, where the job is actually taught.

It is almost always easier (quicker) to do a job yourself than spend the time to train someone else on the task. However, this view is shortsighted and, more importantly, misguided. By training others, more experienced employees are able to take on other tasks they would otherwise not have the opportunity (time) to perform. Training has another very important benefit that is sometimes overlooked; often, the trainer learns as much through the process as the trainee. You know you understand something well if you can explain it to someone else in a cogent, confident manner. Just because you were “thrown in the pool,” so to speak, and stayed afloat does not mean that your training program could not be improved. Resolve to make it easier on the next new person in your organization.

Conclusion
From both an economic and human resource standpoint, a trained and assembled workforce is recognized as a highly valuable asset to an organization. By understanding the costs and effort that goes into forming such a workforce, you will better gain an appreciation of its true value. With this knowledge and insight, organizations should work toward further cultivating and growing its value. iBi

Glen Birnbaum, CPA is head of the valuation department and shareholder in charge of recruiting for Heinold-Banwart Ltd. He can be reached at (309) 694-4251 or gbirnbaum@hbcpas.com.

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