information and cost analysis in hr...

A P M A F O R U M

M O N T E R E Y , C A L I F O R N I A

J A N U A R Y 3 0 , 2 0 1 3

W W W . A G P E R S O N N E L . O R G

Information and Cost Analysis in HR Management

http://www.agpersonnel.org/

About Your Presenter

Kathleen Thompson, SPHR-CA, GPHR Director of Human Resources

Limoneira Company

Agri Business, Real Estate, Tourism, Lifestyle Products

Founded in 1893; Farming over 8,000 acres and growing

Several commercial buildings & 200 Farm Workers Housing Units

Planned communities in Santa Paula & Santa Maria

Wedding Site, School Tours, Hot Air Balloon Rides

Lemon & Avocado all natural skin care products

Former Controller, Accounting Manager, Senior Accountant

What Will We Cover Today?

Basic Accounting Principles

Human Resource Planning

Planning and Budgeting a Project

Tracking Your Budget (Variance Analysis)

Strategic HR Measurements

Becoming a Strategic Partner


Terminology to Learn:

Cash vs. Accrual Accounting

Assets

Liabilities

Income

Expense

Equity

Income Statement

Balance Sheet

Debit

Credit


Cash versus Accrual Accounting Most individuals are on a cash basis

Income is our paycheck and our bills are our expenses

Although we have houses, etc, we don’t do a financial statement

If our checkbook balance is positive, we made money that month

Difference between Cash and Accrual is how profit is measured

Cash Profit = total of cash inflows – total of cash outflows

Accrual

• Sales are recorded when goods and services are delivered (not when payment received)

• Cost of products are recorded when product is sold (not when materials are purchased)


The Accounting Equation The cornerstone of accounting is the following

equation:

Assets = Liabilities +Equity

• A = L + E

Assets – Liabilities = Equity

• A – L = E


Assets: Anything the company “owns”:

Cash

Property

Equipment

Investments in other companies

Inventory


Liabilities: Anything the company “owes”:

Loans Payable

Accounts Payable

Payroll Payable

Etc.


Equity The “value” of the owners share of the

company:

Their original investment

+ any additional investment

+ any net income

- any cash withdrawals

- any net loss


Debits & Credits In order to keep the accounting equation in

balance, an entry must be made on both sides of the equation

Entries are made using Debits and Credits

Debits Increase Assets

Debits Increase Expenses

Credits Increase Liabilities and Equity

Credits Increase Revenues


Chart of Accounts Every transaction in a business can be

categorized/classified and grouped with transactions of the same type

The Chart of Accounts is the listing of all the individual categories/classifications (called accounts) a business uses

Every business has a unique Chart of Accounts that reflects the business operations and transactions


Chart of Accounts (cont.) The main categories/classifications of

Accounts in the Chart of Accounts are:

Assets

Liabilities

Owner’s Equity

Revenues

Expenses


Chart of Accounts (cont.)

Assets, Liabilities and Owner’s Equity accounts are reported on the Balance Sheet

Sales and Expenses are reported on the Income Statement


Chart of Accounts (cont.) Produce Stand

Products are Lemons and Strawberries

Some typical accounts are

Cash

Owner’s Equity

Sales of Lemons and Strawberries

Purchase of Lemons and Strawberries for Resale

Rent


Chart of Accounts (cont.) Assets

Cash Liabilities Accounts

Payable Equity Owner's

Investment Income

Lemon & Strawberry Sales Expense

Lemon & Strawberry Purchases Rent


T Accounts

T Accounts are used to visualize the debit & credit entries of transactions

Every account in the chart of accounts could have a T Account


Debit/Credit Review Debits increase & Credits decrease

Assets

Expenses

Credits increase & Debits decrease

Liabilities

Equity

Sales


Produce Stand Accounting Transactions

#1 –invested $1,ooo

#2 –the first month of operations we sold $3,500 of lemons and strawberries

#3 –we purchased the lemons and strawberries from the grower for a cost of $1,500

Let’s see how those transactions would look on T Accounts

1- $1,000

1- $1,000

Cash

Owner's Equity

T Accounts – Investment Only

T- Accounts – Transactions to Date

1- $1,000 2- $3,500

2- $3,500

3- $1,500

1- $1,000 3- $1,500

Cash Sales - Lemons & Strawberries

Owner's Equity Purchases - Lemons & Strawberries


Other Expenses

When we listed our transactions, we did not include the cost incurred to rent our produce stand

