Master of DonNTU
Julia Kaloshina

Educational and Scientific Institute: “Higher School of Economics and Management” (IEM)

Faculty: Management (M)

Department: Personnel Management and Labour Economics (PMLE)

Speciality: Personnel Management and Labour Economics (PMLE)

Theme of Master's Work:
“Social and Economic Efficiency of Investments into the Enterprise Personnel”

Scientific Supervisor: Ph.D.(in Economics), Associate Professor of PMLE Department
Oksana Zakharova

ABSTRACT

of the Master’s Qualification Work

“Social and Economic Efficiency of Investments into the Enterprise Personnel”

CONTENT

INTRODUCTION
1. A THEME URGENCY
2. COMMUNICATION OF WORK WITH SCIENTIFIC PROGRAMS,PLANS, THEMES
3. THE PURPOSE AND PROBLEMS OF THE RESEARCH
4. PROSPECTIVE SCIENTIFIC NOVELTY OF THE RECEIVED RESULTS
5. PRACTICAL VALUE OF THE RECEIVED RESULTS
6. APPROBATION OF THE WORK RESULTS
7.THE REVIEW OF DEVELOPMENT AND RESEARCH ON THE A THEME
      7.1 Investment in human capital
      7.2 Basic methodology for assessing human capital
      7.3 Performance indicators of investment in staff
8. THE DESCRIPTION OF THE RECEIVED AND PLANET RESULTS OF THE WORK
CONCLUSIONS
BIBLIOGRAPHY

INTRODUCTION

Each company understands that investing in staff - a necessary thing. The budget for staff is often curtailed because there is no direct method of assessing the impact of these investments. Currently, there is a need to develop a methodology that will assess the impact on investment in staff, and be adapted for each company. Quantitative outcome indicators to assess the investment would be a convincing argument in the hands of the personnel director, which allowed him to speak with other top managers and shareholders in the language of numbers, which ultimately will increase the budget for personnel and organization of specific programs, which should enable an assessment designed to technique.

The concept of human capital has gained international recognition after the award of two Nobel prizes in economics for his contribution to the development of human capital theory T. Schulz in 1979, and G. Becker in 1992 The main contribution to the popularization of the idea of human capital was introduced by Schultz (Schultz, 1971 .), a classic of modern economic thought was a treatise Becker. The analysis is based, he put the idea of human behavior as rational and appropriate, he used concepts such as price, opportunity cost, etc. to a variety of aspects of human life. Also used by those who have traditionally been the responsibility of other social sciences. This concept became the basis for all subsequent research in this area.

Human capital, according to G. Becker - a reserve of knowledge, skills, abilities and motivations of each person. Investment in it may be education, the accumulation of professional experience, geographical mobility, information retrieval. First, the interests of the researcher were associated with the assessment of economic returns. For example, Becker first performed a statistically valid estimate of economic efficiency of education. To determine the income, for example, from higher education - from the lifetime earnings of those who graduated from college, were subtracted lifetime earnings of those who went no further than high school. The costs of training, along with direct costs (tuition, dormitory, etc.), as a principal element contains a "loss of earnings", that is forgone income students over the years of study. In essence, the lost earnings from its value correlated with the time spent by students on training, and are the opportunity costs of its use. Determine the impact of investments in the study, as the ratio of revenues to costs, Becker received a figure of 12-14% of annual profits [1].

Among the foreign researchers who have contributed to the development of the theory of fringe number of foreign researchers who have contributed to the development of human capital theory, are also M. Blaug, M. Grossman, J. Mintser, M. Perlmen, L. Thurow, F. Welch, B . Chiswick.

Currently, the problem was embodied in the writings of scholars such as: K. Azizov, B. Genkin, A. Dobrynin, S. Dyatlov, R. Kapelyushnikov, A. Koritskii, M. Crete, R. Nougat, M. Nougat, I. Soroka, I. Simenko, E. Tsyrenov, N. Koshel, S. Roshin, Т. Razumovа, E. Grishnova and others.

1. A THEME URGENCY

Modern business is growing, competition is growing, so organizations need to exert more efforts to actively develop and be successful. This fact began to understand and leaders of modern domestic enterprises, and therefore pay more attention to the creation of professional personnel management system. Investing in staff for the Ukrainian enterprises are currently of particular importance. Since market conditions places high demands on staff, their knowledge and skills. But at the same time, they quickly lose their effectiveness without the timely updates in the modern economy. Companies are aware that training and staff development is essential to the successful functioning of any organization, any business.

