Homo economicus, or Economic human, is the concept in some economic theories of humans as rational and broadly self-interested actors who have the ability to make judgments towards their subjectively defined ends.
Contents
1 History of the term
2 Model
3 Criticisms
4 Responses
5 Homo sociologicus
6 See also
7 References
8 External links
[edit] History of the term
The term "Economic Man" was used for the first time in the late nineteenth century by critics of John Stuart Mill’s work on political economy.[1][2] Below is a passage from Mill’s work that those 19th-century critics were referring to:
"[Political economy] does not treat the whole of man’s nature as modified by the social state, nor of the whole conduct of man in society. It is concerned with him solely as a being who desires to possess wealth, and who is capable of judging the comparative efficacy of means for obtaining that end."[3]
Later in the same work, Mill goes on to write that he is proposing “an arbitrary definition of man, as a being who inevitably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labour and physical self-denial with which they can be obtained.”
Although the term did not come into use until the 19th century, it is often associated with the ideas of 18th century thinkers like Adam Smith and David Ricardo. In The Wealth of Nations, Smith wrote:
"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest."[4]
This suggests the same sort of rational, self-interested, labor-averse individual that Mill proposes (although Smith did claim that individuals have sympathy for the well-being of others, in The Theory of Moral Sentiments). Aristotle's Politics discussed the nature of self interest in Book II, Part V.
"Again, how immeasurably greater is the pleasure, when a man feels a thing to be his own; for surely the love of self is a feeling implanted by nature and not given in vain, although selfishness is rightly censured; this, however, is not the mere love of self, but the love of self in excess, like the miser's love of money; for all, or almost all, men love money and other such objects in a measure. And further, there is the greatest pleasure in doing a kindness or service to friends or guests or companions, which can only be rendered when a man has private property."
A wave of economists in the late 19th century—Francis Edgeworth, William Stanley Jevons, Leon Walras, and Vilfredo Pareto—built mathematical models on these assumptions. In the 20th century, Lionel Robbins’ rational choice theory came to dominate mainstream economics and the term Economic Man took on a more specific meaning of a person who acted rationally on complete knowledge out of self-interest and the desire for wealth.
[edit] Model
Homo economicus is a term used for an approximation or model of Homo sapiens that acts to obtain the highest possible well-being for himself given available information about opportunities and other constraints, both natural and institutional, on his ability to achieve his predetermined goals. This approach has been formalized in certain social science models, particularly in economics.
Homo economicus is seen as "rational" in the sense that well-being as defined by the utility function is optimized given perceived opportunities. That is, the individual seeks to attain very specific and predetermined goals to the greatest extent with the least possible cost. Note that this kind of "rationality" does not say that the individual's actual goals are "rational" in some larger ethical, social, or human sense, only that he tries to attain them at minimal cost. Only naïve applications of the Homo economicus model assume that this hypothetical individual knows what is best for his long-term physical and mental health and can be relied upon to always make the right decision for himself. See rational choice theory and rational expectations for further discussion; the article on rationality widens the discussion.
As in social science in general, these assumptions are at best approximations. The term is often used derogatorily in academic literature, perhaps most commonly by sociologists, many of whom tend to prefer structural explanations to ones based on rational action by individuals.
The use of the Latin form Homo economicus is certainly long established; Persky[1] traces it back to Pareto (1906)[5] but notes that it may be older. The English term economic man can be found even earlier, in John Kells Ingram's A History of Political Economy (1888).[6] The Oxford English Dictionary (O.E.D.) does not mention Homo economicus, but it is one of a number of phrases that imitate the scientific name for the human species. According to the O.E.D., the human genus name Homo is
Used with L. or mock-L. adjs. in names imitating Homo sapiens, etc., and intended to personify some aspect of human life or behaviour (indicated by the adj.). Homo faber ("feIb@(r)) [H. Bergson L'Evolution Créatrice (1907) ii. 151], a term used to designate man as a maker of tools.) Variants are often comic: Homo insipiens; Homo turisticus. (This is from the CD edition of 2002.)
Note that such forms should logically keep the capital for the "genus" name—i.e., Homo economicus rather than homo economicus. Actual usage is inconsistent.
[edit] Criticisms
Homo economicus bases his choices on a consideration of his own personal "utility function".
Consequently, the "homo economicus" assumptions have been criticized not only by economists on the basis of logical arguments, but also on empirical grounds by cross-cultural comparison. Economic anthropologists such as Marshall Sahlins[7], Karl Polanyi[8], Marcel Mauss[9] or Maurice Godelier[10] have demonstrated that in traditional societies, choices people make regarding production and exchange of goods follow patterns of reciprocity which differ sharply from what the "homo economicus" model postulates. Such systems have been termed gift economy rather than market economy. Criticisms of the "homo economicus" model put forward from the standpoint of ethics usually refer to thís traditional ethic of kinship-based reciprocity that held together traditional societies.
