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MAJOR RESEARCH PROJECT REPORT

ON

Human Resource Development (HRD)

Audit

BATCH: MBA 2020-22

PROJECT GUIDED BY:- SUBMITTED BY:-

Prof. Prastuti Gupta Shweta Thakur

(Roll No.:224180058)

Enroll No-DX2214548
SAIT,Indore

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CERTIFICATE

This is to certify that Shweta Thakur has undergone project entitled “Human
Resource (HR) Audit “ towards the partial fulfillment of his/her two years
Master’s Degree of Business Administration (MBA) successfully. He/she has
carried out this project with full sincerity and dedication and the work is original
and genuine.

Prof. Prastuti Gupta

……… ……….

INTERNAL SIGNATURE EXTERNAL SIGNATURE

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DECLARATION

I hereby declare that project entitled Human Resource (HR) Audit is authentic &
I have put in my efforts meticulously to make this project to come up to the
expectations and pragmatically viable. The data collected is primary, authentic &
analyzed by me.

Shweta Thakur

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ACKNOWLEDGEMENT
This project is not one person’s solitary effort. Its successful completion is the result of many
different people to whom I owe a debt beyond repayment. Unfortunately, I can not acknowledge
my indebtedness to all these people, so I must necessarily limit my thanks to those who have
helped me directly in making my project work an incredibly pleasant task and to give final
shape.

First of all, I express my deep gratitude to Prof. Prastuti Gupta who initiated this study and
also helped me by giving their valuable comments at every stage of my project.

I also express my sincere gratitude towards my Prof. Prastuti Gupta, Indore for giving me the
opportunity to work under his guidance on Major Research Project report on Human Resource
(HR) Audit. I am thankful to respondents to give their precious time and co-operation.

I am also thankful to all the faculty members who guided and helped me very kindly at each and
every step whenever I required as they supported me with full interest. I also acknowledge &
convey thanks to the management department of Sri Aurobindo Institute of Technology, Indore
for their kind and valuable support.

Shweta Thakur
MBA FT
Sri Aurobindo
Institute Of
Technology

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Table of content (Index)

CHAPTERS CONTENTS PAGE

NO.

Preface
Chapter 1 INTRODUCTION
Introduction of study
Conceptual framework

Chapter 2 REVIEW OF LITERATURE

Chapter 3 RATIONALE OF STUDY
Chapter 4 OBJECTIVE OF THE STUDY

Chapter 5 RESEARCH METHODOLOGY

The Research
The study.
Tools for data collection.
Tools for data analysis.

Chapter 6 DATA ANALYSIS AND FINDINGS

Chapter 7 LIMITATIONS OF THE STUDY

SUGGESTION
CONCLUSION
BIBLIOGRAPHY
WEBLIOGRAPHY
REFERENCES

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CHAPTER 1

1.1IntroductionOrganizations are increasingly finding it imperative to

improve returns on investment, in order to stay competitive. Traditionally,
accounting norms were viewed only from the financial perspective and were
applied to all departments ranging from marketing, production, distribution,
etc. HRM was limited to salary and administration and, while doing so, it was
analysed from the perspective of provisioning and expenditure.

However, in today’s competitive scenario, it has become essential to analyse HRM

activities and assess their contribution in a more systematic and methodical manner. The
Indian industry has aggressively adopted various innovative systems, such as HR audit and
balanced scorecard, with a macro perspective of balancing performance management
across all organizations.

Human Resource (HR) Audit is not only a tool for evaluating the personnel activities of
an organisation, but also an important aspect of the human resource management. It is a
great deal of attention from Human Resource Practitioners.

It basically review the effectiveness of human resource practices. It gives feedback about HR
functions not only to operating managers, but also the HR department about how very well
operating managers are meeting their HR duties.

Therefore, audit is the key word, which control and check the Human Resource activities
in a public organisation and an evaluation of how these activities support overall
organisational strategy. In the opinion of Gray “the primary purpose of personnel audit is
to assess how various units are functioning and how they have been able to meet the
policies and guidelines which were agreed upon and to assist the rest of the organisation
by identifying the gap between objectives, lay-out and results achieved. The end product
of evaluation should be to formulate plans for corrections or adjustment.”

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Human Resource Development (HRD)

Focuses on the help employees develop their personal and

organizational skills, abilities, and knowledge, HRD also helps to adapt
an organization to the changing of external environment. The capacity
of the employees strictly depends on their access to education, it is a
Human Resource Development which includes:

 Employee training,

 Performance management and development,

 Employee career development,

 Tuition assistance,

 Coaching,

 Mentoring, and many other tools for employees and

organization development.

ConceptDraw DIAGRAM diagramming and vector drawing software

supplied with HR Flowcharts Solution from the Management Area of
ConceptDraw Solution Park can effectively help in labour-intensive
process of human resource development.

