Posted: March 12th, 2023

CASE

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Name your company

Situation: Where are we?

Based on the information in the case, give a brief description of the current state of HR in the firm.

Goals: Where are we going?

Pick three to five goals for your management team to achieve in the next two years. Be sure your goals are measurable within the context of the simulation.

Strategy: How will we get there?

Outline the steps you will take to reach the goals you have set. Your outline should be detailed enough to help you make your decisions but flexible enough to allow you to respond to changing conditions. Also consider the resources you will need to implement your plan.

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HRMANAGEMENT

Case

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You are to assume the newly created position of Human Resource Director for a medium-sized
firm with over 600 employees. The firm has experienced significant expansion in the past few
years; the Human Resources Department and its functions have not kept pace with company
growth. The chief executive officer (CEO) has instructed you to get the Human Resources
Department organized and build a strong HR function. You have wide latitude in this area, and
the CEO has encouraged you to “get this organization moving.” You will want to set some
ambitious, yet realistic and quantifiable, goals for the Human Resources Department.

Although some of the employees at your firm belong to a union, currently this has no impact on
your firm. At the lower job level, your workforce has both skilled and semi-skilled workers
(numbering about 500). The firm has no policy on promotions and has hired into the upper levels
of management from the outside as well as promoted from within. Employee training is currently
the responsibility of each department head and consists solely of on-the-job learning; no formal
instruction is provided. Economic conditions in your region are good and unemployment rates
are average.

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Human Resources Department Budget

Last year’s HR budget was $1.0 million, and nearly all of that amount was used to fund staffing
needs. This year, the annual budget has been increased to $1.4 million to provide you with the
extra resources you will need to strengthen the HR function. Future budget amounts will be made
available as the simulation progresses. Each quarter, your remaining annual budget will be
displayed in the Budget report. As in the real world, budgets are not guaranteed, and the
financial officer may need to modify your budget if conditions change. If so, you will be notified
via the Dashboard.

Your yearly budget will need to cover expenses for hiring, wages, benefits, training, and HR
programs. For hiring, training, and program decisions, the related expenses are charged against
the budget in the period in which they are incurred, and you can adjust your decisions from
quarter to quarter. Compensation decisions are handled a little differently, since they affect
results from that period on. When you add a benefit to the employee compensation package or
increase wages, your budget will be charged for the additional benefit expense or wage increase
for that first quarter and that quarter only; in subsequent quarters, the firm will absorb these
expenses.

Carefully analyze your budget to ensure that you do not overspend. You might have to drop
critical programs in the last quarter of the year if you do not have enough funds in the budget.
Dropping programs will have a negative effect on employee morale or safety, which could result
in increased turnover, decreased productivity, and more accidents.

Quarterly decisions must be made within these budgetary constraints:

• Any surplus or deficit will be carried over to the next quarter.
• Any surplus will not be carried forward to the next year.

It is important, therefore, not to exceed your budget in the 4th, 8th, and 12th quarters. This is
standard business procedure. Exceeding the budget at the end of the year (every fourth quarter)
is a serious managerial deficiency and will have negative consequences.

Your budget is limited and cannot immediately meet all your departmental needs. You must
make a budgeting plan that implements your departmental objectives for the year and use it to
guide your decisions each quarter. You may find that your plan will need adjustment as the
simulation progresses.

For the first year, your budget is $1,400,000. Twenty-five percent ($350,000) should be your target
spending for the first quarter.

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Decisions

Staffing

It is important for you to provide enough employees at all job levels to meet production goals
each quarter. This means replacing workers lost to turnover while adjusting for changes in
productivity and required units of production.

Methods
There are two methods of filling positions. The first method is to hire qualified people on the
open market; the second is to promote employees from within. Although the latter method has
been a primary method of filling management positions in the past, a lack of formal training has
often resulted in less-than-desired performance by promoted employees. One advantage to
hiring from outside the firm is new hires can bring fresh ideas and new methods into the firm.

There is a distinct cost difference between the methods of filling positions. The table below
displays the outside hiring costs for each job level. Hiring costs are automatically charged against
your budget when you hire a new employee (you will not need to enter hiring costs into the
simulation) and should be considered while planning your budget. Hiring expenses include costs
for recruiting, interviewing, and testing, and they may include additional costs for employment
agency fees and travel expenses.

