CH-1 HR Roles, Strategy, and Planning – Human Resource Management: Essential Perspectives : Chapter Notes

Chapter 1 HR Roles, Strategy, and Planning Chapter Overview This chapter provides an overview of Human Resource Management by describing twelve important considerations: HR as Organizational Core Competency HR Management as Organizational Contributor Organizational Ethics and HR Management Current and Future HR Management Challenges Managing HR in Organizations HR Management Roles HR Management Competencies and Careers Strategy and HR Planning for External Workforce Availability Forecasting HR Supply and Demand Measuring Effectiveness of HR and Human Capital Human Resources Audits Many organizations today are looking at the management of human capital in their organizations. The importance of measuring the value of human capital and viewing human resources as a core competency for an organization is explored in the beginning of this chapter. A conceptual model is presented that shows that HR management is composed of seven interlinked activities that are significantly impacted by external forces (legal, economic, technological, global, environmental, cultural/geographic, political, and social). These seven activities are identified and briefly described: HR Strategy and Planning Equal employment opportunity Staffing Talent management and development Rewards Risk management and worker protection Employee and labor relations HR can contribute to organizational results in many ways. Two of the areas of contribution include organizational culture and organizational productivity. HR management’s contributions to each of these areas are explored. Managing HR in organizations is discussed next. All managers engage in HR management but they are not expected to know the details about HR regulations and HR systems that one would expect from an HR professional. Smaller organizations (less than 100) typically do not have an HR department and the owner or another manager usually takes care of HR issues. It is important that there is cooperation between the operating managers and the HR staff for HR efforts to succeed. Some of the common negative and positive views of HR are discussed. The various roles that HR management may undertake are then described and include the administrative, the operational and employee advocate, and the strategic roles. Next, the HR competencies needed by all HR professionals and senior HR leaders are identified. Some discussion of HR careers and various types of certification within the field of HR are also included. Current and future HR management challenges are then identified and explored. These include organizational cost pressures; job changes; skill shortages; globalization of organizations and HR; workforce demographics and diversity; HR technology; and measuring HR impact through metrics. Next, organizational ethics and HR is discussed. The relationship between ethics and organizational culture and HR’s role in organizational ethics are covered. This is followed by a discussion of organizational strategic planning including strategy formulation, the strategic planning process, strategic competencies for HR professionals, and operationalizing HR management strategies. Environmental analysis, including both internal and external factors, is presented followed by global competitiveness and strategic HR issues. Then some strategic challenges are presented: managing a talent surplus, legal considerations for workforce reductions, and managing a talent shortage. The chapter closes with measuring effectiveness of HR initiatives. The development and use of HR metrics is explored and specific strategic HR effectiveness tools such as benchmarking, the balanced scorecard, and HR audits are discussed. Chapter Outline I. What is Human Resource Management? Human resource (HR) management is designing formal systems in an organization to manage human talent for accomplishing organizational goals. Whether a big company or a small nonprofit organization, those employees must be paid, which means an appropriate and legal compensation system is needed. Employees also must be recruited, selected, trained, and managed. Each of these activities requires thought and understanding about what may work well and what may not. Research on these issues and the knowledge from successful approaches form the basis for effective HR management. A. Why Organizations Need HR Management Despite the obvious differences between large and small organizations, the same HR issues must be dealt with in every organization. In a sense every manager in an organization is an HR manager. However, it is unrealistic to expect a nursing supervisor to know about the nuances of equal employment regulations, or how to design a compensation system. For that reason, larger organizations frequently have people who specialize in these activities, which form the HR function or department. B. Managing Human Resources in Organizations Human Resources/human capital who work in organizations may have valuable contributions they can make to the organization’s mission. But these contributions will occur only if people have a reasonable opportunity to contribute. Employees must be placed into the right job, be trained, and given feedback if they are to do well. It is not just the HR department that does these things, but a team effort between operating managers and the HR Department if one exists. In the United