Our monthly rental is $750

Let’s add that as transaction #4 on our T Accounts

T- Accounts – All Transactions

1- $1,000 2- $3,500

2- $3,500

3- $1,500

4 - $750

1- $1,000 3- $1,500

4- $750

Cash Lemon & Stawberry Sales

Owner's Equity Lemon & Strawberry Purchases

Rent


Journals and Ledgers Journals

Record types of transactions

Sales

Expense

General

Ledgers

Combine the information recorded in the journals in one place

Used to prepare Financial Statements

Each Chart of Account type would have it’s own page in Ledger

General Journal

Best Produce Stand

General Journal

Transaction Debits Credits

Cash OE Sales Purchases Rent Cash OE Sales Purchases Rent

Owners Investment 1,000 1,000

Monthly Sales 3,500 3,500

Purchases 1,500 1,500

Rent 750 750

Totals 4,500 - - 1,500 750 2,250 1,000 3,500 - -

Total Debits 6,750

Total Credits 6,750

General Ledger

Best Produce Stand

General Ledger

Cash Debits Credits Balance

General Journal 4500 2250 2250

Owner's Equity

General Journal 1000 -1000

Sales


Purchases

General Journal 1500 1500

Rent


General Ledger Balance 0


Income Statement Facts Cost of Goods Sold (COGS) is the cost incurred for the

products or services the business provides

For our Produce Stand the only Cost of Goods Sold is the cost of the produce purchased from the grower

A calculation that is done in the body of the Income Statement is the Gross Margin/Profit

The Gross Margin (GM) is the difference between the sales revenues and the Cost of Goods Sold

Revenues – COGS = GM

Our Income Statement

Sales 3,500.00

Purchases 1,500.00

Gross Profit 2,000.00

Expenses

Rent 750.00

Net Income 1,250.00

Our Produce Stand

Income Statement


Balance Sheet Facts Retained Earnings is the amount of net income

the company has earned but not taken out of the business

Retained Earnings are reported in the Owner’s Equity section of the Balance Sheet

Which are the Balance Sheet Accounts??


Balance Sheet Generation

There are multiple entries in cash

The net balance of those entries will be the amount used on the balance sheet

The Cash Account

Here is a recap of our cash transactions:

1. Initial investment in the business

2. Sales revenue from lemon & strawberry sales

3. Purchase of lemons and strawberries to sell

4. Paid rent

1- $1,000

2- $3,500

3- $1,500

4 - $750

Totals $4,500 $2,250

$4,500 Cash In (Debits)

- 2,500 Cash Out (Credits)

Net Cash $2,500 to Balance Sheet

Cash

General Ledger

Best Produce Stand

General Ledger

Cash Debits Credits Balance

General Journal 4500 2250 2250

Owner's Equity


Sales


Purchases


Rent


General Ledger Balance 0

Our Balance Sheet

Cash $2,250

Total Assets $2,250

Liabilities $0

Owner's Equity

Investment $1,000

Retained Earnings $1,250

Total Liabilities & Owners Equity $2,250

ASSETS

LIABILITIES & OWNER'S EQUITY


More Accounting Terms Current

Relates to both Assets and Liabilities

Assets –cash, accounts receivable or any assets that can be converted to cash within 12 months

Liabilities –any debt or portion of debt that will be repaid within 12 months

Long Term

Relates to both Assets and Liabilities

Assets such as Plant, Property & Equipment

Liabilities such as Loan Payable


Other Accounting Items There are 3 basic types of companies

Sole Proprietor

Partnership (LLC, LLP)

Corporation

There are 2 basic types of accounting methods

Cash

Accrual


Dishonest Accounting Cosmetic Surgery – ‘massaging the numbers’

Most investors know and understand a certain amount of this is done

Accounting Fraud – ‘cooking the books’

Illegal and criminal

Think of Enron, World Com

Personally liable


Budgets [buhj-it] noun, adjective, verb, -et·ed, et·ing.

Noun 1.an estimate, often itemized, of expected income and expense

for a given period in the future. 2.a plan of operations based on such an estimate. 3.an itemized allotment of funds, time, etc., for a given period. 4.the total sum of money set aside or needed for a purpose: the construction budget. 5.a limited stock or supply of something: his budget of goodwill. 6.Obsolete . a small bag; pouch. Adjective 7.reasonably or cheaply priced: budget dresses. Verb (used with object) 8.to plan allotment of (funds, time, etc.). 9.to deal with (specific funds) in a budget. Verb (used without object) 10.to subsist on or live within a budget.