Economists Thorstein Veblen, John Maynard Keynes, Herbert Simon, and many of the Austrian School criticise Homo economicus as an actor with too great of an understanding of macroeconomics and economic forecasting in his decision making. They stress uncertainty and bounded rationality in the making of economic decisions, rather than relying on the rational man who is fully informed of all circumstances impinging on his decisions. They argue that perfect knowledge never exists, which means that all economic activity implies risk.
Empirical studies by Amos Tversky questioned the assumption that investors are rational. In 1995, Tversky demonstrated the tendency of investors to make risk-averse choices in gains, and risk-seeking choices in losses. The investors appeared as very risk-averse for small losses but indifferent for a small chance of a very large loss. This violates economic rationality as usually understood. Further research on this subject, showing other deviations from conventionally-defined economic rationality, is being done in the growing field of experimental or behavioral economics. Some of the broader issues involved in this criticism are studied in Decision Theory of which Rational Choice Theory is only a subset.
Other critics of the Homo economicus model of humanity, such as Bruno Frey, point to the excessive emphasis on extrinsic motivation (rewards and punishments from the social environment) as opposed to intrinsic motivation. For example, it is difficult if not impossible to understand how Homo economicus would be a hero in war or would get inherent pleasure from craftsmanship. Frey and others argue that too much emphasis on rewards and punishments can "crowd out" (discourage) intrinsic motivation: paying a boy for doing household tasks may push him from doing those tasks "to help the family" to doing them simply for the reward.
Another weakness is highlighted by sociologists, who argue that Homo economicus ignores an extremely important question, i.e., the origins of tastes and the parameters of the utility function by social influences, training, education, and the like. The exogeneity of tastes (preferences) in this model is the major distinction from Homo sociologicus, in which tastes are taken as partially or even totally determined by the societal environment (see below).
Further critics, learning from the broadly-defined psychoanalytic tradition, criticize the Homo economicus model as ignoring the inner conflicts that real-world individuals suffer, as between short-term and long-term goals (e.g., eating chocolate cake and losing weight) or between individual goals and societal values. Such conflicts may lead to "irrational" behavior involving inconsistency, psychological paralysis, neurosis, and/or psychic pain.
Some critics argue that a "naive" presentation of Homo Economicus model can result in a self-fulfilling prophecy. One possible case of this has been in the teaching of economics. Several research studies have indicated that those students who take economics courses end up being more self-centered than before they took the courses. For example, they are less willing to co-operate with the other player in a "prisoner's-dilemma"-type game.[11]
[edit] Responses
This article does not cite any references or sources. Please help improve this article by adding citations to reliable sources. Unverifiable material may be challenged and removed. (December 2008)
Economists tend to disagree with these critiques, arguing that it may be relevant to analyze the consequences of enlightened egoism just as it may be worthwhile to consider altruistic or social behavior. Others argue that we need to understand the consequences of such narrow-minded greed even if only a small percentage of the population embraces such motives. Free riders, for example, would have a major negative impact on the provision of public goods. However, economists' supply and demand predictions might obtain even if only a significant minority of market participants act like Homo economicus. In this view, the assumption of Homo economicus can and should be simply a preliminary step on the road to a more sophisticated model.
Yet others argue that Homo economicus is a reasonable approximation for behavior within market institutions, since the individualized nature of human action in such social settings encourages individualistic behavior. Not only do market settings encourage the application of a simple cost/benefit calculus by individuals, but they reward and thus attract the more individualistic people. It can be difficult to apply social values (as opposed to following self-interest) in an extremely competitive market; a company that refuses to pollute (for example) may find itself bankrupt.
Defenders of the Homo economicus model see many critics of the dominant school as using a straw-man technique. For example, it is common for critics to argue that real people do not have cost-less access to infinite information and an innate ability to instantly process it. However, in advanced-level theoretical economics, scholars have found ways of addressing these problems, modifying models enough to more realistically depict real-life decision-making. For example, models of individual behavior under bounded rationality and of people suffering from envy can be found in the literature. It is primarily when targeting the limiting assumptions made in constructing undergraduate models that the criticisms listed above are valid. These criticisms are especially valid to the extent that the professor asserts that the simplifying assumptions are true and/or uses them in a propagandistic way.
The more sophisticated economists are quite conscious of the empirical limitations of the Homo economicus model. In theory, the views of the critics can be combined with the Homo economicus model to attain a more accurate model.
[edit] Homo sociologicus
Comparisons between economics and sociology have resulted in a corresponding term Homo sociologicus (introduced by German Sociologist Ralf Dahrendorf in 1958), to parody the image of human nature given in some sociological models that attempt to limit the social forces that determine individual tastes and social values. (The alternative or additional source of these would be biology.) Hirsch et al. say that Homo sociologicus is largely a tabula rasa upon which societies and cultures write values and goals; unlike economicus, sociologicus acts not to pursue selfish interests but to fulfill social roles[12] (though the fulfillment of social roles may have a selfish rationale—e.g. politicians or socialites). This "individual" may appear to be all society and no individual.
