A Hybrid Approach for Human Capital Valuation and
Prediction Using ARIMA Algorithm
Saranya A.
Department of Information
Technology,
Sri Sairam Engineering
College,
Chennai, India.
saranyaalwar17@gmail.
com
Abstract Evaluating the employees of an organization has
become a major factor in determining the growth and
sustainability of an organization. The proposed system aims to
develop a human capital scorecard for the employees of an
organization that provides value of an employee to the
organization, team and sector specific value insights, and
prediction of future values. This in turn would give a more
statistical approach to predict the growth of the company. The
scorecard is developed by leveraging structured and unstructured
data sets that quantify parameters to calculate the human value.
Our model gives the user the flexibility to choose parameters that
are specific to industries and organizations. Integration of
parameters is done through a hybrid model of existing systems.
The future value is then predicted using regression models. This
dynamic scorecard also uses data visualization techniques to
provide the user with more understanding of the data and
predicted outcome.
KeywordsHuman Capital, Monetary, Non-monetary,
Employee Value , Prediction
I. INTRODUCTION
The workplace these days is a competitive and dynamic
environment which forces the employees and managers to
constantly improve themselves in order to achieve the goals
and objectives of an organization. This makes it necessary for
an organization to invest in the development of the human
capital. Human capital value is an intangible asset and a strong
indicator of future strength of an organization. It is a measure
of knowledge and skill held by an employee which is used by
the organization to achieve its goals. Many organizations have
taken steps to arrive at a human capital value based upon
variety of approaches.
There are about 22 models currently being used to calculate
this value, each varying from one another. The diversity of these
models makes it hard to arrive at a particular model. The
proposed system overcomes this difficulty by developing a hybrid
model which provides an accurate human capital value. The
hybrid model integrates two methods namely asset multiplier and
Expected Realisable Value method. This
Radhika R.
Department of Information
Technology,
Sri Sairam Engineering
College,
Chennai, India.
radhikaraja20@gmail.com
human capital scorecard facilitates automatic human capital
valuation using both qualitative and quantitative parameters
for each employee in an organization. This value is further
analysed which provides an insight about all the sectors of an
organization and which sector is lacking behind, and which
sector needs to be monitored more carefully.
Future value of each employee can be determined by
using predictive techniques. The output is in the form of info
graphic charts which provides an enhanced understanding of
development of each employee. This in turn supports the
business to take effective decisions. The variations in various
aspects are depicted in graphical form. The human capital
scorecard plays a major role in valuing each employee,
identifying areas or sectors which needs more attention, and
predicts the future growth of an organization.
II. LITERATURE SURVEY
Many systems have been proposed to calculate
human capital value. The calculation is based upon a few
numbers of parameters either qualitative or quantitative.
Ferran Mane and Daniel Miravet(2016) developed a
method to analyze each employees human capital value.
Data is collected about the employees which are converted to
quantifiable data. This data consists of about 26 categories
which is a measure of the workers utilization. The finding of
this project is that how each employees wage is affected by
the skills and other measures of human capital value. It also
measures 8 generic skills and role of them in determining the
salaries of employees.
M.S.Gharote, A.K.Sodani, G.K.Palshikar and
R.R.Srivasatva(2016) proposed a statistical model which is
based on the method named DEA. DEA is a mathematical
programming approach which compares data using relative
efficiency. This model relies on data obtained from the end
user based on which the inputs and outputs are selected.
Parameters are selected by the use of an automated model.
This takes in for comparison 40 units of an IT service firm.
 Abhishek Sharma presented a suitable approach for
balanced scorecard. The balanced scorecard is used to identify
the links between inputs (human and physical), processes, and
lagging outcomes, and focuses on the importance of managing
these components to achieve the organization's strategic
priorities. It also calculates employee capability score. The
capability score is a cumulative weighted average of drivers
like idea conversion rates, posts filled internally, and so on.
9. Are your associates (fellow employees) committed
to doing quality work?
10. Do you have a best friend at work?
11. In the last six months, has someone at work talked
to you about your progress?
12. In the last year, have you had opportunities to learn
and grow?

Rajesh Mehra, C.A.Manoj Maheshwari and Krishnan Kant

Meena(2014) proposed a model which depicts the importance
of human assets in a human capital scorecard. Human
resources must be measured in monetary terms because in
financial statements monetary values are only allowed. The
authors have discussed the different methods for calculating
human asset value. The proposed MMM valuation method
considers 10 different parameters for finding the value. Each
parameter is assigned a grade based upon which the score is
calculated.

III. PROPOSED MODEL

In this section, we are going to present a conceptual model
of our system and explain various aspects of it in a systematic
manner.

