Unformatted text preview: Eddie Rooker HR 260: Section 8 (Friday: 12:20-1:10 w/ Kate)
The "extra" costs invested in the HR department over the past three years are justified by the amount of money that Williams and the HR department have saved the company in reduced turnover costs. The reduced turnover over the past three years has saved the company approximately $1,166,853.35, which is $486,853.40 more than the $680,000 spent in expanding the HR department. This means that the HR department has saved the company a total of $486,853.40 over the past three years. These numbers show that the benefits from the reduced turnover justify the increased cost associated with the expansion of the HR department. If the board does not want to consider the cost of "reduced productivity during the learning period" when calculating the cost of turnover the money saved by the HR department is $542,458.79 less than the value calculated before. Instead of saving the company of total $1,166,853.35 in reduced turnover, when you do not consider the value for the "reduced productivity during the learning period" the company only saved $624,394.608. Although $624,394.608 is less than the $680,000, the money spent on expanding the HR department is still justified. These calculations do not take into the account the fact that aside from the increased salary and benefits, a large portion of the $680,000 that was spent on computer hardware and software upgrades. The cost of this technology is not a yearly expense like salaries and benefits. The money spent on the new computers and technology is a sunk cost, so each year after the original purchase of the technology actually is actually yielding a much larger profit than $162,284.47 (Average yearly savings, $486,853.40 divided by 3). Since the cost of the computers is a sunk cost it should no longer be taken into account when considering the current profitability of the HR department. Also, each of the past three years turnover has continued to
decrease. We can expect that this trend will continue, further increasing the money that is saved in reduced turnover. Although, currently the money saved by reduced turnover is less than the total money spent on expanding the HR department, after taking the ideas of the computers being a one-time, sunk cost, and the continuing decrease in turnover into mind, we can understand why the money spent is justified. Given a few more years, the amount of money that the reduced turnover has saved the company will surpass the amount spent on expanding it. Investing in a human resources department has a number of advantages aside from employee retention. An expanded HR department is able to address employee problems more efficiently, increasing employee happiness while at work. Better employee compensation also increases employee happiness. It is likely that happier employees work harder which in turn makes the company more profitable. To prove that this is true, you can calculate employee productivity by comparing the number of cases or tasks performed by each employee in a day or a week before and after the expansion of the HR department. To place these tasks in terms of saved capital you must take an employees salary and divide it by the average number of cases that they were able to complete it in a year. This will give you what each employee was approximately paid per assignment. To understand how much the HR department has increased company profit you multiply this number by the increase in the number of tasks the employee completed after the expansion of the HR department. Happier employees will also take less sick and personal days, which saves the company money as well. To gauge this, you can calculate the number of sick and personal days taken by employees before and after the expansion of the HR department. To calculate the money saved here you can find out the average number of tasks employees are completing on a daily basis and multiply it again by the amount we calculated earlier for an employees pay per task. If
employees have taken a fewer number of days off then you know that the actions of the HR department have again saved the company money. From a staffing perspective a more effective HR department also increases the company's profits by hiring better employees. With more capital the HR department can invest in more accurate methods of testing whether an applicant would be a good employee. Employees that are more fit for work with the company will be more productive than those who are not, again increasing the company's profit. Also, better benefits and compensation attracts more qualified applicants, and in turn more qualified employees. To calculate this we can compare new employee productivity as compared to the productivity of new employees prior to the expansion of the HR department and convert this into a change in profit by again multiplying the increased number of tasks completed by the new employees by their "pay per task," mentioned earlier. Finally, expanding the HR department allows for more efficient and effective training and development programs. Better training and development increases the human capital in each employee, making them more competent, and again more productive. We can again look at the increased productivity numbers for each employee after the expansion the HR department to get an idea of how much increased training and development has increased company profit. In conclusion, although after three years the money the HR department has saved the company on decreased turnover does not equal the amount spent on expanding the department, the spending can still be justified. In the future, the money saved on reduced turnover will continue to increase, which will eventually compensate for the money spent. Also, more effective staffing, training, development, and compensation from the HR department can increase the company's profit through increased productivity. It is for these reasons that the money afforded HR department should not be reduced as the company looks to cut costs.
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