Centres Of Excellence

To focus on new and emerging areas of research and education, Centres of Excellence have been established within the Institute. These ‘virtual' centres draw on resources from its stakeholders, and interact with them to enhance core competencies

Read More >>

Faculty

Faculty members at IIMB generate knowledge through cutting-edge research in all functional areas of management that would benefit public and private sector companies, and government and society in general.

Read More >>

IIMB Management Review

Journal of Indian Institute of Management Bangalore

IIM Bangalore offers Degree-Granting Programmes, a Diploma Programme, Certificate Programmes and Executive Education Programmes and specialised courses in areas such as entrepreneurship and public policy.

Read More >>

About IIMB

The Indian Institute of Management Bangalore (IIMB) believes in building leaders through holistic, transformative and innovative education

Read More >>

Human Capital Valuation

Volume 13, Number 3 Article by Deep Chatterjee, Kalidas M, Kaushik K, Pankaj Gaut September 2001

Human Capital Valuation: An Improved Model :

Globalisation, competition, technology and wide access to financial capital are narrowing opportunities for competitive differentiation. Companies are being forced to look at longer term, sustainable sources of strategic advantage, and many are turning to their real assets — their people. In the shifting industry paradigm, companies are aligning their human capital with their strategic objectives. With companies realising that people give them the winning edge, valuing the human capital becomes significant. However, the subjective elements of human capital create difficulties in arriving at objective measures. Other issues like ethical and emotional aspects also need to be clarified before one starts valuing an individual. Human capital valuation is not an end in itself. The important question is how these figures can be interpreted beyond their accounting sense. Some obvious questions arise. Do these accounting figures mean anything to the company? What do these figures mean to the employees? In this report, Deep Chatterjee, Kalidas M, Kaushik K, Pankaj Gautam and Sumit Shantanu try to provide some of the answers. For the last three decades there have been many efforts to capture human capital by an objective measure. Many models have been created to value human capital, some based on input measures like salary paid and training expenses, and others on output measures like productivity and efficiency. Some are based on historical cost while some are based on future earnings. There are also models based on opportunity costs and employee behaviour. Each has its limitations, and no model has proved to be more valid than the others. The authors have analysed each of these models based on their advantages, disadvantages and applicability. Among all the models Lev and Schwartz is the most widely used model in India. However, this model has its limitations too, and to arrive at more practical valuation, the authors have developed the Modified Lev Schwartz (MLS) Model. The article provides a detailed quantitative derivation of the model. The authors have tried to operationalise the MLS model on a software company, dubbed ‘Crystal Software’, to arrive at a valuation of the human capital of the company.

Reprint No 01304