HR Practices for Financial Acumen

Abstract

Human resource (HR) plays a very important role in the success of an organization. These are the people who provide right manpower to the business and develop and motivate them according to company requirements. However, majority of the HR professionals are reactive than being transactional. They are incapable of becoming active participants in the strategic planning of the businesses and lack of financial acumen is the main reason. Financial acumen is the ability of an individual to understand the financial situation of business and capability of making responsible and fiscally sound decisions. It requires comprehensive knowledge of the factors driving profitability and cash flow in the organization, business operations, and entire understanding of organizational processes. The profile of HR business partner is a buzz word in recent years and organizations require HR specialists with financial astuteness that can actually bring organizational value. Looking at the new skills requirement, 41% of the CHROs desired financial acumen as the most important ability. Financial acumen is there in requirement of business from years and people have a stronghold on that, but for HR, it is a challenge. HR has to understand and introduce the HR practices that can help its people develop economic acuteness. In a competitive and economically challenging environment, financial literacy is important. Though most of the HR professionals do not carry any formal training in financial management and merely a basic understanding of financial terminology like return of assets, return on investment, cash flow, etc. is not sufficient. For this, one has to truly understand the meaning of these terms not to deceive someone but to actually 22improve business outputs by minimizing threats and susceptibility. The HR practitioner has to have solid business acumen to understand the financial side of the business so that appropriate actions can be taken for utilizing the limited resources of the company to produce worthy results. For developing this business acumen, professional has to focus on imbibing the HR practices that can develop good financial sharpness among them. In today’s era, the knowledge and hands-on experience of HR metrics and analytic, HR accounting, workforce balanced scorecard, and HR benchmarking can help HR professionals in developing financial intelligence. The focus of this chapter is to understand the importance and application of these HR practices to help people management department in determining the effectiveness of important HR activities and initiatives.