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HUMAN RESOURCE AUDIT

Monjurul AlamHead, Human ResourcesEastern Bank Ltd

Fellow & EC MemberBSHRM

Chartered MemberCIPD, UK

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LEARNING OBJECTIVES

HUMAN RESOURCE AUDITRole of Human Resource audit in business environment – HR Audit objectives –

Concepts – Components – Need – Benefits - - Importance – Methodology –Instruments – HRD score card – Effectiveness of as an instrument – Issues in HRaudit – Focus HRD audit.

HUMAN RESOURCE AUDIT REPORTHRD audit report – Concepts – Purpose – Role of HR managers and auditors –

Report Design – Preparation of Report – Use of Human Resource audit report forBusiness improvement – Case Studies

INTRODUCTION

"HRD audit is a comprehensive evaluation of the existing humanresource development strategies, structure, systems, styles andskills in accordance with both short-term and long-termbusiness plans of the organization. In HRD Audit the skills,styles, systems, strategies, structure is studied and analyzedusing a variety of methodologies like interviews,questionnaires, available records, workshops etc. Thisevaluation helps the organization have a clear understandingof the lacunae and better align the HR processes withBusiness goals."

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LEARNING OBJECTIVES

• Role of HR Audit in Business Environment • Objectives of HR Audit• Concepts of HR Audit• Components of HR Audit• Need of HR Audit• Benefits of HR Audit• Methodology and Instruments of HR Audit• HRD score card • Effectiveness of as an instrument• Issues in HR audit• Focus of HRD audit

HR AUDIT

Typically the basic reason why organisations prefer to conduct an HR audit is to get a clear judgment about the overall status of the organisation and also to find out whether certain systems put in place are yielding any results. HR audit also helps companies to figure out any gaps or lapses and the reason for the same.

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HR AUDIT

• An HR audit can be used by an organisation for multiple• purposes. Some of the more common reasons are: • To identify and address HR-related problems. • To seek out HR-related opportunities. • To conduct due diligence for mergers and acquisitions. • To support initial public offerings.

THE AUDIT PROCESS

The HR audit process is conducted in different phases.Each phase is designed to build upon the preceding phase sothat the organisation will have a very strong overview of thehealth of the HR function, at the conclusion of the audit. Thesephases include:

• Pre-Audit Information • Pre-Audit Self-Assessment • On-site Review • Records Review • Audit Report

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PREPARATION FOR AN AUDIT

• Auditor engagement :If using internal resource it is better to appoint them formally with clarity on scope and select persons who are non political or those who are not high on hierarchy. Also, if internal persons are auditing there must be training in auditing.

• Data gathering :Completion of a self-assessment questionnaire significantly expedites the audit process and allows for better audit planning.

• On-site access: The on-site portion of the audit is the most critical.

APPROACHES TO HR AUDIT

There are five approaches for the purpose of evaluation of HR in any organization:

• Comparative approach • Outside authority • Statistical • Compliance approach and • Management By Objectives(MBO)

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APPROACHES TO HR AUDIT

The audit is made up of four main steps:

• Define desired HR practices for your organization • Assess current practices against the criterion that you have established • Analyze the results • Establish improvement goals and take action

PURPOSE OF AN AUDIT

The audit can serve any of the following purposes: __To clarify desired practices of HR work and roles within the organization

(HR Department, Line Managers). __To establish a baseline for future improvement. __To evaluate current effectiveness. __To standardize practices across multiple sites within a division or

company. __To assess current knowledge and skills required of HR practitioners. __To improve performance levels to key customers within the organization.

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BENEFITS OF HR AUDIT It provides the various benefits to the organization. These are: • It helps to find out the proper contribution of the HR department towards

the organization. • Development of the professional image of the HR department of the

organization. • Reduce the HR cost. • Motivation of the HR personnel. • Find out the problems and solve them smoothly. • Provides timely legal requirement. • Sound Performance Appraisal Systems. • Systematic job analysis. • Smooth adoption of the changing mindset.

METHODOLOGY AND INSTRUMENTS OF HR AUDIT

In audit to evaluate the HRD structure, system, culture, competency & other aspects, the following multiple methods are used:

• Interviews • Group Discussions and workshops • Observation • Analysis of records and documents • Questionnaires

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HRD SCORE CARD

After questioning contemporary management accounting in several articles during the 1980s, Kaplan & Norton (1992) introduced the BSC concept.

