Problems and pitfalls in using capital budgeting and financial accounting techniques in assessing the utility of personnel programs.

Abstract

In recent years, it has been advocated that capital budgeting and financial accounting techniques be used in evaluating the utility of human resources programs such as selection, training, and performance appraisal (Cronshaw & Alexander, 1985; Boudreau, 1983a, 1983b). We have demonstrated that many of these methods are often conceptually and logically inappropriate. We also showed that even in cases in which these techniques are logically applicable, their use may have unintended negative consequences. Finally, we discussed the question of the appropriate conceptual definition of utility. We conclude that different conceptual definitions of utility are useful under different circumstances; there is no single “correct” definition of utility.

The utility estimate as a communication device: Practical questions and research directions

“…It is ironic that, for the very reason that Cronshaw and Alexander endorsed the use of the capital budgeting framework (i.e., it enhances the credibility of utility estimates), Hunter, Schmidt, and Coggin (1988) opposed its use. These authors claimed that the figures that result from capital budgeting procedures (e.g., net present value, profitability index, and internal rate of return) are so extreme compared to other investments as to appear incredible.…”

Racial differences in promotion candidate performance and reactions to selection procedures: a field study in a diverse top‐management context

“…A large volume of research on employment testing has focused on the validity and utility of employee selection devices (see Hunter & Hunter, 1984;Hunter, Schmidt, & Coggin, 1988;Salgado, Viswesvaran, & Ones, 2001;Schmidt, 1988;Schmidt & Hunter, 1998). However, in recent years, researchers have increased efforts to investigate critical, yet their reactions to various assessment devices have been largely neglected in the literature.…”

A human resource accounting transmission: shifting from failure to a future

“…Hunter and Schmidt never did show how "their dollars" were linked to, or could be translated into real dollars. To their credit I do not think they ever claimed to have done so (see Hunter et al, 1988, for their discussion of problems when using capital budgeting and accounting techniques). But without such a link, all one measured by using the Hunter and Schmidt method of estimating value changes of improved performance (called "Sdy") was the Utils associated with the change in performance.…”