10 Human Resource Decisions...............................
This chapter explains the components of labour costs and how those costs are
applied to the production of goods or services. The relevant cost of labour for
decision-making purposes is explained. This chapter also introduces the notion of
activity-based costs.
According to Armstrong (1995a, p. 28), ‘personnel management is essentially
about the management of people in a way that improves organizational effec-
tiveness’. Personnel management – or human resources as it is more commonly
called – is a function concerned with job design; recruitment, training and motiva-
tion; performance appraisal; industrial relations, employee participation and team
work; remuneration; redundancy; health and safety; and employment policies and
practices. It is through human resources, that is people, that the production of
goods and services takes place. Historically, as Chapter 1 suggested, employment
costs were a large element of the cost of manufacture. Even with the shift to
service industries, people costs have tended to decline in proportion to total costs,
a consequence of computer technology.
Armstrong (1995b) argued that the tighter grip of accountants on business
management and the diffusion of management accounting techniques were forces
with which human resource managers had to contend. This was particularly the
case where the human resource (HR) function was being increasingly devolved to
divisionalized business units under line management control. Line management
is in turn increasingly accountable for achieving corporate targets.
Many non-accounting readers ask why the balance sheet of a business does
not show the value of its human assets (what the HR literature refers to as
human resource accounting). The knowledge, skills and abilities of people are a key
resource in satisfying markets through the provision of goods and services. But
people are notownedby a business. They are recruited, trained and developed, then
motivated to accomplish tasks for which they are appraised and rewarded. People
may leave the business for personal reasonsor be made redundant when there is
a business downturn. The value of people to the business is in the application of
their knowledge, skills and abilities towards the provision of goods and services.
The limitations of accounting in relation to the organizational stock of knowledge,
that is intellectual capital, was described in Chapter 7.
In accounting terms, people are treated aslabour, a resource that is con-
sumed – therefore an expense rather than an asset – eitherdirectlyin producing
goodsorservicesorindirectlyas a business overhead. This distinction between