States and worldwide, small businesses employ more than half of all private-sector employees and generate many new jobs each year. In surveys over several years by the U.S. Small Business Association (SBA), the issues identified as significant concerns in small organizations were consistent: Not having enough qualified workers The rapidly increasing costs of employee benefits Payroll taxes Compliance with government regulations All these concerns have an HR focus, especially when governmental compliance with wage/hour, safety, equal employment, and other regulations are considered. Other HR positions are added as specialists as the company grows larger. However, for HR to be most useful it must remain firmly attached to the operating management of the organization. C. Human Resources as a Core Competency The development and implementation of specific strategies must be based on the areas of strength in an organization. Referred to as core competencies, those strengths are the foundation for creating a competitive advantage for an organization. A core competency is a unique capability that creates high value at which an organization excels. Many organizations have identified that their HR practices differentiate them from their competitors and that HR is a key determinant of competitive advantage. II. Productivity In its most basic sense, productivity is a measure of the quantity and quality of work done, considering the cost of the resources used. A useful way to measure the productivity of a workforce is to determine the total cost of people required for each unit of output. A useful way to measure the productivity of a workforce is to determine the total cost of people required for each unit of output. A. Improving Productivity Productivity at the organizational level ultimately affects profitability and competitiveness in a for-profit organization and total costs in a not-for-profit organization. Perhaps of all the resources used in organizations, the ones most closely scrutinized are human resources. Many HR management efforts are designed to enhance productivity. Among the major ways to increase employee productivity are: Organizational restructuring involves eliminating layers of management and changing reporting relationships, as well as cutting staff through downsizing, layoffs, and early retirement buyout programs. Redesigning work often involves having fewer employees who perform multiple job tasks. It may also involve replacing workers with capital equipment or making them more efficient by use of technology or new processes. Aligning HR activities means making HR efforts consistent with organizational efforts to improve productivity. This alignment includes ensuring that staffing, training and development, performance management, compensation, and other HR activities are not working against productivity. B. Organizational Culture Organizational culture consists of the shared values and beliefs that give members of an organization meaning and provide them with rules for behavior. These values are inherent in the ways organizations and their members view themselves, define opportunities and plan strategies. The culture of an organization is seen in the norms of expected behaviors, values, philosophies, rituals, and symbols used by its employees. Culture evolves over a period of time. Only if an organization has a history in which people have shared experiences for years does a culture stabilize. Culture is important because it tells people how to behave (or not to behave). It is relatively constant and enduring over time. Newcomers learn the culture from the senior employees; hence, the rules of behavior are perpetuated. These rules may or may not be beneficial, so culture can either facilitate or limit performance. III. HR Management Functions HR management is designing the formal systems that are used to manage people in a work organization. Such systems need to be formal, that is agreed upon and written down for all to see. Considering the areas where HR typically has to have formal systems yields seven interlocking functions (Figure 1-1). These functions take place in a unique organizational format that is influenced by external forces—global, environmental, geographic, political, social, legal, economic, and technological in nature. IV. Roles for Human Resource Departments If an organization has a formal HR group there are typically three different roles that group might play in the organization. The mix of roles is: Administrative—focusing on clerical administration and recordkeeping, including essential legal paperwork and policy implementation Operational and employee advocate—managing most HR activities in keeping with the strategies and operations that have been identified by management and serving as employee “champion” for employee issues and concerns Strategic—helping to define the business strategy relative to human capital and its contribution to organizational results Although traditionally administrative role has been the dominant role for HR, there is a growing emphasis on the operational and employee advocate role is growing in most organizations. The strategic role requires that the HR team has the ability and orientation to contribute to strategic organizational decisions, and it requires recognition by upper management of those skills for implementation of the HR practices. The strategic role in HR is less common, but is reportedly growing. Some HR