Category Archives: HR Audit

Advantages of HR audit

HR audit examines all aspects of human resources and hence, can trigger dramatic improvements.  The most visible benefit would be improved productivity more than offsetting the cost of the audit.

 Changes in ownership, leadership, business strategy or model, can make an HR audit critical. In such circumstances, HR audit is a comprehensive guideline, for major decisions. The most important group to benefit from an HR audit is the board room. Even though not legally binding like finance, HR audit is as helpful and necessary at the board level

 HR audit is a tool for corporate governance and especially helpful for marketing and human resources function.

 HR audit when designed on a comprehensive basis, leads to improvement in quality of products and services marketed by the organization, with long term benefits.

 Importantly, HR audit can analyze failures and fix responsibilities logically. It frees the organization from politics, blame-game and excuses for non performance, bringing in a new culture of professionalism.

 HR audit therefore is a comprehensive review of all human aspects of an organization such as quality and numbers, structure and systems, skills and attitudes, and how appropriate are they, for short term and long term goals of the organization. This review should endorse that all aspects of HR is in line with the vision and mission statements of the organization. Unfortunately, today’s work environment focuses more on getting things done without working on the inner problems of individuals. The significance of a HR audit is that it recognizes the importance of creating the right environment and thereby facilitating long term productivity improvement.


HR Audit Process in Brief

HR audit is a process and must deploy different methods such as interviews, surveys, questionnaires, focus group discussions, benchmarking, records verification, observations and so on.

This process must involve employees, management team, shareholders, customers and trade union. The size of an organization and the scope of the interaudit, determines the infrastructure required to conduct the audit. The final design of the audit depends on organizational priorities and resources available. There are also clear advantages in outsourcing the audit, such as affordability and facilitating an objective assessment.

Content of the audit report together with an action taken report, should be available to all stake holders. It is ideal to conduct the audit yearly and the report considered by the board of directors. Like a finance audit, similar process of variance analysis and explanations from concerned departments should be included.

Model of HR audit

The HR audit should focus on personnel functions of the organization, review of corporate strategies, managerial compliance of policies and procedures and the impact of these on employees, community and environment.

Conceptually, HR audit works on a broader canvass and hence the following can be a model.

  1. Corporate strategy: Organizations should not be only profit- oriented and social responsibility of business should be an integral part of corporate strategy. Corporate fraud is a serious issue too and HR audit can act as a preventive measure to safeguard the interest of all stakeholders.
  2. Qualitative assessment of human resources, structure, systems: The challenge is to assess human resource quality, and organizational structure and systems for current and future needs. Essentially, this is an important corporate tool, to keep the organization alert and ready for any eventuality
  3. HR efficiency: Some common factors to quantitatively evaluate HR efficiency are:

a.   Manpower productivity: The best indicator is looking at revenue and manpower cost trends and, by measuring ‘revenue per manpower rupee’.

b.   Recruitment cost/employee This can indicate the efficiency of the recruitment process

c.   Training cost/employee:      The emphasis on training is indicated by this factor.

d.   Employee turnover cost:      This should take into account opportunity loss due to non availability of manpower.

e.   Absenteeism: Cost of absenteeism including loss of business.

f.     Opportunity cost: Loss of business opportunities due to other visible and invisible reasons.

g.   Managerial compliance and operational style: Organizations have policies and set procedures for its implementation. Further, while implementing the policies, a human touch is required, preserving

 the spirit of the policy. The style of management should have a balance of   task and people orientation

h.    Health, safety and environment: Organizations are responsible to provide general health and medical facilities for employees, apart from ensuring safety in work environment. Organisations are also responsible for external environment and hence must show concern and act  accordingly, irrespective of the existence of a law or otherwise.

i.     Statutory compliances: Even though this is an important aspect, often this becomes routine and relegated into the background

 In my next article I will highlight on the process how an HR Audit to be conducted and it’s benefits …..

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