Capital Valuation

Socialization represents sharing of tacit knowledge. Externalization-codifying tacit knowledge into explicit Combination-prototypes/archetypes of knowledge are developed and incorporated. Internalization-learning of this new knowledge Human capital – the brains, skills, insights and potential of those in an organization. Structured capital – wrapped up in customers, processes, databases, brands and systems. Hc – human capital Xp — x number of people Sk — skills of people F — friendliness factor, which would cause people, communicate and share knowledge. Externalization (E) = Human Capital

(Hc)+Structured Capital (S)-Z (Channel noise) Z-channel noise or the losses of information due to human imperfect senses and memory and external factors that disrupt the channel of communication via which knowledge is shared or moved. S-structured capital 2. “If we learn how to make hydrogen-powered cars, we’ll get a government tax cut and enter a new profitable market”—positive motivation. The ratios should be applied to determine the value of human capital and structural capital in both the Externalization and Internalization quadrants above. Any organization should be in a position to quantify human capital, depending on which quadrant it is in. For instance, if we have four organizations in the same industry, they will have different human capital values, so long as they are not in the same quadrant. Knowledge gap is thus the difference between the tacit knowledge and the internalization Gap=Hc+S-EM Basically the knowledge gap is the explicit knowledge less the motivation to acquire such explicit knowledge.

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Human Capital Valuation. Model 2 Let the value determined = $x b. Assuming:- The projection can either include inflation and interest rate to help project knowledge value as a capital. This value ($x) should be added into the Intellectual Capital as the value of human capital per employee. To get the total value of human capital ($X), then aggregate individual human capital, i. e $X=$x+$x+…+$xn, where n=number of employees. If an organization loose employee(s), they should be reflected on the balance sheet by reducing Intellectual Capital with the value of human capital. Long-term external service provider (>1 year) can be classified as an asset as long as both parties are in agreement by talking into consideration other factors.

Human capital despite being unique and different among individuals does not make up the total organizational human capital when added. If synergy takes place, then the value of J>1. If inefficiency takes place, then the value of J<1. It is for this reason the value of total human capital is $X*J, or ($x+$x+.. To better understand the role of ‘human factor’, which for simplicity purpose comprises the corporate culture, another variable which again affects human capital in any organization and its work ethics, one should prompt the employees to evaluate each other. ii.

Assuming we hire an external services provider : Then, the value $x of human capital, this value appears on the balance sheet as an expense. Once again one does not need to be too wise to understand that people who come from the outside (like the external service provider) are not much trusted by the employees so if no other changes take place, the external service provider will have a J lower than the J of ‘insiders’. Model 3 Determine the value of the actual human capital. 1. Calculate the value of the job performed (100%) or 2. Calculate knowledge supplied to perform the task (partial or 100%) Assign weights depending with the way those variables are important to your organization. Y=70=Total value of knowledge gap=$x But if y<70 then we need to determine the true value of human capital. i. e Human capital $z=y/70*$x Now this is the true value of human capital to be recorded the financial statement. Total Human Capital ($Z)= $z1+$z2+….. $zn (where n=number of employees) Once again the Total Human Capital ($Z) should be multiplied by the human factor (J), which again can be either greater or less than 1. J is present in any situation involving human beings.

Calculating the value of the job performed might be a more accurate estimate than the knowledge supplied to perform the task because it calculates only the inputs and thus does not really account for the efficiency/inefficiency that appears as a result of human factor. Thus, one can either use the method of calculating the value of the job performed or the method of knowledge supplied to perform the task. Calculate the mean of human capital and distribution mean Calculate the variance and standard deviation To summarize, the value of human capital appear to be vague and influenced by different factors (e. g. Human factor was the only factor we used in this model, although there are many other factors which can affect the value of human capital as well). The following paper examined the variables that made up human capital and knowledge that any organization could tap and use to its advantage. Overall, the paper managed to achieve its objective of defining knowledge/human capital and developing valuation formulas that the management can use to effectively benefit from the hidden resources their organizations possess in the heads of the employees.

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