Approaches to Human Resource Audit
Human Resource Audit
Human resource audit has evolved over time and expanded as it is not only used in decision making, but also as an instrument of control in personnel-related matters. Several approaches have been brought forward to evaluate the effectiveness of the hr function. Previous scholars had their own perspective of human resources audit. Their argument was hr audit has an internal an external background.
From the internal aspect, departments are evaluated from their capability to offer services to the organization at an optimized cost. According to this traditional approach, quality quantity and reliability are used to examine the efficiency of the audit.
On the other hand, the external approach focuses on the impact of the organization’s results, thus the auditors consider data obtained from outside as important in solving the errors encountered.
Five Approaches for HR Audit
Apart from traditional approaches there exist the modern/ common approaches. The modern approaches for HR Audit are;
- Statistical approach.
- Compliance approach.
- Comparative approach.
- Outside authority approach.
- Management by objectives (MBO) approach.
1. Statistical Approach
The statistical Approach, or quantitative and qualitative, uses statistical tools and information recorded in the organization’s system. The recorded information may include employee turnover and absenteeism. The checking and auditing of employees involve complex mathematical formulas that form a standard on which all activities and programs are examined.
With mathematical data as a base, mistakes can be discovered and corrected early on. Other times, a statistical approach is supplemented with records from different sources, such as films and surveys.
Purpose
- Quantitative data will be used to assess the performance and effectiveness of HR functions.
- To identify trends, patterns, and deviations from expected outcomes.
Process
- Collect and analyze HR data such as employee turnover rates, absenteeism, recruitment costs, training expenses, and performance metrics.
- Use statistical tools and methods like regression analysis to interpret the data.
- Compare current data against historical data, industry benchmarks, or predefined targets.
Example
- Analyzing turnover rates over the past five years to identify trends and determine the impact of recent HR initiative.
2. Compliance Approach
It is an approach based on legal and organizational policies. Auditors thoroughly examine past actions to examine whether the organization’s activities are in line with legal requirements and the set standards, policies, and procedures. However, many don’t view it as an efficient approach because it uses past information that may be biased for various reasons.
Purpose
- Ensure that HR policies and practices comply with local, state, and federal laws and regulations.
- To identify areas of non-compliance that could pose legal risks to the organization.
Process
- Review HR documentation, policies, and procedures against relevant labor laws and regulations.
- Conduct audits of employment practices, including hiring, termination, workplace safety, wage and hour laws, and anti-discrimination policies.
- Verify that employee records are accurate, complete, and up-to-date.
Example
- Reviewing compliance with Equal Employment Opportunity (EEO) regulations and ensuring that all required employment posters are displayed in the workplace.
3. Comparative Approach
This Approach uses a benchmarking strategy. Auditors identify a competitor organization to use as a comparison model. The audit reports are compared analytically to find areas for corrections.
The benchmarking process is quite tedious as it involves the following;
- Forming a team to take care of the process.
- Identifying the most suitable organization to partner with for the benchmarking.
- Collection of data from both organizations/companies.
- Proper analysis and interpretation of the data.
- Create an action plan and work on the identified loopholes.
Purpose
- To benchmark the organization’s HR practices against other organizations or industry standards.
- To identify areas where the organization lags behind and opportunities for improvement.
Process
- Collect data on HR practices from other organizations or industry reports.
- Compare the organization’s HR policies, practices, and performance metrics with those of similar organizations.
- Identify best practices and areas where the organization can enhance its HR functions.
Example
- Comparing the organization’s employee benefits package with those offered by competitors to ensure competitiveness in attracting and retaining talent.
4. Outside Authority Approach
The audit team uses standards set by outside consultants to benchmark and compare with their own results. Data from published research findings and research films/ documentaries are also a source for benchmarking and exploring the causes of the problem.
Purpose
- To obtain an unbiased assessment of the organization’s HR functions from an external expert or consultant.
- To gain insights and recommendations based on the expertise and experience of the external authority.
Process
- Engage an external consultant or HR expert to conduct the audit.
- Provide the consultant access to HR documentation, policies, procedures, and data.
- The consultant conducts a thorough review and provides a report with findings and recommendations.
Example
- Hiring an HR consultancy firm to comprehensively review the organization’s talent management practices and provide actionable recommendations.
5. Management by Objectives (MBO) Approach
This is a goal- and objective-based Approach. Specific targets are laid down against which the organization’s performance is measured to arrive at a final decision. The Audit team surveys the actual performance and then compares that performance with the organization’s desired objectives.
It is noted that irrespective of the Approach, it can be grouped as a comprehensive or particular focused plan, with staff, time, and costs as factors.
Purpose
- To align HR objectives with the overall strategic goals of the organization.
- To assess the effectiveness of HR initiatives in contributing to achieving these goals.
Process
- Define clear, measurable HR objectives that align with the organization’s strategic goals.
- Implement HR initiatives aimed at achieving these objectives.
- Regularly review and assess the progress towards meeting the objectives.
- Adjust HR strategies and initiatives as needed based on the assessment.
Example
- Setting an objective to reduce employee turnover by 10% within a year and implementing retention strategies such as career development programs and enhanced employee engagement initiatives.
FAQ: Five Approaches for Human Resources Audit
- What is an HR audit?
An HR audit is a comprehensive review of an organization’s HR policies, procedures, documentation, and systems to identify areas for improvement, ensure compliance with laws and regulations, and enhance the overall effectiveness of HR functions.
- What are the five approaches for conducting an HR audit?
The five approaches are:
- Statistical Approach
- Compliance Approach
- Comparative Approach
- Outside Authority Approach
- Management by Objectives (MBO) Approach
- What is the purpose of the Statistical Approach?
The Statistical Approach uses quantitative data to assess the performance and effectiveness of HR functions and identify trends, patterns, and deviations from expected outcomes.
- How is a Compliance Approach conducted?
The Compliance Approach involves reviewing HR documentation, policies, and procedures against relevant labor laws and regulations to ensure compliance and identify areas of non-compliance that could pose legal risks to the organization.
- What is the Comparative Approach?
The Comparative Approach benchmarks the organization’s HR practices against those of other organizations or industry standards to identify areas where the organization lags behind and opportunities for improvement.
- Why would an organization use the Outside Authority Approach?
The Outside Authority Approach involves obtaining an unbiased assessment of the organization’s HR functions from an external expert or consultant, providing insights and recommendations based on their expertise and experience.
- What does the Management by Objectives (MBO) Approach entail?
The MBO Approach aligns HR objectives with the organization’s overall strategic goals. It assesses the effectiveness of HR initiatives in contributing to these goals and adjusts strategies as needed based on regular reviews.
- Can you provide an example of the Statistical Approach?
An example of the Statistical Approach is analyzing turnover rates over the past five years to identify trends and determine the impact of recent HR initiatives on employee retention.
- What is a crucial benefit of the Compliance Approach?
A vital benefit of the Compliance Approach is ensuring that the organization complies with all relevant labor laws and regulations, reducing legal risks and potential penalties.
- How can the Comparative Approach benefit an organization?
The Comparative Approach can benefit an organization by identifying best practices and areas for improvement, helping the organization remain competitive in attracting and retaining talent.
- What is an example of using the Outside Authority Approach?
An example of using the Outside Authority Approach is hiring an HR consultancy firm to comprehensively review the organization’s talent management practices and provide actionable recommendations.
Conclusion
By employing these five approaches, organizations can conduct comprehensive HR audits that ensure compliance, enhance efficiency, benchmark against best practices, leverage external expertise, and align HR functions with strategic goals. Regular HR audits using these approaches can improve HR management, employee satisfaction, and overall organizational performance.