Human Assets

CURRENT APPROACHES TO VALUING HUMAN ASSETS

Human Assets include the skills, knowledge, talents and capabilities of all individuals associated with an organization. The measurement of Knowledge - Value takes on two forms: the valuation of all Human Assets in an organization and the assessment of the organization's effectiveness in generating value and performance out of its human asset base. Although a consistent comprehensive valuation of both measures would be ideal, even a separate valuation of one or the other would be an improvement over the current state of knowledge.

The following 21 approaches have been categorized and presented by Karl Erik Sveiby (2001) as the current methodologies for determining the value of an organization's Intellectual Capital or Intangible Assets [which include the value of Human Assets]:

1.	Sveiby Categorized Market Capitalization Methodologies [which use the difference between an organization's market capitalization and its stockholder's equity as the value of not only its Human Assets, but moreover, its total Intellectual Capital:
	a.	Tobin's Q [advocated by Stewart (1997) and by Bontis (1999)]: "The 'Q' is the ratio of the stock market value of the firm divided by the replacement cost of assets. Changes in 'Q' provide a proxy for measuring effective performance or not of a firm's intellectual capital"
	b.	Investor Assigned Market Value [advocated by Standfield (1998)]: This approach "takes the Company's True Value to be its stock market value and divides it into a total of Tangible Capital plus Realized Intellectual Capital plus Intellectual Capital Erosion plus Sustainable Competitive Advantage"
	c.	Market to Book Value [advocated by Stewart (1997)]: "The value of intellectual capital is considered to be the difference between the firm's stock market value and the company's book value"

2.	Sveiby Categorized Return on Assets Methodologies [which compares the organization's pre-tax return on tangible assets to the industry average. The difference is multiplied by the organization's average tangible assets to compute the average annual earnings from the organization's Intellectual Capital. Dividing the Intellectual Capital earnings by the company's average cost of capital or by a reference interest rate results in an estimate of the value of an organization's Intellectual Capital.
	a.	Economic Value Added [advocated by Stewart (1997)]: The value of Intellectual Capital is " calculated by adjusting the firm's disclosed profit with charges related to intangibles. Changes in Economic Value Added provide an indication of whether the firm's Intellectual Capital is productive or not."
	b.	Human Resource Costing and Accounting [advocated by Johansson (1996)]: This methodology "calculates the hidden impact of Human Resources related costs which reduce a firm's profits. Adjustments are made to the P & L. Intellectual Capital is measured by calculation of the contribution of human assets held by a company divided by capitalized salary expenditures."
	c.	Calculated Intangible Value [advocated by Stewart (1997)]: This approach "calculates the excess return on hard assets then uses this figure as a basis for determining the proportion of return attributable to intangible assets."
	d.	Knowledge Capital Earnings [advocated by Lev (1999)]: "Knowledge Capital Earnings are calculated as the portion of normalized earnings over and above expected earnings attributable to book assets."
	e.	Value Added Intellectual Coefficient [advocated by Pulic (1997)]: The approach "measures how much and how efficiently Intellectual Capital and capital employed create value based on the relationship of three major components: (1) capital employed; (2) Human Capital; and (3) structural capital."

3.	Sveiby Categorized Scorecard Methodologies [which identifies the various components of Intellectual Capital and presents them in terms of indicators and indices in visual scorecards and graphs]:
	a.	Human Capital Intelligence [advocated by Jac Fitz-Enz (1994)]: By use of this methodology, "sets of human capital indicators are collected and benchmarked against a database."
	b.	Skandia Navigator [advocated by Edvinsson and Malone (1997)]: "Intellectual Capital is measured through the analysis of up to 164 metric measures (91 intellectually based and 73 traditional metrics) that cover five components: (1) financial; (2) customer; (3) process; (4) renewal and development; and (5) human."
	c.	Value Chain Scorecard [advocated by Baruch Lev (2001)]: "A matrix of non-financial indicators in three categories according to the cycle of development: Discovery/Learning, Implementation, and Commercialization."
	d.	IC-Index [advocated by Roos, Roos, Dragonetti and Edvinsson (1997)]: This approach "consolidates all individual indicators representing intellectual properties and components into a single index. Changes in the index are then related to changes in the firm's market valuation."
	e.	Intangible Asset Monitor [advocated by Sweiby (1997)]: "Management selects indicators, based on the strategic objectives of the firm, to measure four major components of intangible assets: (1) growth; (2) renewal; (3) efficiency; and (4) stability.
	f.	Balanced Score Card [advocated by Kaplan and Norton (1992)]: Using this approach, "a company's performance is measured by indicators covering the four major focus perspectives: (1) financial perspective; (2) customer perspective; (3) internal process perspective; and (4) learning perspective. The indicators are based on the strategic objectives of the firm."

4.	Sveiby Categorized Direct Intellectual Capital Methodologies [which identifies the components of Intellectual Capital and then directly values them in financial terms either individually or in the aggregate]:
	a.	Technology Broker [advocated by Brooking (1996)]: "Value of Intellectual Capital of a firm is assessed based on diagnostic analysis of a firm's response to twenty questions covering four major components of Intellectual Capital."
	b.	Citation Weighed Patents [advocated by Bontis (1996)]: "A technology factor is calculated based on the patents developed by a firm. Intellectual Capital and its performance is measured based on the impact of research development efforts on a series of indices, such as number of patents and cost of patents to sales turnover, that describe the firm's patents."
	c.	Inclusive Valuation Methodology [advocated by McPherson (1998)]: This methodology "uses hierarchies of weighted indicators that are combined, and focuses on relative rather than absolute values. Combined Value Added = Monetary Value Added combined with Intangible Value Added."
	d.	The Value Explorer [advocated by Andriessen and Tiessen (2000)]: This approach is an "accounting methodology proposed by KMPG for calculating and allocating value to 5 types of intangibles: (1) assets and endowments; (2) skills and tacit knowledge; (3) collective values and norms; (4) technology and explicit knowledge; (5) primary and management processes."
	e.	Intellectual Asset Valuation [advocated by Sullivan (2000)]: "Methodology for assessing the value of Intellectual Property."
	f.	Total Value Creation [advocated by Anderson and McLean (2000)]: This approach reflects the results of "a project initiated by the Canadian Institute of Chartered Accountants. Total Value Creation uses discounted projected cash-flows to reexamine how events affect planned activities."
	g.	Accounting for the Future [advocated by Nash (1998)]: " a system of projected discounted cash-flows. The difference between the Accounting for the Future value at the end and the beginning of a period is the value added during the period."