administrative functions can be outsourced to vendors. Outsourcing of HR administrative activities has grown dramatically in HR areas such as employee assistance (counseling), retirement planning, benefits administration, payroll services, and outplacement services. The primary reasons why HR functions are outsourced are to save money on HR staffing, and to take advantage of specialized vendor expertise and technology. HR has been viewed as the “employee advocate” in some organizations. Employee advocacy helps ensure fair and equitable treatment for employees regardless of personal background or circumstances. In the strategic role, HR is proactive in addressing business realities, focusing on future business needs, and understanding how the need for human capital fits into those plans and needs.. V. Human Resources Management Challenges As the field of HR management evolves a challenging environment provides pressure for even more and faster change. Challenges are to be found in competition leading to cost pressures/job changes, globalization, changes in the workforce, and the need for HR technology to keep up. Competition keeps pressure on business organizations to keep costs down so that prices will not become excessive and customers lost. Global competitors, technology changes, and cost concerns are also reflected in changing jobs. A. Competition/Job Changes An overriding theme facing managers and organizations is to operate in a “cost-less” mode, which means continually looking for ways to reduce costs of all types—financial, operations, equipment, and labor. Pressures from global competitors have forced many U.S. firms to: Close facilities Use international outsourcing Adapt their management practices Increase productivity Decrease labor costs in order to become more competitive Various regions of the United States face significant workforce shortages because of an inadequate supply of workers with the skills needed to perform the emerging new jobs. It may not be that there are too few people—only that there are too few with many of the skills being demanded. B. Global Influences Critics of globalization cite the extremely low wage rates paid by some international firms and the substandard working conditions that exist in some underdeveloped countries. Various advocacy groups have accused global firms of being “sweatshop employers.” As a result, some global employers have made efforts to ensure that foreign factories adhere to higher HR standards, but others have not. Global employers counter that even though the wage rates in some countries are low, their employees often receive the highest wages, and experience the best working conditions that exist in those countries. Also, they argue that more people have jobs in the host countries, which allows them to improve their living standards. C. A Changing Workforce The U.S. workforce is more diverse racially and ethnically, more women are in it than ever before, and the average age of its members is increasing. As a result of these demographic shifts, HR management in organizations has had to adapt to a more varied labor force both externally and internally. The changing workforce has raised employer concerns and requires more attention to resolve these concerns. For many workers in the United States, balancing the demands of family and work is a significant challenge. Employers have had to respond to work/family concerns in order to retain employees. Responses have included greater use of job sharing, the establishment of child-care services, increased flexibility in hours, and work-life programs. In many of the more economically developed countries, the population is aging, resulting in a significantly older workforce. Replacing the experience and talents of longer-service workers is a challenge facing employers in all industries. Contingent workers (temporary workers, independent contractors, leased employees, and part-timers) now represent about one-fourth of the U.S. workforce. The number of contingent workers has grown for many reasons. One reason is the economic factor. Temporary workers are used to replace full-time employees, and many contingent workers are paid less and/or receive fewer benefits than regular employees. Another reason for the increased use of contingent workers is that it may reduce legal liability for some employers. As more employment-related lawsuits have been filed, employers have become more wary about adding regular full-time employees. D. HR Technology Using technology to support HR activities can increase the efficiency of the administrative HR functions and reduces costs. To maximize the value of technology, systems should be integrated into the overall IT plan and enterprise software of the organization. Technology can be used to support every function within human resource management. Recruiting and selection processes have changed perhaps the most dramatically with Web-based job boards, online applications, and even online interviewing. Training is now conducted with the aid of videos, podcasts, Web-enabled training programs, and virtual classrooms. Employee self-service has simplified benefit enrollment and administration by allowing employees to find health care providers and file claims online. Succession planning and career developments are enhanced with real-time information on all employees and their potential career progression. One of the most important ways in which technology can