Investing in staff development brings the company more money than investing in improving the productive capacity, that is the human resource can be defined as a key factor in effective use of all other resources that are available to the company. In addition, effective management development and training in addition to profit growth has such important positive implications for the organization as disclosure of potential employees, consolidation and improvement of socio-psychological climate of the community; increase motivation, strengthening loyalty of the organization's staff, ensuring continuity in the management, attract new staff; formation of desirable elements of labor behavior and an appropriate organizational culture. All this contributes to the successful achievement of organizational goals.

2. COMMUNICATION OF WORK WITH SCIENTIFIC PROGRAMS,PLANS, THEMES

Master's qualification work is executed during 2009-2010 agrees with a scientific direction of the department “Personnel Management and Labour Economics” of Donetsk National Technical University.

3. THE PURPOSE AND PROBLEMS OF THE RESEARCH

The purpose of master's work work – assessment of the economic efficiency of investments in human capital and the justification of their appropriateness for domestic enterprises in the modern world. The main problems of the research:

1. to give the concept and describe the essence of human capital as an investment target;
2. to determine the role of plant personnel in the process of economic development;
3. to consider the nature and types of investments in personnel as a factor in increasing the effectiveness of the enterprise;
4. to examine the international experience of investing in staff;
5. to evaluate the effectiveness of investment in staff by the example of a particular company.

The subject of the research are research methods, management and evaluation of economic efficiency of investment in the enterprise personnel.

The object of the research are staff of domestic enterprises.

In progress Master's thesis applied techniques such as surveillance and information gathering, analysis and synthesis, statistical analysis, a systematic approach, the method of expert evaluations.

4. PROSPECTIVE SCIENTIFIC NOVELTY OF THE RECEIVED RESULTS

Scientific novelty of the work is to develop a new approach to assessing the socio-economic efficiency of investments in the enterprise personnel. The idea of this approach is the analysis of existing approaches and develop a universal method of assessing the effectiveness of investments for domestic enterprises. Using the method of "control group" and the classic technique of Donald Kirkpatrick (ROI) technique developed by assessing the impact of investments in various stages of investment and the end result of investing.

Among the most significant scientific results of the study include the following:

• has developed the concept of “human capital” and “investment in human capital”;
• summarizes the classification of human capital (the universal and specific, capital of health, education and abilities, consumer and productive capital);
• peculiarities that distinguish human capital investment on fixed capital investment (human capital includes knowledge, skills, embodied in a man, it can not be alienated, its depreciation has specificity, etc.).

5. PRACTICAL VALUE OF THE RECEIVED RESULTS

The results obtained by assessing the socio-economic efficiency of investment in human capital may be used in existing domestic economic conditions in the enterprises of different ownership forms, after analysis of existing socio-economic and financial indicators of business activity.

6. APPROBATION OF THE WORK RESULTS

1. Kaloshina J, Zakharova O. Investment in human capital as one component of overall investment enterprise // Proceedings of the Days of the theory and practice of investment: Abstracts, All-Ukrainian scientific-practical conference of students and young scientists "Current status and problems of investment development. Ed commonly. Ph. D. (in Economics), prof. Khobta V. – Donetsk: "DonNTU", 2009. – 313-316 P.
2. Kaloshina J. The advisability of investing in human capital: Proceedings of IV Inter-University student conference "Modern trends in management in Ukraine: legal and economic aspects". – Donetsk: Donetsk National Technical University, 2009. – P. 113-114.
3. Kaloshina J. Human Resources as an important element to achieve the overall objectives of the enterprise: Proceedings 9-th International Scientific and Practical Conference of Students and Young Scientists "Economics and marketing of the XXI Century" (Donetsk, May 23-25, 2008). – Donetsk: Druck-INFO, 2008. – P.120-122.

7.THE REVIEW OF DEVELOPMENT AND RESEARCH ON THE A THEME

7.1 Investment in human capital

Investment in human capital – targeted investments in areas that provide better quality parameters rights, especially its workforce (level of education, intellectual development, creativity, physical and mental health systems, motivation, values, etc.).

As noted by theorists of human capital costs, which increase the productive qualities and characteristics of the individual, can be viewed as an investment, since current expenditures are carried out with the assumption that they will repeatedly offset the increased revenue stream in the future. Thus, investment in human capital includes the cost of maintaining health, for general and special education costs associated with finding work, training in production, migration, birth and upbringing of children, searching for economically meaningful information on prices and wages [2].

Economists have identified three types of investment in human capital:

• spending on education, including general and special education, formal and informal, training in the workplace;
• health expenditure, comprising expenditure on disease prevention, health care, diet, improved housing conditions;
• costs of mobility, through which workers migrate from places with relatively low productivity.

