In financial management, the important feature is the management of funds. Management of funds operates as the primary concern either in the business and educational institution. In simple financial management is referred to as dealing with the management of money matters. It means that managerial decisions that cause the attainment and financing of short-term and long-term credits for the firm. It is the arrangement of assets and the variety of specific problems of size and growth of an organization. In simply, financial management deals with the allocation of funds and their effective utilization in the business. Foreign Direct Investment and Foreign Institutional Investors are the two important sources of raising funds. It involves risk, cost, and control. Risk and control are balanced by the minimum cost of funds.
The financial impact of hiring/training
The cost required for the hiring and training of employees should become part of the investment of the company. The human resources development derived from the training process would contribute to the increased financial performance and efficiency of the company. In times of drop out of employees resulting from lower operational efficiency, unsatisfied working conditions, etc will lead to the financial loss of the company. Cost in the Hiring Process:
The talent acquisition cost generally has labor cost and expense. Labor cost includes direct talent management costs (labor come through HR department) and indirect cost such as talent management and acquisition cost (which include advertising cost for the recruitment, job agency fees, talent management software. These costs will recapture this talent cost in cost per hire metrics. As per the estimate, it comes around 15% of the new employee’s salary.
Further, talent management has an effect on the organization’s performance in a wide manner. Lack of good employee group has an effect on the poor customer service and customer retention, the overall performance of the organization, reputation of the company, shareholder value, etc. As per Watson Wyatt’s Human capital Index, when there was one scale point improvement, the market value also increased by 7.9%. But many organizations don’t understand the value of this cost. They are allocating a mere 2% for the talent acquisition. (Snell, 2009).
Financial impact due to the Employee turnover
When an employee leaves the organization, there is a loss of talent. Likewise, there is some financial effect for this separation. And the cost relating to this separation can be termed as separation cost. According to Wayne Cascio and H. L. Smith there, 3 major costs are incurred during the separation of the employees. They are separation cost, replacement cost, and training cost for the new employees.
Separation cost includes the cost for the exit interview, administration cost related to termination, separation pay, and employment compensation. Replacement cost includes attracting new applicants, entrance interviews, testing, travel, pre-employment exams, acquisition and dissemination of information. Training costs include the training and induction cost for the new employees. These costs are tangible costs and there are intangible costs that are also associated with the separation. Even though it cannot be estimated appropriately, it will make huge losses to the organization. These include the increased workloads of another worker due to the absence of the right worker, stress and tension due to turnover, weakening employee-employer relationships, declining employee morale, decreased productivity due to loss of efficient workgroup, reducing group dynamism, and synergy. And there will be time taken to reinstall the group dynamics and morale of the new group. Furthermore, when an employee leaves due to dissatisfaction and employee morale, it will make an ill effect on the reputation of the company. (Pinkovitz, 2009).
Financial Impact due to the separation of talented employees to a competitive firm
A firm becomes successful in the market due to its resources and people is one of such resources and assets to the company. When a talented employee leaves an organization, the financial impact due to such loss cannot be determined in monetary terms. But indirectly it will affect the organization. When an organization leaves the organization, the organization will lose the knowledge and skill, idea and innovation of the employees and he may have valuable experience about the job, work, etc. And it cannot be retained because knowledge transfer is a difficult thing, That is why nowadays knowledge management becomes the greatest potential area for every competitive organization. An employee accumulated the knowledge and skill during his long-term service with the organization and many situations. He is well aware of the situation handling when there are some dilemmas that occur. This knowledge cannot be imparted to a newly appointed employee during his initial days itself or we cannot expect the same level of performance from the new employees. Thus every competitive firm will now focus on employee retention and knowledge management. (Calo, 2008).
Now every organization considers employees as an asset and it is evident from the industry itself-the workforce-related problem is estimated as 57% of US GDP. So it is important to understand the financial impact of human resource management and that will help the organization for the better utilization of the talent and thus helps in the organization’s progress.
Calo, Thomas J. (2008). Talent management in the era of the aging workforce: The critical role o knowledge transfer. Entrepreneur.com. Web.
Pinkovitz, William H. (2006). How much does your employee turnover cost? Center for community and economic development. UW Extension. Web.
Snell, Alice. (2009). Measuring the financial impact of HR. Melcrum, 6(2). Web.