contribute to organizational performance is through the collection and analysis of HR-related data. Identifying trends and modeling future conditions help managers to plan and optimize human resources. VI. Organizational Ethics and Human Resource Management Closely linked with the strategic role of HR is the way managers and HR professionals influence the ethics of people in organizations. How those ethics affect work and lives for individuals may aid in producing more positive work outcomes as Figure 1-2 shows. Attention to ethics has grown in the past few years, as evidenced by the corporate scandals at numerous financial and investment firms in the United States and globally. These scandals illustrate that ethical lapses are not just symbolic; they affect employers and employees. The expansion of the Internet electronic job boards and postings has led to more publicity about ethical issues. When the following four elements of ethics programs exist, ethical behavior is more likely to occur: A written code of ethics and standards of conduct Training on ethical behavior for all executives, managers, and employees Advice to employees on ethical situations they face, often made by HR VII. Human Resources Management Competencies and Careers The transformation of HR toward being more strategic and professional has implications for the competencies needed. HR professionals at all levels need the following: Strategic knowledge and impact Legal, administrative, and operational capabilities Technology knowledge and usage abilities A variety of jobs exists within the HR career field, ranging from executive to clerical. As an organization grows large enough to need someone to focus primarily on HR activities, the role of the HR generalist emerges—that is, a person who has responsibility for performing a variety of HR activities. Further growth leads to the addition of HR specialists, or individuals who have in-depth knowledge and expertise in limited areas of HR. The most common areas of HR specialty, in order of frequency, are benefits, employment and recruitment, and compensation. A. Human Resource Professionalism and Certification The broad range of issues faced by HR professionals has made involvement in professional associations and organizations important. For HR generalists, the largest organization is the Society for Human Resource Management (SHRM). Public-sector HR professionals tend to be concentrated in the International Personnel Management Association (IPMA). Two other prominent specialized HR organizations are: The World atWork Association The American Society for Training and Development (ASTD) The most widely known HR certifications are the Professional in Human Resources (PHR) and the Senior Professional in Human Resources (SPHR), both sponsored by Human Resource Certification Institute (HRCI). The World atWork Association has certifications emphasizing compensation and benefits. The four certifications are as follows: Certified Compensation Professional (CCP) Certified Benefits Professional (CBP) Certified Work-Life Professional (CWLP) Certified Global Remuneration (CGR) VIII. Strategy and HR Organizations seek to achieve and maintain a competitive advantage in the marketplace by delivering high-quality products and services to their customers in a way that competitors cannot duplicate. Strategies to do so might include revising existing products, acquiring new businesses, or developing new products or services using existing capabilities. Strategic planning is the process of defining a strategy, or direction, and making decisions on how to allocate the resources of the organization (capital and people) to pursue this strategy. The strategic planning cycle typically covers a three- to five-year time frame, and management considers both internal and external forces when formulating the strategic plan. The guiding force behind the strategic planning process is the organizational mission, which is the core reason for the existence of the organization and what makes it unique. The planning process begins with an assessment of the current state of the business and the environmental forces that may be important during the planning cycle. Analysis of the strengths, weaknesses, opportunities, and threats (SWOT) is a typical starting point because it allows managers to consider both internal and external conditions. The SWOT analysis helps managers to formulate a strategic plan that considers the organization’s ability to deal with the situation at hand. The planning process requires continuously monitoring and responding to environmental changes and competitive conditions. Managers then determine the objectives for the planning cycle and formulate organization-level strategies to accomplish those objectives. The strategic plan is re-evaluated periodically because conditions may change and managers must react to the ever-changing business environment. Bad strategy abounds perhaps because it ignores the difficult path to focusing and making choices among alternatives. Instead of making a choice, a strategy may try to accommodate many conflicting demands and interests. Regardless of which specific strategies are adopted for guiding an organization, having the right people will be necessary to make the overall strategies work. Strategic HR management provides input for organizational strategic planning and develops specific HR initiatives to help achieve the organizational