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CHAPTER 2

Review of Literature
There are several economic, psychological and sociological perspectives of Human Resource
Development and are many economists, psychologists, and sociologists and also many of the
scholars belonging to the field of management have dealt with the concept of human resource
development. Many economists have dealt with the topic of “Development of Human Resource”,
__ Adam Smith, Karl Marx etc. They opined that focus should be laid on human element or on the
labour force and individual’s development or human growth. They were of the view, the quality of
human growth as satisfying improvement of the individual, in consonance, with the economic,
social, political, psychological, physical an biological background. Thus the psychological and
social impacts, together with the experience of individual unlikeness, have a bearing on the quality
of development of human resources, at a particular time. Every industrial process is concerned with
the human beings and their behaviour that requires psychological needs. Psychological needs
determine our activities, actions, purpose, words, our perspective towards the world etc,. H.R.D. is
directly related, to the change in man’s productive behaviour. The basic factor, for an effective
H.R.D. programme, in an organization, is a proper understanding of the needs and behaviour of the
employees. Proper and appropriate motivation preferred to achieve an increase in the company’s
productivity. Sociologists see in H.R.D. a mixture of social conflicts. By guaranteeing minimum
entitlements and ensuring some equalization of services, a lot of the frustration of the old and the
new poor, can be removed. Writings of Gunnar Myrdal and others there should be a quality
development of human resources in the view of modernization of society in general for the
optimum utilization of human resources we have to provide good education, nutrition, shelter,
drinking water and employment. (Myrdal, Gunnar K. Vol. 2, 1961). As per Theodore Schultz, one
of the pioneers of the ‘Human capital’ approach school refers Human resources as the capital which
plays an important role in changing the status of the people in society. It is possible through the
people who exhibit their skills, acquired abilities, experiences, and talents (Schultz T.W., 1981).
According to Paul J. Meyer that, “the greatest natural resource, of a nation, is its people and opines
one of the main resources of the society is the people. If people if there is development of human
resources then automatically nation also develops. Maximum exploitation of Human resources will
definitely tend to develop the nation. (Meyer, Paul J.___ Quoted by Jayagopal, R.,1990) The noted
economist, Alfred Marshall wrote, “The most valuable, of all capital, is that invested in human
beings”. (Marshall, A. 1910). According to great economists, like Simon Kuznets, Edward P.
Dennison, Gary. S. Becker, Jacob Mincer and B. A. Weisbrod, the nation should invest capital on
human resources to their alround growth by giving them good education, training and employment.
Inturn developed human resources will contribute directly to nation’s development in all its spheres.
(Mehta, M.M. 1976). According to Rao (1997) Human Resource Development deals with the
development of energies, capabilities, abilities, talents, skills, attitudes and aptitudes etc. And it also
deals with the creating circumstances that make human beings to get the best use of them. He has
dealt with the development aspect and opined that development is a never ending process. People
try to develop themselves in various directions that give rise to new problems and issues which
require them to develop new competencies, skills, talents and abilities to face the challenges,
upcoming problems, changing requirements and aspirations etc,. There are certain universal goals
towards which all human resource development hard work should aim to achieve. The ultimate goal
of human resource development in any country mainly should be to improve and develop the
quality of life of its entire population. (Bacchus, 1992). Harbison and Words (1965) are of the
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opinion that Human Resource development is a continuous process that is concerned of developing
and increasing the knowledge, skills, and the capacities of all the people in a society. In the words
of Enthemkuzhy (1989), has provided the definition of the concept of Human Resource
Development as follows: it leads social, cultural, psychological, economic, intellectual, moral,
development of an individual. It also leads for the individuals overall development, so that he
contributesHuman Resource Audit is an examination and verification of personnel related accounts
and records; it increases the effectiveness of the design and implementation of HR policies and
programmes; and it is an important approach to human resource planning.

It is conducted to check whether the performance of managers has been fair in the overall interests
of their organization. It is a systematic and comprehensive analysis of all activities and
results of a personnel programme to review the effectiveness and utility of various personnel functions,
activities, policies and procedures.

It is a strategic planning tool to help an organization evaluate the effectiveness of its human
resources function. Audit reports provide key measurements on strengths and areas of enhancement
to point out opportunities that a business organization can leverage to become better employer and
meet long range goals.

“HR audit evaluates the HR activities in an organization with a view to their effectiveness and
efficiency” – Biles and Schuler

“HR audit is concerned with the gathering, analysing information, and then deciding what actions
need to be taken to improve performance” – Storey and Sission

“HR audit is a tool to measure an employer’s compliance with its legal obligations in managing its
workforce and chart any corrective actions that might be needed” – Stephen F.Ruffino

“HR audit is an examination of the human resources policies, practices, and systems of a firm (or
division) to eliminate deficiencies and improve ways to achieve goals” – Schwind, Das and Wagar.

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CHAPTER 3

RATIONALE OF STUDY

(i) Human Resource Audit, generally, gives feedback about HR functions not only to operating
mangers, but also to HR department.

(ii) Basically, audit is an overall quality control and check the HR activities in a public
organisation.

(iii) Human Resource Audit also helps clarify organisational and management goals.

(iv) It is used as a tool for review of the effectiveness of human resource practices.

(v) It also helps the management of the organisation to evaluate how well its policies are going
and identifies trouble areas that require particular attention.

K. Aswathappa has explained ten benefits resulting from Human Resource audit.

These are:

(1) Clarification of the HR department duties and responsibilities.

(2) Ensuring timely compliance with legal requirements.

(3) Creation of increased acceptance of the necessary changes in the HR department.

(4) Stimulation of uniformity of HR policies and practices.

(5) Encouragement of greater responsibility and professionalism among members of the HR

department

(6) Identification of the contributions of the HR department to the organisation.

