Why understanding accounting is critical for HR?

Accounting and Human Resource are both crucial areas for a company. Being a Human Resource Manager requires to have number of skills like ability to connect with people at different levels, perform thorough assessment on employee’s skills, character and of course HR planning to meet company’s goals. So, it is important for HR professionals to possess business acumen because it helps to understand the drivers of revenue and cost of their company. Areas of accounting like financial reporting, budgeting and cost information help to make better planning and controlling decisions.

Budgeting:

Although budgets are controlled and developed by HR, they can serve as benchmark for company’s goals and objectives. By understanding financial impact of their decision prepares them to allocate valuable funds for recruitment needs, training employees, implementing new software, rewarding employees and evaluate performance. This makes HR think outside their role and allow them to be more accountable towards overall needs of company.

Proposals:

Viability of a proposal to introduce new policy or program can be easily assessed by the cost factor behind it. For instance, implementing new ERP should contribute in increasing profit not just for the sake of meeting HR target.

Return on Investment:

Measuring return on investment is an important area of accounting. As performance measurement is a key instrument in HR, combining this further with ROI analysis, effectiveness of HR processes can be measured. Knowing the ROI of HR activities will help making better decisions to spend money and able to convince management for increasing productivity and improving profitability.

Controlling:

Another important reason why HR needs accounting skills to perform better as a HR manager is control. HR management is about micromanaging employees at every stage of their development process. To be able to make right decisions and to have control over the HR processes, an understanding of forecasts, cost estimates and number crunching is a must.

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