goals. Strategic HR management refers to the use of human resource management practices to gain or keep a competitive advantage. Talent acquisition, deployment, development, and reward are all strategic HRM approaches that can impact the organizational ability to achieve its strategic objectives. A. Requirements for Human Resource Contribution to Strategy Specific HR management strategies obviously depend on the strategies and plans of the company. Figure 1-3 highlights some common areas where HR should develop and implement appropriate strategies. To contribute in the strategic planning process, HR professionals can best provide their perspective and expertise to operating managers by doing the following: Understand the business—knowing the financials and key drivers of business success is important to understanding the need for certain strategies. Focus on the key business goals—programs that have the greatest relevance to business objectives should get priority. Know what to measure—metrics are a vital part of assessing success, which means picking those measures that directly relate to the business goals. Prepare for the future—strategic thinking requires preparing for the future, not focusing on the past—except as a predictor of the future Human resource planning is the process of analyzing and identifying the need for and availability of people so that the organization can meet its strategic objectives. The focus of HR planning is to ensure the organization has the right number of people, with the right capabilities, at the right times, and in the right places. HR plans can include several approaches. Actions may include shifting employees to other jobs in the organization, laying off employees or otherwise cutting back the number of employees, retraining present employees, and/or increasing the number of employees in certain areas. Factors to consider include the current employees’ knowledge, skills, and abilities (KSAs) and the expected vacancies resulting from retirements, promotions, transfers, and discharges. B. Human Resources Planning Process The process begins with considering the organizational plans and the environmental analysis that went into developing strategies. It includes an environmental analysis to identify the situation in which HR is operating. Strengths, weaknesses, opportunities, and threats are considered. Then the possible available workforce is evaluated by identifying both the external and internal workforce. Once those assessments are complete, forecasts must be developed to determine both the demand for and supply of human resources. Management then formulates HR staffing plans and actions to address imbalances, both short-term and long-term. Specific strategies may be developed to fill vacancies or deal with surplus employees. Finally, HR plans are developed to provide specific direction for the management of HR activities related to employee recruiting, selection, and retention. The most telling evidence of successful HR planning is a consistent alignment of the availabilities and capabilities of human resources with the needs of the organization over time. IX. Planning for Workforce Availability If a firm plans to double its number of clients accounts from 100 to 200 in a three-year period, that firm must also identify how many and what types of new employees will be needed to staff the expanded services, locations, and facilities. Many of those new employees will probably have to come from outside the current pool of employees. A. Factors to Consider When making HR plans for workforce, employers must consider a number of geographic and competitive concerns. The net migration into a particular region is important. Direct competitors are another important external force in HR planning. Failure to consider the competitive labor market and to offer pay scales and benefits comparable with those of organizations in the same general industry and geographic location may cost a company dearly in the long run. Finally, the impact of international competition must be considered part of environmental scanning. Global competition for labor intensifies as global competitors shift jobs and workers around the world. Significant changes in the workforce, both in the United States and globally, must be considered when examining the outside workforce for HR planning. When assessing these factors, it is important to analyze how they affect the current and future availability of workers with specific capabilities and experience. Many firms have planned for workforce shortages because of the brain drain created by the retirement of existing older workers. Analyzing the jobs that will need to be done and the capabilities of people who are currently available in the organization to do them is the next part of HR planning. The needs of the organization must be compared against the existing labor supply as well as the potential labor supply available outside the organization. B. Jobs Audit The starting point for evaluating internal workforce strengths and weaknesses is an audit of the jobs that need to be done in the organization. The following are key questions that are addressed during the internal jobs assessment: What jobs exist now and how essential is each job? How many individuals are performing each job? What are the reporting relationships of jobs? What are the vital KSAs needed in the jobs? What jobs will be needed to implement future organizational strategies? What