(7) Improvement of the professional image of the HR department.

(8) Finding solution of critical personal problems.

(9) Reduction of HR costs through more effective personnel procedures.

(10) Also review of the department information system.

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CHAPTER 4

OBJECTIVE OF THE STUDY

HR audit is a comprehensive analysis of HR functions, systems, policies and procedures of an
organization.

The major objectives of HR audit are as follows:

1. To conduct an independent, objective, systematic and critical examination of HR functions of

an organization.

2. To assess the general environment and performance efficiency in HR department.

3. To check for any deviations from standards and devise appropriate strategies and
corrective actions in HR related areas.

4. To check for alignment of HR functions and organization’s overall practices and procedures.

5. To measure statutory compliances of HR activities as per law and other relevant agencies.

6. To explore the areas for saving personnel costs and expenses.

7. To provide feedback on better areas of performance and areas that needs improvement.

8. To identify HR areas that requires research and development inputs.

9. To recognize better performance of HR personnel through rewards.

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Process of HR Audit
The following procedure will be followed for the audit of human resources:

 Step 1- The first step should be an examination of the company’s nature, whether it is a
professional’s enterprise or a general business enterprise; then,
 Step 2- Conduct a conference with the top managerial cadre to collect information and facts
related to human resource assessment. An adequate provision should be made for the depreciation
of human assets.
 Step 3- The company’s balance sheet should be thoroughly checked whether the correct values
are placed or not.
 Step 4- Thereafter, an Internal control system of the company should be inspected with respect to
the facts of the human resources for examining its efficiency.
 Step 5 –At the time of value assessment of human resources, all the contingencies should be
considered, which may impact the valuation.

Human Resource Audit – Need

According to Yoder, the need for personnel audit is largely influenced by several conditions.
Some of these are:

 The Number of Employees- Very small units, because of the very small number of persons
they employ, require comparatively little in the way of a formal audit.

 Organisational Structure- Continuing feedback is facilitated if an organisation has a personnel

department.

 Communication and Feedback- An effective two-way communications system often reduces

the need for a formal audit.

 Location and Dispersion- The need for a formal audit is directly related to the number of
isolated plants.

 Status of an Industrial Relations Manager - If he participates in the top management

plans, reports, discussions and decisions, the need for a formal audit may be less frequently
felt.

 Administrative Style-The greater the delegation of authority and decentralisation of power, the
greater the value of a regular and formal audit.

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Human Resource Management Audit – Scope

Organizational practices regarding the subject matters of HRM audit may vary.

However, a comprehensive scope of HRM audit includes all aspects of HRM which are as
follows:

1. HR strategies and policies,

2. HRM functions,

3. HR compliance, and

4. HR climate.

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1. HR Strategies and Policies:

The starting point of HRM audit should be an evaluation of HR strategies and policies and the
way these are in tune with those of the organization. For formulating HR strategies and policies,
it is essential that the objectives of HRM functions are clearly defined. The audit may evaluate
the extent to which various HR strategies and policies have been formulated and what their
qualities are.

Various HR strategies and policies may be audited by evaluating their:

i. Consistency with the organizational objectives, strategies, and policies;

ii. Consistency with the environment;

iii. Appropriateness in the light of organizational resources;

iv. Appropriateness in the light of time horizon; and

v. Workability.

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2. HRM Functions:

The major thrust of HRM audit is on evaluation and review of various HRM functions
relating to acquiring and employing human resources, developing human resources, compensation
management, integration and maintenance of human resources, and industrial relations.

The audit should measure and evaluate these functions in the following context:

i. The recruitment & hiring function.

ii. The performance management function.
iii. The type of HRM functions performed.
iv. The employee benefits function.
v. The degree to which these functions are related to HRM objectives; and
vi. The degree to which these functions are performed effectively.

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3. HR Compliance:

HR compliance is defined as the process of aligning workplace policies with a city’s, state’s,
country’s, and the world’s labor laws in sync with industry-specific regulations. In addition to
policy setup, enforcing practices to follow these policies daily is also part of HR compliance.

Compliance is among the critical functions of any HR department. You are tasked with
making sure that hiring practices, workplace rules, treatment of employees, and a variety of other
factors all comply with the relevant laws. Companies also outline their own HR compliance policies
to be followed internally. But managing this HR compliance landscape could prove to be a
challenge. A 2019 survey of 1,300+ respondentsOpens a new window found that employers
anticipate a significant impact from regulatory laws. Variances at state and local levels add to this
complexity, making it hard to manage paid sick leave (69%), the legalization of marijuana
(54%), and background checks (52%).

In response, companies must take proactive measures to maintain HR compliance. There are
several layers of rules and standards to follow, requiring a multifaceted compliance strategy from
HR. And these rules are continually evolving. For instance, just recently, the U.S. government
released the Families First Coronavirus Response ActOpens a new window , which makes it
mandatory for employers to offer paid sick leave or extended family and medical leave until
December 31, 2020, for reasons associated with COVID-19. The rollout of GDPR two years ago
was another law that introduced a tectonic shift in HR compliance. Typically, an HR compliance
officer (working with a dedicated HR compliance team) takes charge of handling these
regulations, ensuring that an organization is up to date and compliant at all times. From retiring
outdated practices to implementing forward-looking action plans, the HR compliance officer is at
the center of a smooth-functioning organization.

