Investment on Human Asset Can Reduce Product Cost

What is cost?

Cost plays a very important role in the profits of any business. If a business manages cost it can enhance its profit margin. As we are focusing on the cost of production of the goods, therefore in this context we can define cost as the money spent on the manufacturing or production of the goods. We can say that cost is the monetary evaluation of effort, material and resources. Cost includes the direct material cost, direct labor cost and factory overheads (FOH). In order to increase the profit and survive in the market, a company needs to reduce its cost. One thing is for sure, if a company is able to reduce its cost then there is a great chance of its success.

Actually the concept of cost control is different from cost reduction. Cost control point towards the exercise in constraint. While on the other hand the cost reduction refers to the process of reducing expenses that are high. So controlling cost is different from reducing cost.

Our main focus will be on cost reduction rather than cost control. Apart from getting big profits, the company can increase its revenues by cost reduction. By reducing the cost, the company can use that amount in numerous ways; it can be spent on different purposes, such as in research, increasing the assets of the company, increasing the salary of the employee etc.

How cost can be reduced?

Now, there are several ways in which cost can be reduced. To increase profit, it is a good idea to reduce cost. This is relatively an easy and more efficient way of getting profit as compared to the other methods which are used to increase the profit. Here we will only discuss how the cost can be reduced by investing on human asset. Other techniques of reducing cost are not part of our topic, so the focus is on human asset.

A very useful way to reduce cost is to spend on the human asset. If a company spends on its human asset, in short run it may have to spend more money on the training of its labor but in the long run spending on human asset will help in reducing the cost. This will increase the efficiency of the labor as they will be more skilled after getting trained. By investing on training, organizational infrastructure and culture evolution, a company will be able to reduce the cost. Human asset is the essence of a company. A company is run by the labor working in it. If we say that labor is the soul of an organization, we will not be wrong. For instance, if a company buys the latest equipment and its labor is not trained for using that equipment, then how production will be efficient. To make full use of the opportunities, the labor has to be trained enough for utilizing the moment.

The trained labor will know about how to use minimum and produce maximum. The equipment of the company will last longer if it is operated by trained labor. This will help in reducing the maintenance cost. When maintenance cost is reduced, this will eventually reduce the product cost. The skilled labor will be able to know how to produce more competently by using available resources. A trained employee always cares about the company and its expenses as he understands the importance of cost reduction more than the unskilled labor. When employees are trained the company finds it easier to communicate and interact with them in a trouble-free manner. When interaction between the labor and institution is good then the gap between the two of them also decreases. The labor feels more confident and due to the gained confidence labor will be able to generate good results. Trained labor will always be a key to reduce product cost.

What is Human Asset?

Firstly we should know what human asset is. In simple and easy words human asset refers to the people or labor working in a company. It includes the people who are working in an organization in various departments such as in production house, in stores as store keepers etc. It is a fact that no company can be formed without labor. The owners need to hire people in order to carry out the operations in a company. To make it simpler we can define labor as the workers who render services for wages. They perform different services and in return they get wages and salary. If a company wants to excel in business and survive in the competitive world, it should have good labor or human asset.

Why Invest on Human Asset?

Why is it necessary to invest on human asset? The answer is simple. In order to increase the efficiency of the people working in an organization, to reduce the product cost and ultimately to increase the profit of a company. If the labor force will be trained and more skilled then the there are less chances of wastage of the material, time consuming will be less and the working will be more professional. When professionals are working in a company, the chances of success increases and it is evident from the recent years that the company which had more skilled and professional human asset has managed to get large turnovers.

A person who is trained performs better, his morale gets higher and there are chances that he will be able to achieve higher success for himself as well as for his company. Performance of the labor is the key to the success and in increasing productivity. Actually spending on the training of the labor reduces the difference between how the labor is working currently and how a company needs him to perform. A company should remember that by investing on human asset, it is investing on its most important and valuable asset that is the human asset or labor.

Training the labor helps them to adapt into the organizational culture. By getting into the culture of the company, the labor can have a better idea about the values and demands of the company. Due to this the labor can perform better.

Quality of work is increased by training the labor. During the training the labor learns the new techniques and skills to improve performance and quality. When quality is improved, the efficiency increases and this definitely brings in more profit.

How to Invest on Human Asset?

A company should know how to invest on the human asset. It should invest in such a way so that whatever amount it spends, it should be able to recover that later. It should not invest the amount which it considers that will not be recovered. Many of the problems that a company faces are due to the poorly educated and less trained labors. A company should have a detailed analysis about what kind of investment it should make. After analyzing, a company should design the pattern of the training of the labor, and then it should implement its plan carefully. If a company invests in a systematic way, its chances of success are higher. There are several ways of investing on the human asset. Here we will discuss few of them.

Training and teaching are the initial steps towards making an investment on the labor force. Teaching refers to communicate verbally. It is a very important feature to transfer information to other people. Training refers to the practical demonstration of an activity or performance of a skill. It is necessary to train and teach the labor to make sure they have enough knowledge and skills for making future decisions and to communicate for the benefit of the company. To make mistakes is part of learning and training. A company should not discourage its labor if he makes mistakes during training. It is impossible to learn without making a mistake.

It is crucial to provide the proper environment during the learning procedure. Learner’s attention can be easily diverted, so providing just the material is not enough. The presentation of the material is very much needed.

