Abstract Garmashova Kristina Cost-benefit analysis of investments in human resources

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Garmashova Kristina

Faculty: Management and innovations
Speciality: Human resources management and labor economics

Theme of master's work:

Cost-benefit analysis of investments in human resources

Scientific adviser: Zaharova Oksana

About author

Abstract of research and developments

Today the Master’s thesis has not been completed; the process of its writing is in progress. Its final variant will be available after December 2009 at author or scientific adviser.

Introduction (Motivation)

    The knowledge on basis of which more effective production and information technologies are appeared is the main factor of development of the economy in the modern period of development of the society. This conduces to the growth of GDP, working efficiency and economic development in whole. The Company’s staff capable to correct and efficient decision of assigned production tasks based on knowledge and skills is the most important factor of competitiveness, productive efficiency and economic growth.
    Qualification improvement, generation of the leader merits and other important competences is a strategic task for native enterprises since more of them lack highly skilled specialists. Performance of these tasks needs proper financial investments to the staff development. Naturally, the companies will invest the staff only under conditions of reasonable grounding of economic effectiveness of the investments notably at sufficiently high recoupment level and low risk level.
    Estimation of economic effectiveness of the investments to the staff and grounding of their reasonability for the native enterprises in the modern period is the goal of the Master’s thesis. The following tasks are defined for the goal achievement:

To define and describe the essence of human capital assets as the investment object.
To define a role of the company’s staff in the process of its economic development.
To consider the essence and kinds of the investments to the staff as the factor of growth of effectiveness of activity of an enterprise;
To study foreign experience of staff investment;
To estimate the efficiency of staff investments by means of example.

    The staff of native enterprises is an object of research.
    Methods of research, management and estimation of economic efficiency of staff investments are the subjects of research.
    During performance of the Master’s thesis such methods as supervision and gathering of information, analysis and synthesis, systems concept, expert judgment method are applied.
    The concept of human capital assets got an international recognition after awarding of two Nobel prizes on economy to T.Shultz in 1979 and G. Bekker in 1992 for contribution to development of the theory of human capital assets. Forming of the theory of human capital assets and efficiency of investments to the human capital assets is also connected with papers of B.Veysbrod, G. Mintser, L.Hansen, M. Blaug, S. Boulse, I. Ben-Poreto, R. Leyard, G. Psaharopulos, F. Uelch, B. Chisvik, G.R.Walt, F.Noymann, etc.
    S.A.Dyatlov, A.I.Dobrynin, M.M.Kritsky, N.N.Koshel, S.Yu.Roshchin and T.O.Razumova, O.A.Grishnova, etc. are occupied with development of concept in the field of the human capital assets in the domestic science.
    Ph.D., associate professor, doctoral candidate of “Human resources management and labor economics” department O.V.Zaharova is occupied with scientific work in the field of development of the theory of staff investments and estimation of their efficiency in State Institution of Higher Education “Donetsk National University.

Survey of research and developments

There are many definitions of the concept “the human capital assets” but when summarizing the different interpretations we can assign three basic components:

Health which passes from psychosomatic and physiological state of human into the certain life style directed to support of his vital activity.
Culture which specifies stereotype behavioral model and values of individual and defines a character of his realization during a labor activity (for example, acceptable and unacceptable behavior in business and it reflects differences of various cultures).
Education that defines the most accessible social status of this individual and creates an objective – and – subjective grounds for his career development. Requirements kind of activity and posts concerned with education are the objective grounds. Possibility of individual to apply in production activity knowledge and skills which increase his creative and innovative ability is а subjective grounds.

    Today the third component is the most important. It is interpreted in such manner: the human capital assets are collected knowledge and skills received by human at study and practice that allow him to carry out his activity successfully. These capital assets are formed at education process, creative activity and used in proper field of public production. [19, p.129].
    Investment to the human capital assets is a task-oriented investment of capital to the areas and spheres that provide the improvement of man’s qualitative features, primarily his labor power (education level, psychonegy, creative potential, physical and mental health, motivation of values system etc.) [2].
    K.McKonnell and S.Brue marked out the following types of investments to the human capital:

Costs for the education that include general and special, academic and informal training-on-the-job;

Health care costs that include diseases prevention costs, medical service, dietic food, housing improvement;

Costs for mobility owing to which the laborers could migrate from the places with the low productiveness to the places with the high productiveness [24].

    Organization investment to the personnel development except the workmen training costs, include staff work adaptation, its attestation, professional and promotion promoting and planning of work career of labor and specialists, creation of managers reserves etc.
    In the market economy, the decision problem concerning the investments is a difficult one. Well-mined investors (government, firms, families and individual) will invest their funds only if they are sure that the project risk is a minimal one and there will be a possibility to receive extra net profit from these capital investments in the future. From the economic point of view, such investments will be reasonable if they have rather high rate of return [14].
    The economical efficiency of professional skills training is calculated as benefits – training costs ratio. The economic performances from the professional skills training activity of the personnel in the organization could be defined by the following complex of figures:

Gain in production or rendered services due to satisfaction of the additional labor demand in professional and qualifying aspects;

Profit volume growth;

Work efficiency level;

The quality of manufactured production or rendered services;

Recession of staff turnover as a result of personnel skills training;

Loss reduction in consequence of men dropout from the educational institutions oriented to the training;

Effect from the implementation of the innovations and improvement suggestions of the employers who passed the education training etc.

The common approach to the methodological evaluation of the investments to the human capital conform to the performance evaluation of the investments to the other types of assets. Still the quantitative estimation of human assets is a problematic one. For example, mass education of population has no significant effect on the economic growth. Generalizing the estimation methods of human capital assets effectiveness we can sort out a number of important problems [43, с.85]:

cause-effect relation is not always evident;

it’s impossible to determine definitely all the costs that are classified as the investments to the human capital assets;

the role of human capital could be hidden through its interaction with the other factors: adaptation to the new technologies, labor адаптацией к новым технологиям, work organization perfecting by more effective distribution of physical capital;

availability of long-term lag between the investment of capital and receipt of result;

difficulty in determination of what results meet the specific investments taking this in scale of national economy, the investment process of capital in the field of social services and value realization process from these investments are continuous;

level of complete secondary education is extremely unsatisfactory index in terms of knowledge and skills (human capital assets);

fault in measurement due to lack of classification unity of complete education in different countries;

differentiation of capital output efficiency from education depending on the territory, work experience and other factors that do not apply directly to the education.

Thus, the main evaluation method of human capital assets efficiency is still the expert (appraisal) method.