The scorecard should incorporate the complex set of cause-and-effect relationships among outcome measures and the performance drivers that describe the trajectory of the strategy of those outcomes. The measurement system should make the relationships (hypotheses) among objectives (and measures) in the various perspectives explicit so that they can be managed and validated.

HRD SCORE CARD

Intellectual capital = Human Capital + Organisational Capital + Customer Capital

Human capital concerns the knowledge that individuals possess and generate upon demand; organisational capital is that knowledge that has been captured/institutionalised within the structure, processes, and culture of an organisation;

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HUMAN RESOURCE AUDIT REPORT

INTRODUCTIONThe audit programme comes to an end with the preparation of the

audit report. The report may be clean or qualified. The report is qualified when the HR performance contains gaps. Where gaps are observed, remedial measures are suggested. The report is clean where the performance is fairly satisfactory. Estimating your future workforce requirements is an inexact science. But a number of different techniques exist to help you do this, as well as to calculate the state of the labour market in the short to medium-term and assess any problems or implications that result.

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LEARNING OBJECTIVES• This Unit is intended to provide an intensive knowledge on: • Procedures involved in preparing the HR audit Report• Concepts and purpose of HR audit reports• Role of HR managers and auditors in preparing the HR reports• Application of HR audit report in business applications

CONCEPTS AND PURPOSES OF HRD AUDIT REPORT

How to develop and introduce an effective HR planning system.

How to estimate workforce requirements

Understanding and predicting the available labour supply.

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CONCEPTS AND PURPOSES OF HRD AUDIT REPORT

How to analyse the supply and demand balance – and deal with a surplus or a shortfall.

Handling the implications for: recruitment, internal redeployment, pay & rewards, training & development, and employee retention.

Monitoring your plans – how to develop a system that will give you reliable early-warning of problems ahead.

COMPETENCY REQUIRED FOR AN EFFECTIVE HRD AUDITOR

Planning skillInformation seeking skill Ability to diagnose Ability to probe Ability to paraphrase Organizing skill Interviewing skill Facilitation skill Observation skill

Data recording skillDocumentation & report writing

skill Communication skill Presentation skill Proactive Patience Initiative Taking Time Management

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HUMAN RESOURCE AUDIT

The Employee Motivation Audit

After reviewing the different ways of motivating employees - their advantages and disadvantages - the audit presents you with 8 self-assessment questionnaires. Use them to measure:How far you consider employee motivation when making important business and strategy decisions.How far your reward and recognition systems encourage employee motivation.Whether work is organised in a way that will motivate people.How leadership style in your organisation affects employee motivation.Whether teams and teamwork help to win employee commitment in your business.How well you involve and empower employees.How well your organisation manages performance.How well your organisation improves and adapts the way it does business.

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The Human Resource Function AuditThe tools to review, measure and assess the role, contribution and performance of your organisation’s HR function

Objective is to highlighting:

• Those responsibilities of the HR function where more time and resources should be focused• Times when the organisation should involve the HR function more closely in strategic planning or in

the implementation of its strategy• New and beneficial ways of structuring or restructuring the HR function• Ways in which information, skills and knowledge available to the HR function can be more widely

used and shared• New responsibilities which the HR function should take on, and others which it may be able to pass to

other functions, line managers, teams or individual staff

Finally, the audit outlines ways of monitoring the performance of the HR function and how it compares against other organisations.

The Human Resource Planning Audit

A 6-Step audit to help analyse, estimate and meet your organisation's staff and workforce needs

After explaining the concept of HR planning and its usefulness, the audit covers these steps:

• How to develop and introduce an effective HR planning system.• How to estimate workforce requirements (the audit sets out 11 different techniques - pick the

one(s) that look best for your type of business. As a check, you can also use these techniques to calculate how many staff you need now.

• Understanding and predicting the available labour supply.• How to analyse the supply and demand balance - and deal with a surplus or a shortfall.• Handling the implications for: recruitment, internal redeployment, pay & rewards, training &

development, and employee retention.• Monitoring your plans - how to develop a system that will give you reliable early-warning of

problems ahead.