HR compliance often works alongside a company’s legal team so that the laws and standards
are interpreted correctly. It can also reach out to the learning and development (L&D)Opens a new
window department to train employees on compliant practices, for instance, in workplace safety in
a manufacturing unit.

In this context, evaluation revolves around the following:

i. The extent to which line personnel adhere to various HR policies in dealing with personnel
working under them; and

ii. The extent to which there is compliance with the legal requirements as provided under
various legal Acts relevant for management of human resources.

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4. HR Climate:

Quality of HR climate has important impact on motivation, job satisfaction, morale, and
performance of human resources.

HR climate can be evaluated by various outcomes which are as follows:

i. Degree of employee turnover,

ii. Degree of employee absenteeism,

iii. Degree of accidents,

iv. Status of grievances and disciplinary actions, and

v. Findings of attitude and morale surveys.

Human Resource Audit – Importance

In modern times, personnel and industrial relations audits have been widely accepted as tools
with which managers can control the programmes and practices of the personnel and industrial
relations department.

The importance of personnel audit has increased in recent years because of the following
reasons:

a. A change in managerial philosophy and theory, as a result of which a management now feels
that employees’ participation in the activities of an organisation, and their identification with
it, have a tremendous influence on the working of that organisation.

b. The changing role of the government, which intervenes more often and more extensively
now, to control manpower management by an organisation with a view to protecting the
interests of the employees, providing them with better working conditions and ensuring their
economic security.

c. The increasing role played by trade unions and their strength, as a result of which they
often question managerial competence in industrial relations.

d. The rising wages, changes in the skills of technical and professional workers, and the
increasing expenditure incurred on the industrial relations department — these are the factors
which have influenced and encouraged the trend in favour of a personnel audit.

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CHAPTER 5

RESEARCH METHODOLOGY

A very famous watch-manufacturing company ventured into eye-care business. They needed,
besides other staff, optometrists at every eye-care retail outlet, across the nation. A good
optometrist is a vital link between the company and the customers. Many times it is the
optometrist who coverts a potential to an actual customer.

The company had a very good hiring team in place and was confident that it would be able to
hire very able personnel for their eye-care division as well. Their primary targets would be
various students graduating from different optometrists colleges in India. They had been
following these processes for quite some time for their watch-division.

The company went ahead with its plan of expansion. Later, when the hiring team visited the
colleges to hire optometrists, to their dismay they found that most of these graduates were not
employable. They had requisite knowledge but did not have very high level of skill that would be
required in this profession.

They had hardly any time to train them now. Left with no option, they hired optometrists
from competitors at a very high market price. Obviously the acquisition cost went-up that was
least expected when the company was expanding into a new business.

In retrospect they should have ‘audited’ their hiring process in light of the new business and seen
whether they needed to incorporate any changes. This would have forewarned them about the
real state of talent demand and supply situation and they could have organized some pre-hiring
training for the various graduating optometrists.

This way they would have not only been able to keep their hiring cost under control but would
have also been successful in sowing a greater degree of loyalty among their new recruits. A
timely audit would have saved the company a lot and made their process more efficient.

The rationale of the audit hence can be outlined as:

1. Audit increases the efficiency of the HR team.

2. It helps in saving a lot of cost.

3. Helps in achieving internal and external benchmarking.

4. Helps in compliance issues to various quality initiatives in the company.

5. Helps in legal compliance.

6. Improves managerial performance.

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7. Improves supervision and leadership at all levels of the organization.

8. Helps to retrospect and reflect upon various practices from a practical stand-point.

9. Audit extends HR business partner’s role and helps it make quantifiable contributions
in business.

10. Helps in making the HR department more effective and credible.

Human Resource Audit – Designing Information Systems

Human Resource (HR) audit is an important aspect of the human resource management. It is a
difficult exercise and it designing of an effective human resource information system to be
effective.

Some of the most important issues related to the Human Resource information system may be
explained in the following:

1. Collecting Data:

In collecting data, we always face problem which is done by managers or individual supervisors.
Generally, it is observed that data collected by out siders, consultants and university based
researchers appear more credible than insider reports.

2. Asking Questions of the Data:

Data, which is to be collected, should provide useful information for organisational effectiveness
most of the time data, is found to be misleading.

3. Interpreting the Data:

Data is most important for the management, which help the Human Resource Department in
analysing and interpreting. So quality of data is the responsibility of the good management in the
organisation.

4. Stimulating Remedial Action:

Quality of data are generating in the most of the organisation of Public Sector. The main purpose
is to solve the problem of the organisation by the help of proper audit. So the human resource
department to develop a working relationship between the worker and manager in the
organisation.

In some cases, the action may require consultation between the supervisor and the higher
management. The staff are responsible for the collection of data. They collected data with the
help of the line management. Therefore, data should be collected only which is relevant to the
human resource audit.

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Human Resource Audit – Relationship

In most of the organisations, staff managers are also placed in the position of appraising the work
of the managers and reporting their findings to the upper management.

There are four elements, which based on pre-requisites in Human Resources (HR) auditing:

First, successful personnel managers learn that they are more effective in bringing about
improved performance if they discuss the results of their evaluations with the manager before
sending them to the higher management. The main purpose of HR audit creates healthy,
relationship between the staff and line groups.