[edit] See also
Agent (economics)
Rational agent
Rational choice theory
Economic rationalism
List of names for human
Modern portfolio theory
Pirate game
Post-autistic economics
Rational pricing
Homo biologicus
Monday, June 1, 2009
Bounded Rationality
Bounded rationality is a concept based on the fact that rationality of individuals is limited by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make decisions. This contrasts with the concept of rationality as optimization.[1] Another way to look at bounded rationality is that, because decision-makers lack the ability and resources to arrive at the optimal solution, they instead apply their rationality only after having greatly simplified the choices available. Thus the decision-maker is a satisficer, one seeking a satisfactory solution rather than the optimal one.[2]
Some models of human behavior in the social sciences assume that humans can be reasonably approximated or described as "rational" entities (see for example rational choice theory). Many economics models assume that people are on average rational, and can in large enough quantities be approximated to act according to their preferences. The concept of bounded rationality revises this assumption to account for the fact that perfectly rational decisions are often not feasible in practice due to the finite computational resources available for making them.
The term is thought to have been coined by Herbert Simon. In Models of Man, Mr. Simon points out that most people are only partly rational, and are in fact emotional/irrational in the remaining part of their actions. In another work, he states "boundedly rational agents experience limits in formulating and solving complex problems and in processing (receiving, storing, retrieving, transmitting) information" (Williamson, p. 553, citing Simon). Simon describes a number of dimensions along which "classical" models of rationality can be made somewhat more realistic, while sticking within the vein of fairly rigorous formalization. These include:
limiting what sorts of utility functions there might be.
recognizing the costs of gathering and processing information.
the possibility of having a "vector" or "multi-valued" utility function.
Simon suggests that economic agents employ the use of heuristics to make decisions rather than a strict rigid rule of optimization. They do this because of the complexity of the situation, and their inability to process and compute the expected utility of every alternative action. Deliberation costs might be high and there are often other, concurrent economic activities also requiring decisions.
Daniel Kahneman proposes bounded rationality as a model to overcome some of the limitations of the rational-agent models in economic literature.
As decision makers have to make decisions about how and when to decide, Ariel Rubinstein proposed to model bounded rationality by explicitly specifying decision-making procedures. This puts the study of decision procedures on the research agenda.
Gerd Gigerenzer argues that most decision theorists who have discussed bounded rationality have not really followed Simon's ideas about it. Rather, they have either considered how people's decisions might be made sub-optimal by the limitations of human rationality, or have constructed elaborate optimising models of how people might cope with their inability to optimize. Gigerenzer instead proposes to examine simple alternatives to a full rationality analysis as a mechanism for decision making, and he and his colleagues have shown that such simple heuristics frequently lead to better decisions than the theoretically optimal procedure.
From a computational point of view, decision procedures can be encoded in algorithms and heuristics. Edward Tsang argues that the effective rationality of an agent is determined by its computational intelligence. Everything else being equal, an agent that has better algorithms and heuristics could make "more rational" (more optimal) decisions than one that has poorer heuristics and algorithms.
[edit] References
Jon Elster (1983). Sour Grapes: Studies in the Subversion of Rationality. Cambridge, UK: Cambridge University Press.
Gigerenzer, G. & Selten, R. (2002). Bounded Rationality.Cambridge: The MIT Press; reprint edition. ISBN 0-262-57164-1
Hayek, F.A (1948) Individualism and Economic order
Kahneman, Daniel (2003). Maps of bounded rationality: psychology for behavioral economics. The American Economic Review. 93(5). pp. 1449–1475
March, James G. (1994). A Primer on Decision Making: How Decisions Happen. New York: The Free Press.
Rubinstein, A. (1998). Modeling bounded rationality, MIT Press.
Simon, Herbert (1957). "A Behavioral Model of Rational Choice", in Models of Man, Social and Rational: Mathematical Essays on Rational Human Behavior in a Social Setting. New York: Wiley.
Simon, Herbert (1990). A mechanism for social selection and successful altruism, Science 250 (4988): 1665-1668.
Simon, Herbert (1991). Bounded Rationality and Organizational Learning, Organization Science 2(1): 125-134.
Tisdell, Clem (1996). Bounded Rationality and Economic Evolution: A Contribution to Decision Making, Economics, and Management. Cheltenham, UK; Brookfield, Vt.: Edward Elgar.
Tsang, E.P.K. (2008). Computational intelligence determines effective rationality, International Journal on Automation and Control, Vol.5, No.1, 63-66.
Williamson, Oliver (1981). The economies of organization: the transaction cost approach. American Journal of Sociology 87
(3): 548-577.