Projections

pro·jec·tion

[pruh-jek-shuhn] calculation of some future thing: They fell short of their projection for the rate of growth.

Thompson Definition:

“Confidently doing the impossible: Predicting the Future!”


Any Questions So Far?


HR Expenses Income versus Cost Center

HR is always a Cost Center

HR Expenses

Labor

Departmental


Labor Expenses Salaries/Wages Payroll Taxes Social Security Medicare Unemployment Insurance

Workers’ Comp Insurance Health Benefits Retirement Benefits


Departmental Expenses

Departmental Labor &

Benefits Benefits Administration

Costs Advertising/Recruiting Dues & Subscription Insurance

Legal Fees Misc Expense Office Supplies Professional

Meetings/Travel Safety Training Translations Etc.


Budgeting and HR Planning: Formula? (Historical)

Percentage? (Historical)

Zero Based? (Hysterical)


Budgeting Accounting looks back, reports are prepared

after the fact

Budgeting looks forward reports are prepared before the fact

Budgets start with managers looking at the most recent performance of the company

Managers then decide on specific and concrete goals for the coming period (year, month, quarter)


Budgeting-Why?

Budgets are done for three main reasons

Modeling

Planning

Control


Modeling Managers are paid to improve things, not be

satisfied with the status quo

Develop good models of profit, cash flow and financial condition

Models are process blueprints

A financial model is like a roadmap that “clearly” marks the pathways to profit


Planning Budgeting helps managers create a definite

and detailed financial plan

Financial objectives need to be established

Actions to achieve those objectives need to be identified

Budgets provide clear destination points for the financial journey of the company


Control

Budgets allow the company to compare actual performance against goals

Budgets are not meant to “handcuff” managers, instead they are meant to hold managers accountable and on-schedule to reach the companies financial objectives

Variance Analysis


Additional Benefits of Budgeting Encourages a business to articulate its vision,

strategy and goals

Imposes discipline and deadlines on the planning process

It forces managers to do better forecasting

Motivates by providing a useful measurement to evaluate performance

Helps in communication between different levels of management


Budget Process (in its simplest form)

Analyze the market or environment (Environmental Scan: Internal and External)

What’s different?

Reflect those differences in your budget

Examples?


2013 Budget 2012 Actual

%

Increase

Estimate

Labor 50,000 45,000 11%

Payroll Taxes (10.5%) 5,250 4,725 11%

Med/Den/Vis (1.5%) 750 675 11%

Pension (1.0%) 500 100 400%

401K Employer Match (7.5%) 3,750 3,375 11%

Work. Comp (4.0%) 394 354 11%

Total Benefits 10,644 9,229 15%

125 Plan & COBRA Admin Fees 6,000 4,574 31%

Advertising/Recruiting 4,500 3,582 26%

Dues & Subscriptions 1,500 1,185 27%

Insurance 2,000 2,101 -5%

Legal Fees 6,000 6,505 -8%

Misc. Expense 500 447 12%

Office Supplies 2,400 1,162 107%

Professional Meetings & Travel 2,800 1,242 125%

Social Events 20,000 10,955 83%

Training 6,000 2,032 195%

Translations 2,100 1,144 84%

Total Departmental Expenses 53,800 34,929 54%

Human Resource Department


Departmental Control

Tell or Be Told

Mastering the Process

Learn, Learn, Learn

Teach, Teach, Teach

Own, Own, Own


Putting it All Together

You are the expert. Act like it.

Learn to Calculate:

Return on Investment

Break Even


Mastering the Budget Process

Find a Finance/Accounting Mentor

Ask early, ask often

LEARN EXCEL!!!!!!

Don’t fake it, learn it.

Start yesterday


Negotiating Your Budget

Document Everything

Double Check Everything

Get quotes for Everything

You won’t get what you don’t ask for

Don’t play the Governmental Game (ask high, settle low)


Improve Estimation Skills (cont.) Internal Cycles

Duplicated Efforts at move times

Holiday Volumes

“Down” times (good for training?)

New Initiative Enthusiasm

Others?


Improving Estimation Skills Time

Learn Internal Cycles*

Learn External Cycles*

Track Anomalies

Track Market Conditions

Note “One of a Kind” Events

Focus On “Zero Basing” Your Budget


Improve Estimation Skills (cont.)