Second, personnel are asked to associate like managers in data collection and interpretation
processes from the beginning. Here itself, supervisors themselves are encouraged to interpret and
give meaning to data collected.

Third, like managers will be ready to accept a staff control report, if they can see how its
contents will help them achieve their objectives. Here, they like’s motivation to learn rises as it
acknowledges there is a problem to be tackled.

Finally; the extent to which personnel develop impersonal, quantitative measures reduces the
staff like conflicts that usually afflicts the auditing process.

Human Resource Audit – Frequency and Types

It is a common practice to have an annual evaluation or audit. At the end of each calendar or
fiscal year, a report is presented, covering statistical information on the activities performed the
results – achieved, the costs and expenditure involved, and comparisons of objectives and
accomplishments.

By a perusal of this report, a great deal of useful information can be had about
personnel activities In some organisations, however, this personnel audit is conducted
periodically, generally in accordance with the needs of each organisation.

For example, attitude or morale surveys on particular subjects or topics may be conducted, or
special reports may be prepared on such issues as grievances, the working of seniority rules or
the effects of overtime practices and collective bargaining agreements. Two practices are
generally followed while conducting a personnel audit.

In some cases, the audit is conducted by those employed in the organisation itself – generally by
auditors or accountants.

In other cases the services of outside experts are engaged. The former is known as internal audit,
while the latter is designated external audit. The advantages of having an outside auditor are that-
(a) he has a background of knowledge of what others are doing in similar situations; (b) he has a
professional attitude toward his work; and (c) he is objective in that he personally will not
become a party to recommended changes.

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While appointing an outside auditor, certain conditions should be kept in mind regarding his
work:

a. He cannot work miracles. He can diagnose ills and recommend treatment, but the patient
must provide the will to get well.

b. He must receive top management’s support.

c. He cannot and should not relieve management of its responsibility for making the decisions

d. He can recommend, but the acceptance of his recommendations rests with management.

Human Resource Audit – Areas

The areas of HR audit include:

i. Mission statement relating to human resource management.

ii. Objectives, goals and strategies of human resource management.

iii. Accomplishments of human resource management.

iv. Programmes of human resource management including the detailed practices and procedures.

v. Human resource management policies.

vi. Human resource management philosophy, its practices and values.

vii. Responses of employees, trade unions and government to the practices and achievements.

viii. Role of human resources in total quality management.

ix. Role of human resources management in achieving organisations mission, objectives,

goals and strategies.

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CHAPTER 6

DATA ANALYSIS AND FINDINGS

1. Determining the Scope and Type of Audit:

Since HR is a very wide field, the company may either choose to conduct a comprehensive
review of all HR functions or it may decide to review a few specific areas as it deems necessary.
For example, a company may choose to review only the policies and procedures related to
recruitment, selection and orientation policies.

2. Determining the Audit Method:

HR audits are usually conducted by using a questionnaire that elicits information about the
relevant HR areas. The audit may also be conducted by interviewing managers and employees of
the HR department to analyze how well they have understood the company’s policies and how
efficiently these policies are being implemented. When using a questionnaire, care should be
taken to design it in such a way that it elicits all necessary information regarding the areas to be
audited.

3. Data Collection:

This step includes the actual process of collecting data about the organization and its HR
practices. Information is collected by using the questionnaire and by interviewing relevant HR
personnel about the HR procedures and policies being used in the company.

4. Setting the Standards:

To assess the efficiency of HR functions, the information collected has to be compared with
some pre-determined standards. These standards have to be pre-set and any acceptable level of
discrepancies should be specified clearly. Comparing the actual results with the standards will
give an idea about the efficiency with which the HR functions are being performed.

5. Feedback about the Results:

After collecting information and comparing the results, the audit team summarises the findings
and provides feedback to the company’s HR personnel and senior management in the form of an
audit report.

The results of the audit should be discussed with the employees of the HR department so that
they are made aware of the present condition of the HR functions in the company. Discussion
with employees will also throw up new ideas for improving the policies and procedures in future.

6. Develop Action Plans:

Once the results of the audit are out, this information should be used for improving the working

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of the HR department. The findings of the audit should be categorised according to order of
importance: high, medium and low. The organization should examine the areas of weaknesses as
revealed by the audit and find ways to overcome them. Conducting HR audit would serve no
practical purpose if no actions are taken.

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The HR auditors examine the following aspects:

(i) The maintenance and update of clearly defined performance plans.

(ii) The extent of documentation of performance plans by the employees.

(iii) The involvement of employees in the development of individual performance plans.

(iv) The communication of the performance evaluation process to the employees.

(v) The methodologies for the identification of high performance and the evaluation of
objective measures in performance.

(vi) The training of supervisors or feedback and counselling.

Compensation Management Module:

The HR auditors evaluating the compensation management examine the following aspects-

(i) The existence of clearly, defined compensation plans and administrative procedures.

(ii) Documentary support for salary actions relating to promotions, increases, demotions, etc.

(iii) Written procedures addressing the statutory compliance requirements.

(iv) The procedures for examining compensation equity vis-a-vis similar positions in
similar industries in the market.

(v) The role of managers in compensation practices.

(vi) Documented incentive-award or incentive-compensation pro-grammes and implementation

plans.