Of all the types of investments in human capital are the most important investments in health and in education. The general and special education, improve quality, expand and improve the stock of human knowledge, thereby increasing the volume and quality of human capital. Investing in higher education contribute to the formation of highly qualified specialists, whose work has the greatest impact on economic growth.

By investing in their employees, firms tend to increase their employment benefits, increase productivity, reduce downtime and thus strengthen their competitiveness. Funds invested in the organization of training courses and retraining, were used to pay expenses of employees on the treatment and preventive measures for the construction of gymnasiums and recreation centers, kindergartens, etc. The scale of intra-firm training costs in developed countries is comparable with other sectors of training [9, 12].

7.2 Basic methodology for assessing human capital

For today's companies can offer a number of basic approaches to assess their human capital (fig. 7.1):

Analysis of the above methods for calculating the value of human capital [3]:

1. The method of calculating the direct personnel costs.The advantage of this method – simple. Disadvantages – incomplete assessment of the real value of human capital. Part of it may simply not be used in the enterprise.

2. The method of competitive valuation of human capital.This method is based on the amount of estimated costs and potential damage to the company, with the possible withdrawal of its employee:

• total personnel costs (see method 1) produced by the leading competitor (with comparable production capacity);
• individual awards to every employee of the company (derived on the basis of qualified peer review), which could rival company to pay for his passage to them;
• additional cost the company needed to find an equivalent replacement workers in case of his transfer to another company, the cost of an independent search, recruitment agencies, advertisements in the press;
• economic damage suffered by the company for the period search for a replacement, reduced production or services, the cost of training a new employee, the deterioration of product quality when replacing a new employee;
• loss of unique intellectual products, skills and capabilities that the employee will carry with him into the company of a competitor;
• possible loss of market share, sales growth competitor and assert its influence in the market;
• change the system and the emergence of synergistic effects (amplification of mutual influence and the emergence of qualitatively new properties), members of the group of those workers [3].

This estimate is optimal for "gold-collar workers", most skilled workers of the company in management, information systems, innovative intellectual processes [4].

3. The method of promising value of human capital.This method takes into account the dynamics of the value of human capital in the future at 3, 5, 10 and 25 years.

4. Valuation of human capital on the basis of tests in the business environment. This estimate can be obtained on the basis of two approaches:

• specific results obtained by the employee based on profits, which he brought us, or to increase its assets, including intellectual;
• еvaluation of human capital on the basis of business exercises in management, economics and marketing on the basis of high information technologies [4, 10].

A common method of measuring human capital is also the principle of capitalization of future earnings, based on the situation of the so-called "preference for goods over time." The essence of this method: people tend to evaluate a higher amount of money or a set of benefits in the present time than the same amount or a set of benefits in the future [5].

Each person can be considered as a combination of one unit of ordinary labor and a certain amount of embodied therein of human capital. Consequently, the wages earned by any worker can also be seen as a combination of market price of its "flesh" and rental income from investment in this "flesh" of human capital. Evaluation of human capital in the framework of this approach is as follows:

(7.1)

where – evaluation of human capital in age a, years;
В – the total wages, UAH.;
C – part of the wages attributable to employment, UAH.;
n – the age at which to stop active working person years;
i – interest rate [6].

Human capital as a component of the property generates income, which can be represented as a discounted wages received by the employee during the entire working period of life. The total value of human capital is defined as follows:

(7.2)

where - expected annual earnings of an individual from the use of human capital, UAH.;
n – the lifetime of the individual in years.

Thus, the calculation of investment indicators, which reflect the efficiency of investment in staff organization, consists of two aspects [8]:

• assessing the social efficiency of investment in human capital (HCImin was calculated and its comparison with the average wage);
• to assess the economic efficiency of investments in human capital (the calculation of ROI of the investment project and its analysis) [12].

The first step in assessing the social efficiency of investment in human capital is the key indicator will be the minimum level of human capital (in staff) - HСImin. The minimum level of investment in human resources is an expression of those investments that are necessary for normal functioning of human capital. Parameter HСImin should uchityvt all total cost rights that ensure normal activity:

(7.3)

where Zi = Zi (Cij, Nij) – the amount of certain types of costs per month for the functioning of human capital (nutrition, health, mobility, child rearing, training, etc.), depending on the price of services (Cij) and consumption rates (Nij);
n – number of groups of costs, can be determined respectively the structure of human needs proposed by A. Maslow [7].

At the second step of evaluation of investment in human capital directly assesses the economic effect. Performing this task is possible only after the realization of any investment project, the personnel-related [9, 14].

To estimate the economic impact of the proposed use rate ROI – Return on Investment:

(7.4)

where – revenue growth after the implementation of the investment project;
Z – direct and indirect costs of implementing the investment project.