Outside Hiring Costs

Job
Level

Automatic
Charge per
Employee

5 $15,000
4 $12,000
3 $10,000
2 $7,000
1 $2,000

There is no direct cost for promoting an employee within the firm. Keep in mind, however, that
employees promoted to a higher position may need to be replaced. They may also need more
training than candidates recruited from outside the firm.

Cost to Lay Off Employees
If the firm’s productivity per employee increases, it could find itself with too many employees.
The firm may allow normal attrition to bring the employees needed into line or may lay off the
excess. The cost to lay off an employee is 50% of the hiring cost for that level. For example, the
cost to lay off each Level 1 employee is $1,000 ($2000 × 0.50).

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Overtime
If you do not have enough employees to meet the production quota while working standard
shifts, employees will have to put in extra hours to make the units required to meet sales. The
firm will be charged $45 per overtime unit produced, increasing unit labor cost for the quarter.
Some of the overtime cost will be charged to the HR Department budget and excessive overtime
may result in a negative evaluation of HR.

Demographics
One of the problems facing the human resources director in your organization is the lack of
females and minorities at all job levels. The firm has fewer female and minority workers than
would be expected given the local working population. Because of the rapid growth of the firm,
little effort has been made to have a representative workforce. Although there is no litigation
concerning this imbalance at the present time, the new human resource director has been
directed by the CEO to begin diversifying the workforce.

A percentage of total hires is established in each quarter for hiring minorities and females. The
percentage represents a policy that should be considered something between an optimum and
a minimum percentage. There is no guarantee that the exact number of females and minorities
can be hired as other firms are also attempting to correct imbalances. Males or females can do
all the jobs in the firm.

The table below gives the current workforce demographics. The “Community” columns show
percentages of females and minorities the firm should have as a long-term goal.

Job
Level

Firm
Number of
Employees

Firm
Females

Firm
Minorities

Community
Females

Community
Minorities

5 20 0 (0%) 0 (0%) 25% 20%
4 25 1 (4%) 0 (0%) 20% 25%
3 50 10 (20%) 5 (10%) 30% 25%
2 60 12 (20%) 6 (10%) 35% 25%
1 500 60 (12%) 40 (8%) 40% 30%

Employee Turnover
The firm’s current turnover rate of 9.8% per quarter is comparatively high. Employee morale
could be a factor contributing to high turnover. Department heads estimate that morale is 50 on
a scale of 0 to 100. A rating of 50 indicates morale is lackluster and many employees are coming
to work with indifferent attitudes. Some managers in the firm have mentioned one or more of
the following as possible causes of the low morale: the lack of a formal performance appraisal
program, wage rates and employee benefits lower than local equivalents, the lack of a grievance
procedure, and poor training.

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Productivity
Direct production of your product or service is performed by Level 1 workers. Productivity at the
start of the simulation is 200 units per employee. Although industry-wide figures are not
available, it is felt that improvements of 10–20% can be made. Productivity is not normally the
responsibility of the human resources director; it is included in the simulation because of its close
relationship to key human resource areas such as turnover, quality, grievances, etc.

As you might expect, the higher the productivity per employee, the fewer employees are needed.
If productivity increases, there will be fewer Level 1 and Level 2 workers to employ; therefore,
hiring costs as well as the cost of wages and employee benefits will be lower. Be aware that
productivity can drop suddenly when there is a drop in employee morale.

Wages

Wage rates for the firm are below average for the local community. Decisions concerning the
level of wages and benefits are not traditionally the sole responsibility of a human resource
director, but the CEO has given you the responsibility of making these decisions. However, you
are limited to a 10% increase each quarter, and the increases must be within budget. Be careful
when increasing wages in a quarter because the cost can have a significant impact on your entire
annual budget. The lowest level employees are paid on an hourly basis, while the other
employees are salaried. The following table illustrates the wage rates (excluding benefits) that
are currently in effect at the firm, along with the median wage rates in the local area.

Job Titles and Quarterly Wage Rates
Level Local Area Wages Wages at this Firm Typical Job Titles
5 $19,000 per quarter $18,000 per quarter executive managers, engineers
4 $16,000 per quarter $14,000 per quarter department heads, staff specialists
3 $14,000 per quarter $12,000 per quarter department supervisors, technicians
2 $11,400 per quarter $10,000 per quarter direct supervisors, skilled positions

1 $17.31 per hour
($9,000 per quarter)

$15.38 per hour
($8,000 per quarter) semi-skilled positions

Employee Benefits

The firm has very meager benefits; these are presently 20% of wages. Employees do not pay any
part of these benefits. An analysis of your current benefits and costs (as a proportion of payroll)
is shown in the next table.