^ Gigerenzer, Gerd; Selten, Reinhard (2002). Bounded Rationality: The Adaptive Toolbox. MIT Press. ISBN 0262571641. http://books.google.com/books?id=dVMq5UoYS3YC&dq=%22bounded+rationality%22&printsec=frontcover&source=bl&ots=pZ2sZOGH1X&sig=J4icGbo0Wz8MXC3JcX5cHNId298&hl=en&ei=_qziScv-PKa-tAOL9ui0CQ&sa=X&oi=book_result&ct=result&resnum=5#PPA4,M1.
^ "Bounded rationality: Definition from Answers.com". Answers Corporation. http://www.answers.com/topic/bounded-rationality. Retrieved on 2009-04-12.
Some models of human behavior in the social sciences assume that humans can be reasonably approximated or described as "rational" entities (see for example rational choice theory). Many economics models assume that people are on average rational, and can in large enough quantities be approximated to act according to their preferences. The concept of bounded rationality revises this assumption to account for the fact that perfectly rational decisions are often not feasible in practice due to the finite computational resources available for making them.
The term is thought to have been coined by Herbert Simon. In Models of Man, Mr. Simon points out that most people are only partly rational, and are in fact emotional/irrational in the remaining part of their actions. In another work, he states "boundedly rational agents experience limits in formulating and solving complex problems and in processing (receiving, storing, retrieving, transmitting) information" (Williamson, p. 553, citing Simon). Simon describes a number of dimensions along which "classical" models of rationality can be made somewhat more realistic, while sticking within the vein of fairly rigorous formalization. These include:
limiting what sorts of utility functions there might be.
recognizing the costs of gathering and processing information.
the possibility of having a "vector" or "multi-valued" utility function.
Simon suggests that economic agents employ the use of heuristics to make decisions rather than a strict rigid rule of optimization. They do this because of the complexity of the situation, and their inability to process and compute the expected utility of every alternative action. Deliberation costs might be high and there are often other, concurrent economic activities also requiring decisions.
Daniel Kahneman proposes bounded rationality as a model to overcome some of the limitations of the rational-agent models in economic literature.
As decision makers have to make decisions about how and when to decide, Ariel Rubinstein proposed to model bounded rationality by explicitly specifying decision-making procedures. This puts the study of decision procedures on the research agenda.
Gerd Gigerenzer argues that most decision theorists who have discussed bounded rationality have not really followed Simon's ideas about it. Rather, they have either considered how people's decisions might be made sub-optimal by the limitations of human rationality, or have constructed elaborate optimising models of how people might cope with their inability to optimize. Gigerenzer instead proposes to examine simple alternatives to a full rationality analysis as a mechanism for decision making, and he and his colleagues have shown that such simple heuristics frequently lead to better decisions than the theoretically optimal procedure.
From a computational point of view, decision procedures can be encoded in algorithms and heuristics. Edward Tsang argues that the effective rationality of an agent is determined by its computational intelligence. Everything else being equal, an agent that has better algorithms and heuristics could make "more rational" (more optimal) decisions than one that has poorer heuristics and algorithms.
[edit] References
Jon Elster (1983). Sour Grapes: Studies in the Subversion of Rationality. Cambridge, UK: Cambridge University Press.
Gigerenzer, G. & Selten, R. (2002). Bounded Rationality.Cambridge: The MIT Press; reprint edition. ISBN 0-262-57164-1
Hayek, F.A (1948) Individualism and Economic order
Kahneman, Daniel (2003). Maps of bounded rationality: psychology for behavioral economics. The American Economic Review. 93(5). pp. 1449–1475
March, James G. (1994). A Primer on Decision Making: How Decisions Happen. New York: The Free Press.
Rubinstein, A. (1998). Modeling bounded rationality, MIT Press.
Simon, Herbert (1957). "A Behavioral Model of Rational Choice", in Models of Man, Social and Rational: Mathematical Essays on Rational Human Behavior in a Social Setting. New York: Wiley.
Simon, Herbert (1990). A mechanism for social selection and successful altruism, Science 250 (4988): 1665-1668.
Simon, Herbert (1991). Bounded Rationality and Organizational Learning, Organization Science 2(1): 125-134.
Tisdell, Clem (1996). Bounded Rationality and Economic Evolution: A Contribution to Decision Making, Economics, and Management. Cheltenham, UK; Brookfield, Vt.: Edward Elgar.
Tsang, E.P.K. (2008). Computational intelligence determines effective rationality, International Journal on Automation and Control, Vol.5, No.1, 63-66.
Williamson, Oliver (1981). The economies of organization: the transaction cost approach. American Journal of Sociology 87
(3): 548-577.
^ Gigerenzer, Gerd; Selten, Reinhard (2002). Bounded Rationality: The Adaptive Toolbox. MIT Press. ISBN 0262571641. http://books.google.com/books?id=dVMq5UoYS3YC&dq=%22bounded+rationality%22&printsec=frontcover&source=bl&ots=pZ2sZOGH1X&sig=J4icGbo0Wz8MXC3JcX5cHNId298&hl=en&ei=_qziScv-PKa-tAOL9ui0CQ&sa=X&oi=book_result&ct=result&resnum=5#PPA4,M1.