Human Resource Audit – Action Plan

The steps for improving the company’s corporate HR function effectively are:

(i) Define the role of the HR function in the context of the organization’s current and future
business plans.

(ii) Create a system for cost-effective hiring.

(iii) Develop programmes for the orientation and training of new employees.

(iv) Develop and manage employee communication.

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(v) Prepare key personnel policies and make it available to employees and also train
the employees in policy adherence.

(vi) Implement and install the HR IS system.

Human Resource Audit – Approaches

There are mainly five approaches in the study of Human Resource Audit.

They are:

(i) The comparative approach,

(ii) The outside consultant approach,

(iii) The statistical approach,

(iv) The compliance approach, and

(v) The management by objectives-MBO approach

(i) Comparative Approach:

In this approach, the auditors can collect and analyze data of their own company and also
compare the data of different firm or company. After comparing the data of different companies,
then the auditors choose the best one, which, is most suitable for the organisation. Thus,
comparative approach helps the auditors to get best data.

(ii) Consultant Approach:

The organisation performance can improve only by an outside consultant. Consultant approach
gives different types of ideas to the auditors which is most essential for comparative purposes in
the organisation.

(iii) Statistical Approach:

In the statistical approach, certain statistical measures of performance are developed based on the
company’s existing data. For examples-absenteeism and accident rates. These data help the
auditors in assessing the positive and negative aspects of company’s performance.

(iv) Compliance Approach:

In the compliance approach, auditors review the past results and actions of the
company’s policies and procedures. The check work of the auditors to go with the legal
norms of the company’s policies and procedures.

(v) Management by Objectives (MBO) Approach:

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The management by objectives approach deals with the specifications of goals against which
performance is assessed. In this approach, managers set objective in their specific areas of
responsibility.

The methods for evaluating and disseminating data take the form of:

(a) Comparison between time periods

(b) Comparison of organisations

(e) Trend lines, frequency distributions and statistical co-relations

(d) Ratio analysis voluntary turnover rate

(e) Classification of data; and

(j) Graphical or pictorial display.

Human Resource Audit – Scoring

Evaluate the score on the HR audit as follows:

60-70 – HR activities are complete, effective and probably meeting most legal compliance
requirements.

45-59 – HR activities’ are being performed adequately but they are not as complete or effective
as they should be. Also it is likely that some potential legal risks exist.

30-44 – Major HR problems exist, and significant attention needs to be devoted to adding and
change the HR activities in the organisation.

Below 30 – Serious potential legal liabilities exist, and it is likely that significant HR problems
are not being addressed.

In the HR audit, it is easy to announce policies but difficult to ensure their compliance. For
progressive policies, promotion is very essential and promotion is based on merit HR audit
mentioned here that it is the top management’s function to make regular check-ups. But top
management is often too busy handling immediate problems.

In the public sector, the policy states that all promotions are to be based capability, irrespective
of length of service. But a strong union frequently puts pressure on the management to promote
senior employees. But merit and capability appear to be no longer significant factors.

Further, it is observed that line management often defers action until a serious crisis erupts,
a staff group who have the technical resources performs an important functions. Regular
audit identifies specific areas that require attention. Therefore, regular audits keep
subordinates for

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their help.

Auditing Organisational Health:

Human Resources Development department deals with the overall effectiveness of an

organisation’s human resource utilisation. Generally, a healthy organisation is one which is able
to develop the hidden talents and capacities of its personnel and provide career and promotional
opportunities to them to fulfill their ambitions for attaining rewarding positions. Thus, human
resource audit is an important aspect of the human resource management.

Standards of Accountability:

In the public sector a system of Memorandum of Understanding (MOU) has been introduced for
the purpose of improving organisational performance. Managers are accountable to the work of
the employee in the organisation. In the human resource fields, managers may have standards for
such objectives as hiring of employees, training, labour productivity and overtime utilisation.

Policy Implementation Audit:

Policy implementation has the key role in the management system of Human Resource Audit.
The role of manager in the organisation, makes policy and supervise the employee. The top
management decides that women are to receive equal considerations for promotions in
administration, implementation of such policies will depend on continued audit and surveillance.
Generally, government encourage managers to provide employees, reasonable time off with
salary to participate in community service activities, such as family planning or literacy.

Cost Benefits Comparisons:

Budget is a good example of such companies. Most of the time, budgets are made without a
study of the actual needs given for various activities. Audit is also undertaken to access whether
the management’s policies are sensible and effective and whether the policies are really
achieving the results consistent with costs. Therefore, budget must be regularly audited to find
all type of expenditure in the organisation. Absenteeism Record

Generally, absenteeism can be regarded as an indicator of organisational health. The department

of Human Resources watches absenteeism to explain the employees dislike for the Job.
Basically, absenteeism is higher in industries where the work is long and where workgroups are
large.

Turnover Rate:

Turnover Rate (Quit rate) is another measure for direct observation of law well things are
progressing. It is a measure of changes in the work force overtime, it is observed that turnover
tends to be higher in organisations that are larger, have longer work weeks and higher
absenteeism rates. Therefore, quit rates have been seen to be relatively high in private sector and
low in public sector.

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Attitude Surveys:

Generally, attitude surveys determines how personnel feel about their jobs, bosses, management
programmes, organisational climate and organisational change policies, personnel policies etc.
Survey attempt to draw out more detailed answers through open-ended questions.