Cross training or occupational rotation can also be helpful in increasing the abilities of an employee. When a labor working in a particular department is asked to do a job in another field or area for gaining more knowledge and skills is known as cross training or occupational rotation. Cross training helps an employee to gain greater sense of how different departments work. This is not purely a monetary investment but it is an investment of time.

Online training programs can be launched to guide the employees. This method can be employed if the company is having problems in training all of its employees in person. Online technology can be helpful in training and guiding the labor which will certainly increase their capabilities. The use of multimedia can be very helpful in this case. Although the multimedia can not take place of the conventional presentation methods but still it is of use.

The labor can be sent in different events of industries to learn about the latest ins and outs of the modern industries. By learning about the trends and latest techniques adopted by the leading firms, a labor can utilize the knowledge gained to improve his or her company’s operational tasks. This type of training might include the seminars and conferences which are sponsored by professional organizations or business groups.

Quality of the training should be good. After getting the necessary training, labor should be able to identify the problem. A labor may know that there is a problem but he might not know where that problem exists. Such training should be given so that the labor should be able to know the problem and identify where the problem has occurred. After knowing about the problem and its existence, labor should be able to provide its solution, risks and implementation methods.

Training in groups can be very helpful. Robert Pike said that participants retain 90 per cent of what they do and say. Giving some respect to the saying of Robert Pike, group training and activities can help the labor to learn skills more effectively.

By hiring the experts for the training of the labor would ease the training process. A company may tell the experts about what kind of training it wants to give to its employees; the expert trainer will design such a program that will satisfy the company. Active participation by the labor should be encouraged.

These were some suggestions about how to invest on human asset. Now we will discuss some benefits of investing on human assets.

Benefits of Investing on Human Asset

After getting the training, the labor becomes more consistent. The labor is able to understand the procedures and expectations of the company due to the enhanced skills which are gained during the training process. When labor is more consistent, the rate of success of a company increases as cost of production decreases.

Safety training also provides the risk management benefits. Training can reduce the risk of accidents in a company. Training the labor about the relations with other people can also help a company in saving some amount of money. The labor can be taught about how to avoid problems such as sexual abuses and interaction with diverse coworkers. These types of training can help the company to avoid any kind of legal action against it. Labor can also be taught how to communicate with other people, this improves their interactive skills.

By training the labor, a company can save much of its resources. A trained labor will be able to do a certain task in a lesser time. By utilizing the time, a company can produce more in the limited time. Saving of time also saves the energy consumed such as electricity, for instance, an untrained labor produces five products by using ten units of electricity where as the trained labor can produce eight products by using the same amount of electricity. Electricity is not the only thing which is saved but also other materials that are used for producing a good that can be gas, petrol or any other kind of fuel.

Training of labor increases the productivity of a company. If a labor does not have enough knowledge about his work, he might waste some hours on trying to understand the concept of the task. If a labor performs the task wrongly, he will not only waste time but can also the cause financial loss to the company. This will create a negative image of the company. So training the labor is the solution to such problems.

The labor which is trained today, can also take the tasks as the managers in the future. For example an employee leaves the job and the company has some other trained employee, then he can take position of the employee who has left the organization and this will not have any effect on the company. In other words, the labor can be groomed for future management.

With the help of training, the value of a company can be enhanced. When the labor is trained, it becomes the asset of the company. In future, if a company needs to merge with some other organization, the trained labor adds value to the company.

In the modern world, if a company is willing to survive successfully then it needs its labor to be trained and educated about the tasks which it has to perform. The labor should know about the culture and values of a company which are essential for the growth of business. Trained labor can communicate better with the clients. So this will help in making clients more loyal to the company.

Trained labor can have great impact on the company. A good labor can have long lasting effects on a company, by spending once on the labor, the company can use the services of the labor in a much better and in an efficient way in future. Skilled labor is more productive and can work more efficiently than the unskilled labor.

All the benefits of trained labor indicate us that spending on human asset is important and will help in reducing the product cost.

Problems of Investing on Human Asset

Making an investment on training of the labor is one of the most difficult procedures. While giving the training, the company has to spend on developing the skills of the labor instead of doing some work. A company has to bear all the expenses on the training process. So the company has to pay some cost to train its human asset.

A big problem is to manage time. The company might have to skip some of its operations to give time to the training. The process of labor training is time consuming thus the company has to take out special time for such an activity.

Another problem is that the company has to keep an eye on the training of the labor. Whether the instructor is teaching what he has been asked to and whether the labor is learning something or not. So to control the training process is also an issue as it creates extra burden.

Conclusion

If we look at the advantages of investing on human asset, we can say that this is not a bad idea at all. If the labor is trained, then the cost of products can be reduced. It is not necessary that as soon as the company makes an investment on training of the labor, it will get benefits. It may seems in short run that the company has increased the its expenses by investing on its labor, but in long run the benefits are much more higher than the investment made on the training. 

One might say that investing on human asset today will be more profitable in the future. Looking at the problems, we think that they are too minor as compared to the benefits of investing. When trained labor will be working in an organization, it will help in increasing consistency, efficiency and will ultimately lead towards the reduction of product cost. So we may conclude that a company should invest on human asset in order to reduce its product cost.