External Cycles

Governmental Reporting

Seasons/Vacations

Temporary Workers


Timing Budget Preparation

Rolling Forecasts

You are ALWAYS budgeting.

Noting one time items

WRITING THINGS DOWN


Any Questions on Human Resource Planning?


Constant but never consistent What do you need? Definition and Work Plan Scope Timing Cost Calculations Tracking Revise Assumptions Recalculate Finalize Budget


Getting Your Budget Approved.

Adjusting to the Approved Budget.

Setting up the Budget with Accounting.

Spending at the Beginning and End of Year.


Nice Job! Only now you own it. Authorizing and tracking expenses.

Who can do it?

Who should do it?

How to measure it.

Finding a friend in Finance/Accounting.

Closing a budget period (dreaded accruals).

Tracking Your Budget

Estimated Vs. Actual You aren’t managing what you aren’t measuring.

Variance Analysis – what is it?

“Good” vs. “Bad” variances defined.

Why do we care? The money has been budgeted right? Let’s spend it!

Reflection on your knowledge

Reflection on your research

Reflection on your ability to do environmental scanning


Benchmarking Definition Internal Benchmarking External Benchmarking Why? Who? Leading Companies Comparable Companies Yankees vs. Giants


Staffing

Cost Per Hire

Time To Hire

Retention

Pipeline

Overtime

How much is too much?

Efficiency Benchmarks?


Turnover

What’s the cost of turnover?

How to measure?

What is the primary cause?

What is an acceptable level?


Applied Technologies for Performance Management HRIS

Assessment Testing

Skills Testing

Online Training

Others?


What is Human Capital?

Who invented Fire?

Summary

What is Human Capital? Innate Ability

Learned Skill

Willingness to Share it

An absolute necessity to manage

Therefore an absolute necessity to measure

A new way to measure your business in a knowledge Economy

HR must be at the Strategic Table


We have become a “knowledge based” economy.

On average, >65% of US company costs are related to Human Resources

Over 50% of Gross National Product is Knowledge Based


ROI on Human Capital

Why is ROI on Human Capital Important? (ROIHC)

Can’t manage what you won’t measure.

“In the U.S. the demographics are such that it will be impossible to sustain strong economic growth due to the [lack] of talent.” ~Jac Fitz-enz


“Our Most Important Asset is Our _______”

So is your most expensive asset, by the way.

Our largest single cost, but not measured??

Of the 13 most often used financial ratios, none specifically address human capital.

Has to be measured so it can be managed!

Strategic HR Measurements (ROIHC)

Revenue – (Expenses – Pay and Benefits)

Pay and Benefits

$100,000 – (80,000 – 24,000) =

24,000

$44,000 =

24,000

$1.83

Become a Strategic Partner

Labor related costs are the single largest cost in any business

Wages

Mandatory Benefits

Voluntary Benefits

Perks


What are you doing to control Labor costs

Workers Comp

Are you controlling your Ex Mod

Are you tracking accidents

Are you pro-active in your training

Are you promoting a Safety First culture

Health Insurance

What do you know about Health Care Reform (ObamaCare)

Do you leave all the research up to the broker

Do you understand fully insured vs. self insured

Do you know what your utilization is

Do you know what your administration costs is


Do you negotiate with suppliers

Insurance brokers

Temporary agencies

Do you review your company’s income statement and balance sheet if you have access to it

How much is your department costing the company

Can you reduce that cost


Do you meet with managers of other departments and help them plan for workforce needs

Are your Job Descriptions up to date

Are you tracking your budget every month to see where you are

Do you understand your company’s core business and what it takes to be successful

Do you know your company’s mission statement, objectives and/or philosophy

Do you help non HR managers manage the HR in their departments

Summary

If you don’t understand accounting now, take a class or buy a book – accounting is not difficult

Learn how to budget, track it, stick to it

Find out what expenses you can control and do it

Understand your company’s core business

Always think about the bottom line without compromising the safety of your employees or undermining morale - this is the ultimate HR challenge

Any Questions ?

Acknowledgements

Any information that was presented here that was not otherwise noted came from my little brain

or

Accounting for Dummies, 4th edition, John Tracy, CPA, Wiley Publishing

We’re Done

YEAH!!!!!

Thank you for your attendance

and attention

You can contact me at:

[email protected]

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