^ "Bounded rationality: Definition from Answers.com". Answers Corporation. http://www.answers.com/topic/bounded-rationality. Retrieved on 2009-04-12.
Human Resource Management
Human resource management (HRM) is the strategic and coherent approach to the management of an organisation's most valued assets - the people working there who individually and collectively contribute to the achievement of the objectives of the business.[1] The terms "human resource management" and "human resources" (HR) have largely replaced the term "personnel management" as a description of the processes involved in managing people in organizations.[1] In simple sense, HRM means employing people, developing their resources, utilizing, maintaining and compensating their services in tune with the job and organizational requirement.
Contents
1 Features
2 Academic theory
2.1 Critical Academic Theory
3 Business practice
4 Careers
5 Professional organizations
6 Functions
7 See also
8 References
[edit] Features
Its features include:
Organizational management
Personnel administration
Manpower management
Industrial management[2][3]
But these traditional expressions are becoming less common for the theoretical discipline. Sometimes even industrial relations and employee relations are confusingly listed as synonyms,[4] although these normally refer to the relationship between management and workers and the behavior of workers in companies.
The theoretical discipline is based primarily on the assumption that employees are individuals with varying goals and needs, and as such should not be thought of as basic business resources, such as trucks and filing cabinets. The field takes a positive view of workers, assuming that virtually all wish to contribute to the enterprise productively, and that the main obstacles to their endeavors are lack of knowledge, insufficient training, and failures of process.
HRM is seen by practitioners in the field as a more innovative view of workplace management than the traditional approach. Its techniques force the managers of an enterprise to express their goals with specificity so that they can be understood and undertaken by the workforce, and to provide the resources needed for them to successfully accomplish their assignments. As such, HRM techniques, when properly practiced, are expressive of the goals and operating practices of the enterprise overall. HRM is also seen by many to have a key role in risk reduction within organizations.[5]
Synonyms such as personnel management are often used in a more restricted sense to describe activities that are necessary in the recruiting of a workforce, providing its members with payroll and benefits, and administrating their work-life needs. So if we move to actual definitions, Torrington and Hall (1987) define personnel management as being:
“a series of activities which: first enable working people and their employing organisations to agree about the objectives and nature of their working relationship and, secondly, ensures that the agreement is fulfilled" (p. 49).
While Miller (1987) suggests that HRM relates to:
".......those decisions and actions which concern the management of employees at all levels in the business and which are related to the implementation of strategies directed towards creating and sustaining competitive advantage" (p. 352).
[edit] Academic theory
The goal of human resource management is to help an organization to meet strategic goals by attracting, and maintaining employees and also to manage them effectively. The key word here perhaps is "fit", i.e. a HRM approach seeks to ensure a fit between the management of an organization's employees, and the overall strategic direction of the company (Miller, 1989).
The basic premise of the academic theory of HRM is that humans are not machines, therefore we need to have an interdisciplinary examination of people in the workplace. Fields such as psychology, industrial engineering, industrial, Legal/Paralegal Studies and organizational psychology, industrial relations, sociology, and critical theories: postmodernism, post-structuralism play a major role. Many colleges and universities offer bachelor and master degrees in Human Resources Management.
One widely used scheme to describe the role of HRM, developed by Dave Ulrich, defines 4 fields for the HRM function:[6]
Strategic business partner
Change management
Employee champion
Administration
However, many HR functions these days struggle to get beyond the roles of administration and employee champion, and are seen rather as reactive than strategically proactive partners for the top management. In addition, HR organizations also have the difficulty in proving how their activities and processes add value to the company. Only in the recent years HR scholars and HR professionals are focusing to develop models that can measure if HR adds value.[7]
[edit] Critical Academic Theory
Postmodernism plays an important part in Academic Theory and particularly in Critical Theory. Indeed Karen Legge in 'Human Resource Management: Rhetorics and Realities' poses the debate of whether HRM is a modernist project or a postmodern discourse (Legge 2004). In many ways, critically or not, many writers contend that HRM itself is an attempt to move away from the modernist traditions of personnel (man as machine) towards a postmodernist view of HRM (man as individuals). Critiques include the notion that because 'Human' is the subject we should recognize that people are complex and that it is only through various discourses that we understand the world. Man is not Machine, no matter what attempts are made to change it i.e. Fordism / Taylorism, McDonaldisation (Modernism).
Critical Theory also questions whether HRM is the pursuit of "attitudinal shaping" (Wilkinson 1998), particularly when considering empowerment, or perhaps more precisely pseudo-empowerment - as the critical perspective notes. Many critics note the move away from Man as Machine is often in many ways, more a Linguistic (discursive) move away than a real attempt to recognise the Human in Human Resource Management.