A. Parameter identification and weightage specification

Designing and measuring human capital Key Performance
Indicators (KPIs) enable organizations to effectively measure
their workforce and calculate the Human Capital Return of
Investments (ROI).Human value accounting includes various
business aspects and parameters. Calculating human value Fig. 1. Sample Gallup Model
involves data sets that are both structured and unstructured
which are collected from the organization as well as from
surveys. The level of engagement of an employee is calculated
by using Gallup model. The Gallup model asks a series of 12 Each employee is valued based on the following 8
questions. The qualitative answers of the 12 questions are categories or parameters.
quantified and given as input to calculate the employee
engagement value which acts as one of the parameters for 1. Employee engagement
calculating the human capital value. 2. Performance
1. Do you know what is expected of you at work? 3. Rewards
2. Do you have the materials and equipment to do your 4. Finance
work right? 5. Health and well-being
3. At work, do you have the opportunity to do what you 6. Training and Development
do best every day? 7. Attract and retain
4. In the last seven days, have you received recognition 8. Diversity and inclusion
or praise for doing good work?
5. Does your supervisor, or someone at work, seem to Employee engagement is to determine whether the
care about you as a person? employees are committed to goals of the organization, to
6. Is there someone at work who encourages your ensure that they contribute willingly to the organization
development? success and whether they are satisfied with the work they are
7. At work, do your opinions seem to count? doing. Performance classifies the employee based upon the
8. Does the mission/purpose of your company make you amount of work done by the person within a certain period of
feel your job is important? time. Rewards is to recognize employees hard work and to
motivate them.
 The work-life balance of the employee is measured using
health and well-being which is used to conclude whether
he/she is happy at work and taking good care of themselves.
Training and Development includes the program for the
betterment of the employee and to determine the return on
interest. Attract and Retain is whether he/she refers the
company to others which can be used to determine the
employees engagement to the organization.
Diversity and inclusion includes the details about the
employee. Each of this parameter is divided into sub
categories and sub-sub categories. The organization must
classify each employee into these subcategories. The
parameters are weighted in a common scale and flexibility is
provided to fix these weights.
B. Human Capital Value Calculation
Human capital value is calculated using various types of
models. Currently, there are about 22 models that are being
used to calculate the human value and each of it varies from
the other. Each model takes only certain parameters into
consideration. Therefore there is great difficulty in arriving at
a single precise value.
The proposed system is a hybrid model which overcomes this
challenge by integrating two models namely total asset
multiplier method and expected realizable value method.
These methods are used in finding the value of human
resources in an organization. They can be categorized into
monetary methods and non-monetary methods. Expected
realizable value method is a non-monetary method. In this
method the parameters are measured through behavioral
measures.
Fig. 2. Architecture diagram of the proposed system
For example, employee engagement, satisfaction and
motivation can be measured with the help of attitude surveys.
Their work life balance can be monitored to measure their
happiness at work. The productivity of an employee can be
determined using managerial assessment. Promotions and
transferability can be measured using psychometric test. This
model is integrated with the monetary asset multiplier
method.
Total asset multiplier is a monetary method which can be
used for calculating human capital value. The value of an
employee depends upon many factors such as employee
engagement, performance, rewards, finance, health and
wellbeing, training and development, attract and retain and
diversity and inclusion. Each of the parameter is weighted on
a common scale that sums up to 100.
Each parameter have their own categories. These categories
are also weighted the same. Each category has subcategories
which are chosen based upon the flexibility of the
organization/employer. An organization/employer allocates
the weights according to their preference which are used to
calculate the value of sub-categories which are in turn used to
calculate the values of the categories.
The value of each parameter is calculated by aggregating its
categorical values. The values of all the parameters are
aggregated and their mean is calculated which gives the total
average score of individual/organization. The average salary
of the homogenous group of the individual is determined. The
human capital value is calculated using the formula
Total average score = (Employee engagement, Performance,
Rewards, Financial, Health & wellbeing, Training and
Development, Attract & retain, Diversity & inclusion) Human
capital value = (Total average score of individual X Average
salary of that homogenous group of the individual).
This hybrid model provides a more accurate value which can be
further analyzed using a prediction technique to arrive at the
future value of the employees in an organization.
Fig. 3. Categories and sub categories of Finance

Fig. 4. Categories and sub categories of Health and Well-being
Fig. 5. Categories and sub categories of Training and Development
Fig. 6. Categories and sub categories of Rewards
C. Prediction using ARIMA model
The ability to know the future value of an employee
would enable the organization to take measures on retaining
valuable employees and also replace employees with low
human capital value. On a larger scale it would help predict
the growth of the organization by means of employee value.
This data can provide the organization the ability to decide its
business strategy for the longer run. In order to predict the
future value of an employee effectively, historic values in
relation to time are required. Thus value prediction is done
through time series forecasting algorithm.
A time series is a sequence of observed values of
parameter or set of parameters that is measured at different
points in time. A time series data is required for two reasons:
1)to identify behaviour of entity in the past
2) to draw predictions about its behaviour in future
Time series analysis provides the ability to identify
critical parameters and their effect on the time series which in
turn allows us to modify the future outcome by carefully
controlling these parameters.
In time-series forecasting (TSF), the accuracy is
measured by obtaining the difference between the predicted
value and the actual value. Here t denotes the values at time t
(error of prediction at time t).
In our model, We use the ARIMA time series model for
prediction of human capital value. ARIMA is a simple
historic statistical model for time series prediction. Its
simplicity and the accuracy shown with early applications has
made it a widely used method for prediction using time series
data. The main advantage of the ARIMA model is the ease of
implementation.
The general ARIMA model is denoted as ARIMA(p,d,q)
where p,d, and q are non-negative integers. In the above
notation parameter p depicts the autoregressive part ,
parameter d depicts the integrated part and the parameter q
depicts the moving average part.
Given a time series of data , Where t is the integer
index and are real numbers, the most general
ARIMA(p,d,q) model can be defined as followed.
 Where lag operator is denoted as L and are the
parameters of the autoregressive part of the model and are
the parameters of the moving average part of the model and
are the error terms.
D. Simulation
We have used asset multiplier method and expected
realisable value method for evaluating the parameters and
getting the required output.
Fig. 7. Value for paramaeters
Fig. 8. Calculation of asset multiplier value
Fig. 9. Calculation of asset multiplier value
IV. CONCLUSION
The proposed system enables the employee or employer
to determine the value of the employee to the organization
and also predict the future value. This data can further give us
insights on how stable or unstable the values or individual
parameters of an employee are. One major advantage of our
system is that it provides a hybrid model that is flexible to the
needs of any organization. The hybrid model also ensures
higher accuracy compared to existing models. Thus our
proposed model is an automated system for human capital
valuation and prediction that is flexible to all organizations.
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