jobs will be needed to implement future organizational strategies? What are the characteristics of those anticipated jobs? As HR planners gain an understanding of the current and future jobs that will be necessary to carry out organizational plans, they can conduct a detailed audit of current employees and their capabilities. Managers and HR staff members can gather data on individual employees and aggregate details into a profile of the current organizational workforce. This profile may reveal many of the current strengths and deficiencies of people in the organization. X. Forecasting HR Supply and Demand Forecasting uses information from the past and the present to identify expected future conditions. However, projections for the future are subject to error. A. Forecasting the Demand (Need) for Human Resources The demand for employees can be calculated for an entire organization and/or for individual units in the organization. The unit breakdown obviously allows HR planners to better pinpoint the specific skills needed than does the aggregate method. Demand for Human Resources can be forecast by considering specific openings that are likely to occur. The openings (or demands) are created when new jobs are being created or current jobs are being reduced. Additionally, forecasts must consider when employees leave positions because of promotions, transfers, turnovers, and terminations. B. Forecasting the Supply (Availability) of Human Resources Forecasting availability considers both external and internal supplies. Although the internal supply may be somewhat easier to calculate, it is important to calculate the external supply as accurately as possible. The external supply of potential employees available to the organization can be identified. Government estimates of labor force populations, trends in the industry, and many more complex and interrelated factors must be considered. Such information is often available from state or regional economic development offices. The following items may be included: Net migration into and out of the area Individuals entering and leaving the workforce Individuals graduating from schools and colleges Changing workforce composition and patterns Economic forecasts for the next few years Technological developments and shifts Actions of competing employers Government regulations and pressures Circumstances affecting persons entering and leaving the workforce Estimating internal supply considers the number of external hires and the employees who move from their current jobs into others through promotions, lateral moves, and terminations. It also considers that the internal supply is influenced by: Training and development programs Transfer and promotion policies Retirement policies In forecasting the internal supply, data from the replacement charts and succession planning efforts are used to: Project potential personnel changes Identify possible backup candidates Keep track of attrition (resignations, retirements, etc.) for each department in an organization A talent surplus can be managed within a strategic HR plan in a number of ways. The reasons for the surplus will guide the ultimate steps taken by the organization. If the workforce has the right qualifications but the sales revenue has fallen, the primary strategies would involve retaining workers while cutting costs. However, if the workforce is not appropriately trained for the jobs needed, the organization may lay off those employees who cannot perform the work. Managers may use various strategies in a progressive fashion to defer workforce reductions until absolutely necessary. HR must be involved during workforce adjustments to ensure that the organization does not violate any of the nondiscrimination or other laws governing workforce reductions. Selection criteria for determining which employees will be laid off must comply with Title VII of the Civil Rights Act as well as the Age Discrimination in Employment Act and the Americans with Disabilities Act. A careful analysis and disparate impact review should be conducted before final decisions are made. There can be mismatches between the qualifications needed by employers and the skills possessed by available workers. Companies can use a number of alternative tactics to manage a talent shortage. The existing workers can work overtime. This strategy can work on a short-term basis but is not a solution for a longer-term talent shortage. Workers may appreciate the extra hours and pay for a while, but eventually fatigue sets in and productivity and quality may drop and injuries and absenteeism may increase. Outsourcing involves transferring the management and/or routine performance of a business function to an external service provider. Organizations in the United States outsource a wide variety of noncore functions in order to reduce costs or to obtain skills and expertise not available in the organization. Reducing turnover of qualified employees should be an ongoing effort to maintain a talented workforce. XI. Measuring Effectiveness of Human Resources and Human Capital Effectiveness for organizations is a measure of the ability of a program, project, or task to produce a specific desired effect or result that can be measured. Efficiency is the degree to which operations are done in an economical manner. There are many ways of measuring the financial impact of the HR practices in an organization, and many challenges associated with