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The Payroll AuditEnsure that payroll is punctual, accurate, secure and used effectively as a management tool

Audit first of all ensures that your payroll:

• Meets all relevant legal requirements• Is secure against the risk of mistakes and internal and external fraud• Is managed efficiently and cost-effectively• Is supplied with timely and accurate information about all employees

Then it goes on to consider the overall role of the payroll function and allows you to consider:

• How the payroll function could be better integrated into the HR function• Whether any of the information held by the payroll function could usefully (and legally) be shared -

e.g. flexible working schemes may hold two sets of time and attendance data• How far payment methods and timetabling meet employees' needs and the needs of the company• Whether payroll resources could be used by other departments at ‘quiet’ times• Whether payroll should be seen as a separate profit centre, and how it might earn revenue.

The People Policies AuditThe tools to help you align your people policies with your organisation'sstrategic objectives

The audit then takes you through the following 7 steps:

• Clarify the strategic challenges now confronting your organisation• Establish your organisation's existing capabilities, strengths and weaknesses• Use the relevant audit matrix to calculate the people-related actions/policies

needed to give maximum support to your strategic objectives• Analyse existing people policies and their relevance to your business needs• Establish new and amended policies to make the required actions happen• Establish processes to ensure suitable changes are continuously devised and

implemented• Measure the impact of changes already made.

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The Performance Management AuditAn 8-step audit to help analyse, develop and improve performance management processes so that the organisation achieves its business goals

For the first time, this audit brings together all the issues involved in performance management and sets out a clear system for analysing, reviewing and improving them.

• If your organisation does not already use performance management formally, you will find a simple framework for introducing appropriate performance management systems and making them work.

• If it does use performance management techniques, you will find the tools to review and evaluate existing procedures - and make them work better.

At each step there are suggested questions, draft questionnaires, policy checklists and project planning guidelines to help you review:

• General principles and practices• The way you define and agree your expectations of teams and individual staff• Methods of planning performance• Methods of measuring and reviewing performance (performance reviews and feedback, performance measures

and documentation)• The way you relate pay to performance (including analysis of the techniques available)• Training and development in relation to performance management

The Reward and Benefits Audit

An 8-step audit to ensure that your company can attract, retain and motivate the quality of people it needs to achieve its business goals

Now you can review your entire reward system with this clear self-assessment audit

First use the audit to assess the effectiveness of your pay, rewards and benefits policies:• Do they help your company achieve its business goals?• Do they ensure that you retain your best staff ?• Do they maximise your investment in staff training and development?

Move on to analyse your pay structures in relation to:• the overall benefits package that staff receive• the benefits packages that other employers in your region/sector offer

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The Reward and Benefits Audit

Finally, develop a new and more coherent pay and benefits package: a Total Reward System. Check the 12 key criteria of any Total Rewards System - how many does your company's existing reward system meet?

The 8 steps built into The Reward and Benefits Audit will enable you to:• Clarify your existing pay and benefits strategy• Analyse existing arrangements in detail• Develop new policies• Design and maintain a new pay structure• Design and maintain a contingent pay system• Fully relate rewards to performance• Develop an overall benefits package• Manage your new Total Reward System

The Training and Development Audit

A 3-part guide to measuring and improving the effectiveness of Training and Development (T&D) activities right across your business.

This self-assessment audit sets out to answer questions like these for your organisation'sT&D function:

• Does the T&D process meet current business needs and deliver the company's vision/goals?

• Does the T&D function set clear performance improvement goals and measure its results?

• How well is T&D managed and run?• How is the T&D process perceived by the rest of the organisation?• Is the T&D process cost-effective?• Do T&D plans and policies respond quickly and effectively to changing business needs?

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The Training and Development Audit

The 3-Part audit works like this:

In Part 1, you will survey perceptions about the role, organisation and impact of T&D in your business.In Part 2, you will use checklists, interviews and questionnaires to gather objective data about every aspect of the T&D function and its activities.In Part 3, you will identify any weaknesses or gaps between intention and reality - then deliver recommendations for future T&D organisation, planning and delivery.

Run correctly, the audit will:

• Ensure that all T&D activities have maximum impact on individual, team and company performance.

• Integrate the T&D function more closely into the rest of the organisation.• Enable the T&D function to measure and monitor performance improvement more effectively.• Give senior management a clear measure of the cost-effectiveness of resources it allocates to T&D.

The most important factors influencing HRD Audit interventionand utilization of HRD Audit inputs are: CEO/Top management commitment to HRD HRD chief ’s commitment to HRD Management style of the Organization Organizational characteristics HRD department profile Competency levels of the HRD personnel