Company Records Measures:

Sometime without surveys, the organisation produces information that can be reassessed by staff
experts with a view to obtaining measures of personnel effectiveness relating to scrap records,
number of accidents, strikes and grievances and suggestions from employees, customers and
shareholders

Human Resource Development Audit – Methodology

For a good HRD audit it is advisable to use a combination of methods.

The interviews can be scheduled hierarchically from the CEO to the HR chiefs, functional heads,
the line managers, employees, etc. so that the auditors would be able to obtain a macro picture at
the commencement of the audit and can subsequently relate the feedback from other constituents.
Before conducting interviews, the auditors should be introduced to the people with whom they
will be interacting.

During the process of observation, the auditors should attempt to look into various aspects, such
as the physical layout, work environment, working conditions, amenities, and recreation
facilities. During the meetings/ discussions and transactions, the auditors should be able to
select cross- functional teams, groups/teams from whom the feedback will be authentic and
open.

The auditors have to be competent in meeting and team management areas. The auditors can
cross-check various aspects, such as the preparedness of the employees for the audit
meetings, openness/receptivity to feedback, co-ordination of the meetings, interpersonal
relations, and organization conflicts.

1. Individual Interviews:

The auditors/consultants begin their evaluation by means of one-to-one interviews with the top
management and senior managers. This enables the auditors to understand the future plans of and
the opportunities available for the company. Another reason is that these interviews help the
auditors/ consultants to understand the maturity of the top and senior management and also their
style of management.

2. Group Interviews:

When undertaking an HRD audit in very large organizations, auditors may opt to obtain
feedback from various segments of employees through group interviews. These groups may be
selected on the basis of stratified sampling or random sampling methods. In some cultures,
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individuals may have inhibitions in giving feedback. In such cases, group interviews help to
obtain feedback.

3. Workshops:

In certain instances, the auditors may feel the necessity of replacing the individual and group
interviews with large scale interactive processes (LSIP), with the number of participants ranging
from 30 to 300. The participants may gather in a room to give a feedback on the HR function and
systems.

The participants work in small groups around various sub-systems to make presentations of the
SWOT analysis and the auditors record the feedback. The feedback could aid their audit process.

4. Questionnaires:

The questionnaires can address the HR processes, such as career planning, work allocation,
learning and developmental systems, and quality orientation. For the purpose of capturing the
real picture, the auditors should do some homework before selecting various parameters in the
questionnaire and assigning weighted averages to each of the items in the questionnaire
depending on the organizational requirement.

Another caution for the auditors is to sufficiently map all the key HR practices while designing
the questionnaire. The auditors should also be conscious and empathetic while designing each of
the parameters. Typically some of the questionnaires design the items in the questionnaire with
the OCTAPAC (openness, confrontation, trust, autonomy, pro-action, authenticity,
collaboration) parameters.

Dr Udai Pareek and Dr T.V Rao have developed a questionnaire with over 250 items that takes
around ninety minutes to complete. It can be administered individually or to a group. The
individuals/groups are invited to assemble in a location and the objectives of the HRD audit are
explained to them and subsequently the questionnaire is provided to them for feedback.

The questionnaire tries to assess various aspects, such as the competence of the HRD staff, style
of line managers, efficacy, and user friendliness in implementing various HR systems. The
foremost benefit of the questionnaire is that it helps in benchmarking the systems and processes.

5. Observations:

Auditors make it a point to visit the workplace, including the plant machinery room, canteen, and
welfare amenities such as hospitals/schools being run by the management. These visits help the
auditors assess the environment and the welfare orientation of the organization.

Employees will not be giving their best to the organization unless they are taken care of by being
provided with good surroundings and welfare amenities for themselves and their dependents.
These observations are recorded with the help of a checklist.

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6. Secondary Analysis:

The analysis of secondary data gives a lot of insight into the state of affairs in an organization.
For instance, an organization may have around 500 programmers in the J2E platform with a
number of projects in that area. If the number of trained people is inadequate, it is an indication
that the organization is not focusing upon building the competencies of the people working on
the projects, leading to a possible drop in quality or standard.

The areas covered under the regulatory compliance audit include:

i. Personal files and record keeping.

ii. Job descriptions.

iii. Compliance with the statutory requirements such as the Compensation Act, and
rules regarding ESI, PF, Gratuity, etc.

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Human Resource Audit – Advantages

(i) HR audit helps the company to identify the areas where improvement is required.

(ii) It helps to ascertain the proper contribution of the HR department towards the organization.

(iii) HR audit facilitates the development of HR plans for the future based on the
current performance of the HR department.

(iv) It helps to motivate the employees to perform better and boosts their morale.

(v) HR audit keeps a check on whether the company is complying with the required legal
rules and regulations.

(vi) The weaknesses of the HR department can be pin-pointed by way of HR audit so

that remedial measures may be taken.

(vii) It enables the HR manager to evaluate the job positions and the employees in order to
formulate promotion and transfer policies.

Human Resource Audit – Disadvantages

(i) HR valuation methods assume that employees would remain with their organizations for
a specified period of time. But this assumption is wrong because in reality employees do not
remain with one company for long and often change jobs.

(ii) It is very difficult to establish standards for HRA as in case of other fields of accounting
such as financial accounting or management accounting. Every organization uses its own
standards, and thus the HRA data of no two organizations can be compared.