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Employee Benefits Proportion
of Payroll

Social Insurance Program 7.65%
Unemployment Insurance 1.00%
Health Care Costs (Tier 1) 4.35%
Workers’ Compensation Benefits (injuries on-the-job) 1.00%
Vacation/Holiday Policy 5.00%
Sickness Pool 1.00%

Total % of Payroll Cost: 20.00%

Vacation/Personal/Sick days earned are 10 days after one year for Level 1 and 2 employees and
15 days for Levels 3–5, with 6 paid holidays for all.

Each “Add another Vacation/Personal/Sick Day” will add one additional non-work day to be
accrued and used appropriately. For example, if 4 days are added, a beginning employee would
have 14 days to use as vacation, personal, or sick days (10 base + 4 new). Adding one of these
days could also be assumed to be another paid holiday.

You will have the opportunity to add other benefits to the employee compensation package.
Additional employee benefits and their associated cost (as a proportion of payroll) are shown
below.

Employee Benefit Options
Benefit Proportion of Payroll

1 additional Vacation/Personal/Sick Day 1.60%
2 additional Vacation/Personal/Sick Days 3.21%
3 additional Vacation/Personal/Sick Days 4.83%
4 additional Vacation/Personal/Sick Days 6.46%
5 additional Vacation/Personal/Sick Days 8.10%
Employee-Funded Pension 0.40%
Employer Sponsored Pension—Low Contributions 3.40%
Employer Sponsored Pension—Moderate Contributions 4.15%
Employer Sponsored Pension—High Contributions 6.80%
*Tier 1 Health Plan (Lowest Coverage / High Deductible) 0.00%
Tier 2 Health Plan (Low Coverage / Moderate Deductible) 3.27%
Tier 3 Health Plan (Moderate Coverage / Low Deductible) 6.81%
Tier 4 Health Plan (High Coverage / No Deductible) 9.66%
Dental Care and Eye Care 0.20%
Prescription Drug Plan 3.20%
Term Life and Legal Services 0.10%
Tuition Reimbursement 0.80%
Incentive Plan 3.26%

*Note: This is the default health care plan with the cost built into the basic benefits package;
there is no additional cost charged against your budget.

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Training

At present, the firm does not have any formal training programs. You have the opportunity to
select from a variety of training options, described in detail below. Any training funds you allocate
will be reported in your quarterly Budget.

Training for New Hires and Promotions
Training promoted employees and new hires will increase the probability of employee success
and reduce turnover. Failure to train employees for their new positions will result in reduced
productivity and decreased morale if they fail at their new job. You will have the opportunity to
allocate any amount from $0 to $80,000 toward training new hires and promoted employees. A
training analysis tool is available to help you calculate an appropriate training budget for your
new hires and promotions.

Minimum Training for New Hires and Promotions
Job

Level
Minimum Training

per Employee
5 $3,000
4 $2,000
3 $2,000
2 $1,000
1 $200

When promoting, do not forget to hire new people for the positions vacated by workers who are moving
up the corporate ladder. The most common error made by students is failing to hire the correct number
of employees to replace those who have resigned or been promoted.

Training for Managers and Supervisors
Sometimes hiring on the open market gives the firm a well-trained manager or supervisor who
requires no further training. However, whether promoting from within or hiring from outside the
firm, it is believed that supervisors and managers will be better prepared and have a greater
chance of success when they take advantage of a training program. Experienced managers can
also benefit from ongoing management training. You will have the opportunity to allocate any
amount from $0 to $80,000 to manager and supervisor training.

The chart below lists a variety of training programs and costs. This information is given to assist
you in entering an amount of money for manager, supervisor, and other employee training costs.
A normal class size for training would be 20 employees. The simulation does not allow you to
select specific programs such as those described in the chart below, but the simulation does
assume the more you allocate, the more training is conducted.

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Example Training Program Costs

Training Program Cost per
Employee

A half-day program in technical skills for production supervisors $1,000
A one-day program on management skills for supervisors $2,000
A half-day program on various topics—such as time management, coping
with stress, dealing with change, computer skills, etc. $1,000

Safety and Accident Prevention Program
One of the problems facing the human resource director is an accident rate that is higher than it
should be. It is believed that this is caused by high employee turnover (i.e., there are always new,
untrained employees coming into the firm), a less than satisfactory morale level, and a lack of
any type of accident prevention or safety program. The accident rate for the firm (as measured
by employee days lost per 1 million employee-hours) is 494; the industry average is also 494.

