How is human capital value added (HCVA) calculated?

Human Capital Value Added (HCVA) is a metric used to assess the contribution of human capital to an organization’s overall revenue. The correct method for calculating HCVA involves taking the total revenue, subtracting the operating expenses, and then dividing that figure by the total labor costs.

This calculation is significant because it provides insight into how effectively human resources contribute to generating revenue beyond the costs associated with employing them. It reflects the efficiency and productivity of the workforce. By evaluating the revenue in relation to labor costs, organizations can determine how much value each employee is adding to the business, which is crucial for assessing human capital performance and making informed decisions regarding workforce investments.

In contrast, other approaches mentioned in the options do not provide a valid calculation of HCVA. Subtracting taxes from revenue (the first option) does not address labor costs or operating expenses; multiplying revenue by full-time head count (the third option) overlooks the essential factors of costs or expenses necessary to determine value added; and considering only labor expenses in revenue (the fourth option) fails to account for other operational expenses that impact profitability. Thus, option B is the appropriate methodology to accurately gauge human capital’s contribution to an organization.