(iii) HRA dehumanises the employees by evaluating them in monetary terms. Human
beings cannot be owned or used like machines.

(iv) There is no model of HRA valuation that can be said to be ideal. Each model has many
practical drawbacks.

(v) The life of a human being is uncertain. The lifespan of an employee can never be
predicted accurately, and therefore values can never be assigned to any employee with surety.

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CHAPTER 7

LIMITATIONS OF THE STUDY

The methods of an HRD audit can only be chosen based on the fundamental data relating to the
familiarity of the auditor/consultant to the organization.

Some of the issues to be addressed are:

i. Does the auditor have an idea of the business objectives of the organization?

ii. Is the auditor aware of the competitive dynamics and the relative position of the organization?

iii. Has the auditor developed sufficient knowledge about the business environment?

iv. Does the auditor have the competencies and skills required in understanding tabulating,
and analysing the feedback to be collected during the audit process?

v. Does the auditor have the capability of clarifying the role expectations of various
departments, executives, individuals, etc.?

Limitations of HRD Audit:

Any audit is undertaken to evaluate the effectiveness of systems and procedures. The HRD
audit is not an exception. However, if the HRD audit is held due to the directives/fancies of the
CEO, it can lead to negative results. For instance, initially the top management may be very
supportive of the HRD audit process.

However, when the feedback is continuously negative, they may become hostile and sometimes
even aggressive with the auditors. Quite often the failure of an HRD audit is on account of
failure in the implementation of corrective action based on the feedback. There have been
instances when the HRD audit is used for a negative purpose, such as victimizing the HR
department and removing some of the HR employees.

HR Audit should be voluntary and should be proactively undertaken by the management. There
should not be any compulsion to conduct HR Audit, in order to facilitate a fair and objective
report generation.

An HRD audit does not give an evaluation of the individuals, but it essentially focuses
upon units and systems. However, if consultants so desire, they can give a formal feedback
to the individuals.

The Challenges in Human Resource Development Audit:

An HRD audit starts with an evaluation of the HRD strategies, which either flow from or are
aligned with the corporate strategies. But in the absence of a co-relation between the HR and

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corporate strategy, HRD audit lacks direction and gets relegated to becoming a pure
administrative and routine function.

The challenge in the IT and globalized era is to build and sustain world- class organizations.

Irrespective of the specific strategy followed, organizations have to address the following
challenges:

i. Building and improving quality consciousness.

ii. Striving to recruit and retain competent, creative, and committed employees.

iii. Aligning the business processes with the technology infrastructure and leveraging it
for competitive advantage.

iv. Nurturing a creative and supportive work culture, which endanger pro-fessionalism
and motivation among the employees.

v. Improving the responsiveness of the organization to environmental demands.

vi. Retaining the flexibility and suppleness of the organization in spite of growth
and development.

vii. Training and developing the people through various interventions such as
training, mentoring, 360-degree feedback, etc.

viii. Promoting learning orientation among the employees and facilitating the formation of
informal networks to create a learning organization.

Using Audit Findings:

How does an organization use HR audit results? Since HR audit results are classified, an
important aspect is already taken care of. Critical needs should be the first ones to be addressed.

Organizations generally have three options for dealing with audit results:

i. Use the HR audit as a blueprint or action plan for addressing HR needs.

ii. Address as many needs as possible using the organization’s internal expertise and resources.

iii. Contract out those need areas where internal expertise and resources are not available or do
not fit in the core objectives of the organization.

An HR audit is much like an annual health checkup and performs the same function for the
organization. An audit helps an organization assess where it currently stands and determine what
it has to accomplish to improve its HR functions. It involves systematically reviewing all aspects

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of human resources, usually with a checklist, and ensuring that the government regulations and
company policies are being adhered to.

The key to an audit is to remember that it is a tool to discover and not to test. There will always
be room for improvement in every finding. A formal audit engagement letter is prepared,
containing the objectives, scope, terms and conditions, time frame for completion, and
remuneration for the auditor.

A confidentiality agreement is also made between the auditor and the organization. This starts
the formal, process of auditing.

CONCLUSION
To conclude, HRD is an essential ingredient of any human resource system poised to achieve
productivity, quality, efficiency and effectiveness HRD is like an insurance policy; one has
to keep the premium high. A value based principled life supported by consistent hard work
and dedication can help an individual to achieve his dreams.

In India, a professional outlook to HRD began only in 1970s, even though the HRD processes
might have existed to some extent in India earlier also. LARSEN and TOUBRO was the first
company to design and implement an integrated HRD system. Later on this professional outlook
to HRD spread to other organisations.

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BIBLIOGRAPHY

1. “Human Resource Management” by Ashwathapa.

2. “Human Resource Management” by Michael Armstrong.
3. “Human Resource Policy Analysis: Organizational Applications” by Richard J. Niehaus.

Journals & Articles:

1. Articles by T.V.Rao Learning Systems

2. Policies of Deepak Nitrite Ltd.
3. Documents of Deepak Nitrite Ltd.

Websites:

1. www.deepaknitrite.com
2. www.citehr.com
3. www.ask.com
4. www.wikipedia.com
5. www.hrgroup.com
6. www.ppspublishers.com
7. www.scribd.com
8. www.tvrls.com

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