doing so. Return on investment (ROI) is a common measure used by financial professionals to assess the value of an investment. A. Measuring HR’s Contribution A long-standing myth perpetuates the notion that one cannot really measure the value of HR practices. That notion is, of course, untrue. HR, like all other functions, must be evaluated by considering the results of its actions and the value it adds to the organization. It is important that HR managers understand financial and operational measures that drive the business and relate decisions to key performance indicators (KPIs). Metrics, benchmarking, balanced scorecards, and audits can help the organization track HR performance and measure the value of HR practices. HR metrics are specific measures of HR practices. A metric can be developed using costs, quantity, quality, timeliness, and other designated goals. Metrics can be developed to track both HR efficiency and effectiveness. B. Metrics and Analytics Metrics and software have been combined to make analysis easier, but it is still an evolving area. Analytics can simply be a way to report certain metrics or a sophisticated predictive modeling designed to answer “what if” questions about HR variables. A definition of HR analytics that considers both extremes is as follows: HR analytics is an evidence-based approach to making HR decisions based on the basis of quantitative tools and models. Benchmarking is the process of comparing the business metrics and outcomes to an industry standard or best practice. Benchmarking is focused on external practices that the organization can use to improve its own processes and practices. When implementing benchmarking, managers should be careful to find organizations with similar contexts, cultures, operations, and size. The balanced scorecard is a framework organizations use to report on a diverse set of performance measures. It balances financial and nonfinancial measures so that managers focus on long-term drivers of performance and organizational sustainability.. Organizational results in these areas determine if the organization is progressing toward its strategic objectives. C. Human Capital Effectiveness Measures Measuring the benefits of human capital is more challenging but equally important. Assessing the value of human capital demonstrates the importance of effective HR practices to maintain a high-quality, workforce. Revenue per employee is a basic measure of human capital effectiveness. The formula is Revenue/Head Count (full-time employee equivalents). It is a measure of employee productivity and shows the sales revenue generated by each full-time employee. If revenues increase but employee head count remains constant, productivity would increase. A widely used financial measure that can be applied to measure the contribution and cost of HR activities is return on investment (ROI), which is a calculation showing the value of investments in human capital. It can also be used to show how long it will take for the activities to show results. The following formula can be used to calculate the potential ROI for a new HR activity: where: A = Operating costs for a new or enhanced system for the time period B = One-time cost of acquisition and implementation C = Value of gains from productivity improvements for the time period ROI is stressed because it is used in most other functions in an organization and allows managers to choose from among various investment opportunities to determine the best use of funds. Human economic value added (HEVA) shows the wealth created per employee. It shows how much more valuable the organization has become because of the investment in human capital. Wealth is the net operating profit of a firm after the cost of capital is deducted. Cost of capital is the minimum rate of return demanded by shareholders. An HEVA approach requires that all policies, procedures, measures, and methods use cost of capital as a benchmark against which their return is judged. HR decisions can be subjected to the same analysis. The formula for HEVA is: XII. HR Audits An HR audit is a formal research effort to assess the current state of HR practices in an organization. This audit is used to evaluate how well activities in each of the HR areas (staffing, compensation, health and safety, etc.) have been performed, so that management can identify areas for improvement. An HR audit often helps smaller organizations without a formal HR professional to identify issues associated with legal compliance, administrative processes and recordkeeping, employee retention, and other areas. There are many levels of HR audit. Common levels are as follows: Compliance Audit—checks record keeping on state and federal paperwork requirements Benefit Programs Audit—reviews regulatory compliance, benefits administration and reporting I-9 Audit—reviews compliance with immigration regulations and the I-9 form requirement Specific Program Audit—review of specific HR subareas such as compensation Full HR Audit—reviews all of the above plus any and all other HR functions Audits frequently use a questionnaire and interviews performed to collect information, they may be performed by outside entities for more objective data. They can provide assessment about how well HR practices meet established standards and requirements. Instructor Manual for Human Resource Management: Essential Perspectives Robert L. Mathis, John Jackson, Sean Valentine 9781305115248