Critical Theory, in particular postmodernism (poststructualism), recognises that because the subject is people in the workplace, the subject is a complex one, and therefore simplistic notions of 'the best way' or a unitary perspectives on the subject are too simplistic. It also considers the complex subject of power, power games, and office politics. Power in the workplace is a vast and complex subject that cannot be easily defined. This leaves many critics to suggest that Management 'Gurus', consultants, 'best practice' and HR models are often overly simplistic, but in order to sell an idea, they are simplified, and often lead Management as a whole to fall into the trap of oversimplifying the relationship.
[edit] Business practice
Human resources management comprises several processes. Together they are supposed to achieve the above mentioned goal. These processes can be performed in an HR department, but some tasks can also be outsourced or performed by line-managers or other departments. When effectively integrated they provide significant economic benefit to the company.[8]
Workforce planning
Recruitment (sometimes separated into attraction and selection)
Induction and Orientation
Skills management
Training and development
Personnel administration
Compensation in wage or salary
Time management
Travel management (sometimes assigned to accounting rather than HRM)
Payroll (sometimes assigned to accounting rather than HRM)
Employee benefits administration
Personnel cost planning
Performance Appraisal
[edit] Careers
The sort of careers available in HRM are varied. There are generalist HRM jobs such as human resource assistant. There are careers involved with employment, recruitment and placement and these are usually conducted by interviewers, EEO (Equal Employment Opportunity) specialists or college recruiters. Training and development specialism is often conducted by trainers and orientation specialists. Compensation and benefits tasks are handled by compensation analysts, salary administrators, and benefits administrators.
[edit] Professional organizations
Professional organizations in HRM include the Society for Human Resource Management, the Australian Human Resources Institute (AHRI), the Chartered Institute of Personnel and Development (CIPD), the International Public Management Association for HR (IPMA-HR), Management Association of Nepal MAN and the International Personnel Management Association of Canada (IPMA-Canada), Human Capital Institute (HCI)
[edit] Functions
The Human Resources Management (HRM) function includes a variety of activities, and key among them is deciding what staffing needs you have and whether to use independent contractors or hire employees to fill these needs, recruiting and training the best employees, ensuring they are high performers, dealing with performance issues, and ensuring your personnel and management practices conform to various regulations. Activities also include managing your approach to employee benefits and compensation, employee records and personnel policies. Usually small businesses (for-profit or nonprofit) have to carry out these activities themselves because they can't yet afford part- or full-time help. However, they should always ensure that employees have -- and are aware of -- personnel policies which conform to current regulations. These policies are often in the form of employee manuals, which all employees have.
Note that some people distinguish a difference between between HRM (a major management activity) and HRD (Human Resource Development, a profession). Those people might include HRM in HRD, explaining that HRD includes the broader range of activities to develop personnel inside of organizations, including, eg, career development, training, organization development, etc.
There is a long-standing argument about where HR-related functions should be organized into large organizations, eg, "should HR be in the Organization Development department or the other way around?"
The HRM function and HRD profession have undergone tremendous change over the past 20-30 years. Many years ago, large organizations looked to the "Personnel Department," mostly to manage the paperwork around hiring and paying people. More recently, organizations consider the "HR Department" as playing a major role in staffing, training and helping to manage people so that people and the organization are performing at maximum capability in a highly fulfilling manner.
Contents
1 Features
2 Academic theory
2.1 Critical Academic Theory
3 Business practice
4 Careers
5 Professional organizations
6 Functions
7 See also
8 References
[edit] Features
Its features include:
Organizational management
Personnel administration
Manpower management
Industrial management[2][3]
But these traditional expressions are becoming less common for the theoretical discipline. Sometimes even industrial relations and employee relations are confusingly listed as synonyms,[4] although these normally refer to the relationship between management and workers and the behavior of workers in companies.
The theoretical discipline is based primarily on the assumption that employees are individuals with varying goals and needs, and as such should not be thought of as basic business resources, such as trucks and filing cabinets. The field takes a positive view of workers, assuming that virtually all wish to contribute to the enterprise productively, and that the main obstacles to their endeavors are lack of knowledge, insufficient training, and failures of process.
HRM is seen by practitioners in the field as a more innovative view of workplace management than the traditional approach. Its techniques force the managers of an enterprise to express their goals with specificity so that they can be understood and undertaken by the workforce, and to provide the resources needed for them to successfully accomplish their assignments. As such, HRM techniques, when properly practiced, are expressive of the goals and operating practices of the enterprise overall. HRM is also seen by many to have a key role in risk reduction within organizations.[5]
Synonyms such as personnel management are often used in a more restricted sense to describe activities that are necessary in the recruiting of a workforce, providing its members with payroll and benefits, and administrating their work-life needs. So if we move to actual definitions, Torrington and Hall (1987) define personnel management as being:
“a series of activities which: first enable working people and their employing organisations to agree about the objectives and nature of their working relationship and, secondly, ensures that the agreement is fulfilled" (p. 49).