However, these rates are above local accident rates and those of many other industries. It is
estimated that the cost for a safety program could range from $1,000 to $20,000 or more, per
quarter. As human resource director, you have the option of implementing such a program. In
order to have a full-time safety director, you will need to allocate at least $12,000 per quarter.
You may allocate any amount to this category from $0 to $80,000; the more you allocate, the
greater the emphasis placed on safety and accident prevention aspects of your firm.

Quality Program
At the present time, the firm has a mediocre quality rating: 50 on an index ranging from 0
(extremely low quality) to 100 (high quality). Although quality control is not normally the
responsibility of a human resources director, it is incorporated into the simulation because it is
closely related to personnel areas such as grievances, training, and turnover.

The quality of the goods produced (or services rendered) will be found on the quarterly
Development report. Currently, product/service quality is checked at the end of the process
(post-process control). A minimal quality control program can be established with $4,000. A
program to train supervisors to conduct quality checks during the process (concurrent control)
could be established for $5,000 per quarter. An allocation of $13,000 per quarter would need to
be set in order to have a full-time quality control manager. A Total Quality Management (TQM)
program could be established for $25,000 per quarter, which includes a full time manager and
concurrent controls. A more formal quality control system could be established with funds of up
to $40,000 or more. To summarize, you may allocate any amount to this category from $0 to
$80,000, and the more you allocate, the greater the emphasis placed on the quality aspects of
your firm.

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Although the simulation allows for large amounts to be allocated in these expenditure categories, there
will be a point of diminishing return. This point is reached when your increased expenditure no longer
produces an increase in benefits as great as the expense.

Programs

There are six programs available that will have a positive impact on the Human Resources
Department. These programs include (1) an employee participation program, (2) a system for
handling employee grievances, (3) an orientation program for new employees, (4) a
computerized HR Information System, (5) a procedure for evaluating employee performance, and
(6) an affirmative action program. The costs for these programs differ and range from $3,000 to
$12,000 per quarter.

Below each program title is some background information about the firm and some possible
benefits that will result from initiating these programs. Make sure you have room in your budget
to sustain programs you start; you can lose any benefit of a program if you discontinue it.

Employee Participation
Contemporary human resource practices include various employee participation programs that
attempt to give workers more self-direction and control over their work and working conditions.
Programs range from voluntary problem-solving groups to formal quality-circle programs. The
program costs include funds for establishing and supervising new training programs and pay for
employees’ time while they attend training sessions. Results from this type of program are
typically an increase in employee morale and a decrease in turnover.

Grievance Procedure
The firm does not have a grievance procedure; department heads handle grievances informally.
The department heads estimate there were 31 grievances last quarter. It is felt there are probably
many more than this number, but employees either quit or continue working with lower morale
instead of seeking resolution. The high turnover rate and mediocre morale index adds credence
to this theory. A formal grievance procedure should increase employee morale and decrease
turnover.

Orientation Program
The firm does not have an orientation program for new employees. This could contribute to the
higher than average accident and turnover rates. Orientation programs for new employees tend
to reduce accidents and decrease turnover.

Human Resource Information System
Human resource records and the record keeping system have not kept up with the rapid growth
of the firm; only payroll records and payroll checks are computerized. The human resource
director has received a bid for $11,000 per quarter to install and maintain personnel records on

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a computer. The vendor claims the benefit of this system would be improved decision-making in
all areas of the human resource function—benefits, selection, staffing, training and development,
performance appraisal, and job analysis.

Performance Appraisal System
The firm does not have a formal performance appraisal system. Some employees complain that
the supervisors and managers give raises and perks to those they like and not necessarily to those
who are the most productive. Increased morale and greater productivity are likely to result from
this new system.

Affirmative Action Program
The percentage of female and minority workers at the firm is lower than the local working
population. Hiring has been generally done on a “walk in” basis, and there is no formal plan to
increase the number of women and minorities employed. This program would assign a high-level
manager to assume the additional duties as affirmative action officer. The AA officer will develop
goals and initiate programs to achieve the hiring targets you set in your staffing decision.