If the ROI is less than 20%, the investment in human capital development, inefficient. The figure of 20% - the standard for "quiet" companies, which occupy a stable position in the market value of this talk about maintaining a stable position of the organization. If the ROI from 20 to 150%, the investment project has been successful and effective. "Aggressive" the company must focus on ROI of approximately 150-200% [8].

Thus, the main indicator of the effectiveness of the investment project is the ROI. The high value of this indicator clearly shows the positive dynamics. This parameter could influence not only training in the investment project, but also other external factors that can not be ruled out. To verify the degree of influence of training on the achieved results, it is necessary to analyze the ROI for the three previously mentioned areas. And if by him received high scores, it can be argued that the distortion of ROI estimates are insignificant or so small that they can be neglected. Hence, the investment project was cost-effective [16].

7.3 Performance indicators of investment in staff

To evaluate the effectiveness of investments in human capital using a variety of indicators. The economic literature uses the following indicators of effectiveness of investments in human capital:

1. maximizing the difference between profit and costs;
2. payback period (return) investments;
3. the net current (reduced) cost;
4. the ratio of costs and profits;
5. ratio of the difference between marginal revenue to the difference in marginal cost;
6. an annual net income;
7. internal rate of return.

Payback – a ratio of total costs (C) to constant marginal revenue (b) (calculated for a set period of time, month or year). Under certain conditions, the reciprocal of the payback period is equal to the expected internal rate of return. For that to happen, it is necessary that all costs were in the initial period, while revenues were constant. A more general formula for payback, with which the calculations are carried out for non-permanent income and expenses is as follows:

(7.5)

where b and c – marginal revenue and costs, UAH.;
t – number of time periods (to minimized).

The most common investment criteria is the net present value, the ratio of costs and profits, as well as the internal rate of return:

(7.6)

where – the net present value;
i – interest rate used in discounting;
- the amount of income [10].

Criterion relationship of profits and costs can be useful when a decision on investment in those projects for which the ratio of present value of earnings to present value of costs greater than unity. The equation of this criterion has the form [9]:

(7.7)

A variation of the ratio of profits and costs is the ratio of measurement of marginal costs between the two alternative projects. Тhis ratio can be expressed as follows:

(7.8)

where b – marginal revenue, UAH.;
c – the marginal costs UAH.;
i – interest rate used in discounting;
t – number of time periods;
X and Y – relevant projects [10].

The internal rate of return – it is a percentage, which is compared with the rate of interest, representing allowable rates of return on public or private educational investment. The internal rate of return – the interest rate at which the present value of costs equals the present value of income. For this indicator should be satisfied [13, 14]:

(7.9)

where r – the internal rate of return;
b – income in a certain period of time, UAH.;
c – cost a certain period of time, UAH. [15].

Also, to assess the effectiveness of investments in human capital (education) can be used as internal rate of return of education in which the present value of future income is equal to the present value of ongoing costs. It represents that rate income, which would be expected under the given investment project [16].

Because there are many indicators of efficiency of investments in human capital, it should be noted that absolutely no perfect criteria. In each case the need to examine the specific conditions to determine the best investment criteria, which can be successfully applied only in a system of interrelated criteria [17].

8. THE DESCRIPTION OF THE RECEIVED AND PLANET RESULTS OF THE WORK

As a result of research work have been collected and studied materials on issues related to the theme of master's work. We studied the existing methods for assessing human capital and assess the effectiveness of investments in the enterprise personnel. Were identified strengths and weaknesses of existing methods of assessment. As a result, identified the problems that goes unsolved in these areas, ways, methods and means of improving them. Based on the results of the analysis was chosen direction of their own research into finding the optimal measure to determine the socio-economic efficiency of investment in staff.

CONCLUSIONS

The concept of human capital has been used extensively world science, which honor the role of intellectual activities, clarified the need and the high efficiency of investments in human capital. Concept of human capital plays a central role in modern economic analysis. The application of this concept gives new possibilities for studying critical issues such as economic growth, income distribution, the content of the labor process.

Human capital - the most valuable resource of modern society, more important than natural resources or accumulated wealth.

From the interpretation of human capital as it became necessary to develop a quantitative assessment of human capital. Correct assessment of human capital provides an objective assessment of all the company assets, as well as the welfare of society as a whole.

Modern human resource policies of companies provides the most effective use of human capital, makes stakeholders of its employees in this type of activity. Analysis of the effectiveness of investments in human capital shows how important is for companies to spend huge sums on health and education workers, as provided in the future, more income throughout the company.

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UPWARDS

When writing this abstract the master’s qualification work is not completed. Date of final completion of work: December, 1, 2010. Full text of the work and materials on a work theme can be received from the author or his scientific supervisor after that date.