While Miller (1987) suggests that HRM relates to:
".......those decisions and actions which concern the management of employees at all levels in the business and which are related to the implementation of strategies directed towards creating and sustaining competitive advantage" (p. 352).
[edit] Academic theory
The goal of human resource management is to help an organization to meet strategic goals by attracting, and maintaining employees and also to manage them effectively. The key word here perhaps is "fit", i.e. a HRM approach seeks to ensure a fit between the management of an organization's employees, and the overall strategic direction of the company (Miller, 1989).
The basic premise of the academic theory of HRM is that humans are not machines, therefore we need to have an interdisciplinary examination of people in the workplace. Fields such as psychology, industrial engineering, industrial, Legal/Paralegal Studies and organizational psychology, industrial relations, sociology, and critical theories: postmodernism, post-structuralism play a major role. Many colleges and universities offer bachelor and master degrees in Human Resources Management.
One widely used scheme to describe the role of HRM, developed by Dave Ulrich, defines 4 fields for the HRM function:[6]
Strategic business partner
Change management
Employee champion
Administration
However, many HR functions these days struggle to get beyond the roles of administration and employee champion, and are seen rather as reactive than strategically proactive partners for the top management. In addition, HR organizations also have the difficulty in proving how their activities and processes add value to the company. Only in the recent years HR scholars and HR professionals are focusing to develop models that can measure if HR adds value.[7]
[edit] Critical Academic Theory
Postmodernism plays an important part in Academic Theory and particularly in Critical Theory. Indeed Karen Legge in 'Human Resource Management: Rhetorics and Realities' poses the debate of whether HRM is a modernist project or a postmodern discourse (Legge 2004). In many ways, critically or not, many writers contend that HRM itself is an attempt to move away from the modernist traditions of personnel (man as machine) towards a postmodernist view of HRM (man as individuals). Critiques include the notion that because 'Human' is the subject we should recognize that people are complex and that it is only through various discourses that we understand the world. Man is not Machine, no matter what attempts are made to change it i.e. Fordism / Taylorism, McDonaldisation (Modernism).
Critical Theory also questions whether HRM is the pursuit of "attitudinal shaping" (Wilkinson 1998), particularly when considering empowerment, or perhaps more precisely pseudo-empowerment - as the critical perspective notes. Many critics note the move away from Man as Machine is often in many ways, more a Linguistic (discursive) move away than a real attempt to recognise the Human in Human Resource Management.
Critical Theory, in particular postmodernism (poststructualism), recognises that because the subject is people in the workplace, the subject is a complex one, and therefore simplistic notions of 'the best way' or a unitary perspectives on the subject are too simplistic. It also considers the complex subject of power, power games, and office politics. Power in the workplace is a vast and complex subject that cannot be easily defined. This leaves many critics to suggest that Management 'Gurus', consultants, 'best practice' and HR models are often overly simplistic, but in order to sell an idea, they are simplified, and often lead Management as a whole to fall into the trap of oversimplifying the relationship.
[edit] Business practice
Human resources management comprises several processes. Together they are supposed to achieve the above mentioned goal. These processes can be performed in an HR department, but some tasks can also be outsourced or performed by line-managers or other departments. When effectively integrated they provide significant economic benefit to the company.[8]
Workforce planning
Recruitment (sometimes separated into attraction and selection)
Induction and Orientation
Skills management
Training and development
Personnel administration
Compensation in wage or salary
Time management
Travel management (sometimes assigned to accounting rather than HRM)
Payroll (sometimes assigned to accounting rather than HRM)
Employee benefits administration
Personnel cost planning
Performance Appraisal
[edit] Careers
The sort of careers available in HRM are varied. There are generalist HRM jobs such as human resource assistant. There are careers involved with employment, recruitment and placement and these are usually conducted by interviewers, EEO (Equal Employment Opportunity) specialists or college recruiters. Training and development specialism is often conducted by trainers and orientation specialists. Compensation and benefits tasks are handled by compensation analysts, salary administrators, and benefits administrators.
[edit] Professional organizations
Professional organizations in HRM include the Society for Human Resource Management, the Australian Human Resources Institute (AHRI), the Chartered Institute of Personnel and Development (CIPD), the International Public Management Association for HR (IPMA-HR), Management Association of Nepal MAN and the International Personnel Management Association of Canada (IPMA-Canada), Human Capital Institute (HCI)
[edit] Functions
The Human Resources Management (HRM) function includes a variety of activities, and key among them is deciding what staffing needs you have and whether to use independent contractors or hire employees to fill these needs, recruiting and training the best employees, ensuring they are high performers, dealing with performance issues, and ensuring your personnel and management practices conform to various regulations. Activities also include managing your approach to employee benefits and compensation, employee records and personnel policies. Usually small businesses (for-profit or nonprofit) have to carry out these activities themselves because they can't yet afford part- or full-time help. However, they should always ensure that employees have -- and are aware of -- personnel policies which conform to current regulations. These policies are often in the form of employee manuals, which all employees have.