Special Decisions

If your instructor selects this option, each quarter you will have a mini-case, which is termed an
incident. Your team will need to debate the issues being presented by the incident and enter the
appropriate response. If you have trouble choosing from the options provided, you must still
select the one closest to your opinion. An incident response is a required decision and is not
optional. Incidents represent a “window of opportunity” for you, and because of simulation
constraints, an incident may only be available during the quarter in which it is offered. Any costs
will be automatically charged and will appear in your Budget report.

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Environment Reports and Decision Analysis

To help you allocate your budget among the different human resource functions for which you
are responsible, HRManagement provides several analysis tools you can use to check your
decisions. For example, the Staffing decision page forecasts how your staffing levels will compare
with what is required to meet production targets. The Training decision page computes the
minimum expenditure for training your new hires and promotions. The Wages decision page
calculates the impact of your wage increases on payroll and the budget. Finally, the budget bar
projects the quarterly cost of your decisions as you enter them and shows your spending
compared to your budget; the Budget page provides more detail.

For information about what is happening in the industry, you can purchase survey reports on
wages, training, and production in other firms. In addition, a report is available that shows
performance on several HR measures—such as employee turnover, accident rates, and morale.
These reports can be very helpful in determining what works well in the industry—and what
doesn’t—as you strive to improve performance in your company.

Next Step

As the new human resources director, challenging decisions will demand your immediate
attention. Be sure to formulate a plan for your department that will guide you in making decisions
each period. To begin the simulation, you must first name your organization and enter that name
into the simulation as your Start-up Decision. Choose a name carefully so it will stand out from
the other firms in the industry. Once you’ve entered a company name, you will be able to enter
decisions for the first quarter in the simulation (Staffing, Wages, Benefits, etc.). See the table on
the next page for a summary of the quarterly decisions.

The CEO of your company has high expectations as you start your new position and is looking for
improvement in a number of key areas—such as higher quality and morale, lower turnover and
accident rates, and a more cost-efficient operation overall. Be sure staffing needs are met to
ensure production continues smoothly, but do not neglect the longer-term goals that will make
your company a better place to work in the years to come.

Good luck as you put your management skills to the test in the world of HRManagement!

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Summary of Decision Variables

Decision Category Input Range Cost

New Hire Staffing

Number of new
hires for each job
level. Use
negative number
for layoffs.

Changes limited
to 25% of
current
employees.

Varies by job
level: $2,000–
$15,000 per
employee.

Promotion Staffing
Number of
promotions into
job Levels 2–5.

Input cannot
exceed number
of employees in
lower level.

No direct cost

Demographic
Targets Staffing

Target percentage
for female and
minority hires.

1 to 99 No direct cost

Wages Compensation

Amount to
increase (or
decrease)
quarterly wage
for each level.

Changes limited
to 10% of
current wages.

Increase ×
number of
employees.
Impacts budget in
first quarter only.

Benefits Compensation

Choice of
Holidays,
Pensions, Health
Benefits, and
Other.

Select 0 or more
benefits.

Benefit cost is a
percent of
payroll. Impacts
budget in first
quarter only.

New Hires and
Promotions

Training &
Development Budget amount $0–$80,000 Amount input

Training for
Managers &
Supervisors

Training &
Development Budget amount $0–$80,000 Amount input

Safety &
Accident
Prevention

Training &
Development Budget amount $0–$80,000 Amount input

Quality
Program

Training &
Development Budget amount $0–$80,000 Amount input

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Decision Category Input Range Cost
Employee
Participation

Employee
Programs Yes/No N/A $12,000

Grievance
Procedure

Employee
Programs Yes/No N/A $6,000

Orientation
Program

Employee
Programs Yes/No N/A $3,000

HR Information
System

Employee
Programs Yes/No N/A $11,000

Performance
Appraisal
System

Employee
Programs Yes/No N/A $5,000

Affirmative
Action Program

Employee
Programs Yes/No N/A $7,000

Incident Special
Decisions

Response to
incident Choices vary Varies

You can purchase a wage, training, production, and performance survey. Each report cost $1,000. It is
available immediately and cannot be undone.

Case

Human Resources Department Budget

Decisions

Staffing

Methods

Cost to Lay Off Employees

Overtime

Demographics

Employee Turnover

Productivity

Wages

Employee Benefits

Training

Training for New Hires and Promotions

Training for Managers and Supervisors

Safety and Accident Prevention Program

Quality Program

Programs

Employee Participation

Grievance Procedure

Orientation Program

Human Resource Information System

Performance Appraisal System

Affirmative Action Program

Special Decisions

Environment Reports and Decision Analysis

Next Step

Summary of Decision Variables

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