Note that some people distinguish a difference between between HRM (a major management activity) and HRD (Human Resource Development, a profession). Those people might include HRM in HRD, explaining that HRD includes the broader range of activities to develop personnel inside of organizations, including, eg, career development, training, organization development, etc.
There is a long-standing argument about where HR-related functions should be organized into large organizations, eg, "should HR be in the Organization Development department or the other way around?"
The HRM function and HRD profession have undergone tremendous change over the past 20-30 years. Many years ago, large organizations looked to the "Personnel Department," mostly to manage the paperwork around hiring and paying people. More recently, organizations consider the "HR Department" as playing a major role in staffing, training and helping to manage people so that people and the organization are performing at maximum capability in a highly fulfilling manner.
Wednesday, May 27, 2009
Financial risk management
Financial risk management is the practice of creating economic value in a firm by using financial instruments to manage exposure to risk, particularly credit risk and market risk. Other types include Foreign exchange, Shape, Volatility, Sector, Liquidity, Inflation risks, etc. Similar to general risk management, financial risk management requires identifying its sources, measuring it, and plans to address them. Financial risk management can be qualitative and quantitative. As a specialization of risk management, financial risk management focuses on when and how to hedge using financial instruments to manage costly exposures to risk.
In the banking sector worldwide, the Basel Accords are generally adopted by internationally active banks for tracking, reporting and exposing operational, credit and market risks.
Contents [hide]
1 When to use financial risk management
2 References
3 See also
4 External links
[edit] When to use financial risk management
Finance theory (i.e., financial economics) prescribes that a firm should take on a project when it increases shareholder value. Finance theory also shows that firm managers cannot create value for shareholders, also called its investors, by taking on projects that shareholders could do for themselves at the same cost. When applied to financial risk management, this implies that firm managers should not hedge risks that investors can hedge for themselves at the same cost. This notion is captured by the hedging irrelevance proposition: In a perfect market, the firm cannot create value by hedging a risk when the price of bearing that risk within the firm is the same as the price of bearing it outside of the firm. In practice, financial markets are not likely to be perfect markets. This suggests that firm managers likely have many opportunities to create value for shareholders using financial risk management. The trick is to determine which risks are cheaper for the firm to manage than the shareholders. A general rule of thumb, however, is that market risks that result in unique risks for the firm are the best candidates for financial risk management.
[edit] References
Crockford, Neil (1986). An Introduction to Risk Management (2nd ed.). Woodhead-Faulkner. ISBN 0-85941-332-2.
Charles, Tapiero (2004). Risk and Financial Management: Mathematical and Computational Methods. John Wiley & Son. ISBN 0-470-84908-8.
Lam, James (2003). Enterprise Risk Management: From Incentives to Controls. John Wiley. ISBN 978-0471430001.
van Deventer, Donald R., Kenji Imai and Mark Mesler (2004). Advanced Financial Risk Management: Tools and Techniques for Integrated Credit Risk and Interest Rate Risk Management. John Wiley. ISBN 978-0470821268.
In the banking sector worldwide, the Basel Accords are generally adopted by internationally active banks for tracking, reporting and exposing operational, credit and market risks.
Contents [hide]
1 When to use financial risk management
2 References
3 See also
4 External links
[edit] When to use financial risk management
Finance theory (i.e., financial economics) prescribes that a firm should take on a project when it increases shareholder value. Finance theory also shows that firm managers cannot create value for shareholders, also called its investors, by taking on projects that shareholders could do for themselves at the same cost. When applied to financial risk management, this implies that firm managers should not hedge risks that investors can hedge for themselves at the same cost. This notion is captured by the hedging irrelevance proposition: In a perfect market, the firm cannot create value by hedging a risk when the price of bearing that risk within the firm is the same as the price of bearing it outside of the firm. In practice, financial markets are not likely to be perfect markets. This suggests that firm managers likely have many opportunities to create value for shareholders using financial risk management. The trick is to determine which risks are cheaper for the firm to manage than the shareholders. A general rule of thumb, however, is that market risks that result in unique risks for the firm are the best candidates for financial risk management.
[edit] References
Crockford, Neil (1986). An Introduction to Risk Management (2nd ed.). Woodhead-Faulkner. ISBN 0-85941-332-2.
Charles, Tapiero (2004). Risk and Financial Management: Mathematical and Computational Methods. John Wiley & Son. ISBN 0-470-84908-8.
Lam, James (2003). Enterprise Risk Management: From Incentives to Controls. John Wiley. ISBN 978-0471430001.
van Deventer, Donald R., Kenji Imai and Mark Mesler (2004). Advanced Financial Risk Management: Tools and Techniques for Integrated Credit Risk and Interest Rate Risk Management. John Wiley. ISBN 978-0470821268.
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