Friday, February 14, 2014

Intellectual capital Value of Individuals: ICVI

What is ICVI? Intellectual capital value of Individual

 ICVI © T. V. Rao

Intellectual capital value of an Individual can be defined as a total value of the invisible assets of an individual expressed in financial terms using any given currency at a given point of time. The invisible assets consist of all the knowledge,  attitudes, values, traits, motives, self-concept etc. of an individual possesses at a given point of time and includes the ones he/she is likely to acquire in the rest of the life. It also includes the direct financial acquisitions of the individual and indirect financial contributions acquired by others and caused primarily by the individual. All these values can be expressed in financial terms,
For example I will estimate my intellectual capital value for the next one year.
Occupation: Professor & Consultant
Direct ICV attributable to my competencies or intellectual capital are as follows:
1.       My CTC is my Direct Intellectual capital value:  Rs. 18 lakhs.
2.       The consulting fee I expected to earn is another part of it: = Rs. 25 Lakhs.
3.       If I write a book and get royalties on it may be another Rs. 2 lakh.
4.       Through lectures and other means another Rs 5 lakhs.
Total Direct ICV for the year is Rs. 50 lakhs. This is the direct output this year.
Indirect ICV:
1.       However by virtue of my teaching I have helped along with others to enhance the earning capacity of another 60 students I taught. These students earning capacity before the program in which I taught was Rs. 5 lakhs per person and a total of Rs. 3 crores. After teaching for a year their income increased to Rs. 15 lakhs per head and a total of Rs. 9 crores. For that year. The total teaching hours are 500 of which my contributions is 50 hours or 10%. The financial value addition of one year teaching is Rs. 6 crores, my contribution is 60 lakhs.
2.       I have done consulting for a company saved Rs. 2 crore from their annual expenditure. That is the contribution of many persons and I take credit of sowing seeds for the activity through my consulting report and take an additional 10% as my contribution Rs. 20 lakhs.
3.       Of all the consulting work I have done my HRD audit has stimulated a company to enhance their strategic thinking and utilise their HR competencies by 20%. The total people cost of this company is Rs 15 crores and I have added therefore 3 crores to their capacity utilisation.
4.       People who have read my books have started teaching the same topic in a college and have earned by their own lectures a sum of Rs 5 lakhs this year. (notional as no one reports this or even acknowledges this).
My indirect contribution to the financial output of others is 3.85 crores.
My total ICVI – Rs 50 lakhs + Rs. 385 lakhs = Rs. 435 Lakhs.
Many times our direct earnings are not necessarily full indicators of our real ICVI. It is a gross underestimate. This filed is not so well developed. I am attempting this in my own way to bring to the notice of the people the knowledge, skills, an attitudes, values and self-concept etc. are their intellectual capital. We need to constantly try to multiply and enhance it without necessarily counting the visible and direct returns. Indirect returns on our competencies are many folds and it may accrue to many others and affect our GDP. A harassing bureaucrat or a corrupt government official can prevent the contribution of the honest tax payers and as those who contribute to indirect ICV and affect the GDP are very sensitive to bureaucratic hurdles and poor service standards around them. Thus improving public services is in the interest of enhancing the GDP of the country be helping IC to get translated to monetary terms.
I have started a course at IIMA and taught for the last three years called as Intellectual Capital management through HRD Score card. As a part of this course I used to ask the student to estimate their ICVI for their life time. The estimates some times are amazing. I have reproduced below a few examples as extracts taken from their work outs.
GDR: I would work as an IT consultant or get into any systems based role in my initial years. I would want to work till the age of 47 i.e. 20 years. With a starting salary of 1800000INR and a nominal growth rate and inflation of 30% in 20 years the total sum earned would sum up to 1134297826 INR
After twenty years I would be having my own start up at the age of 47. For the initial 5 years there will be a nominal growth rate of 5% and for the rest of 15 years the growth rate will be 45%. The initial annual turnover will be 20 crores INR. Therefore after 20 years the total turn- over earned would be 9770 crores INR. So my share of earnings from the revenue will be 10% which is 97.7 crores INR.
The total individual earnings sum up to 113+97 = 210 crores INR
 Assets that will be purchased by me will be tangible assets like land, real estate that appreciates in value. I would make investments in those kinds of assets at the age of 40 which would amount to 15 crores. This will grow at the rate of 10 percent then the final value of the asset will be 237 crores and hence the profit from the investment 237 -15 = 222 crores INR
Out of the 20 crores I earn I will be saving ten percent of my earnings would be multiply at the rate of 10% 39 crores INR. The total intellectual capital will sum up to 471 crores i.e. INR ICVI =471 crores.
Here no estimate is made of Indirect ICV.
IKR: I want to work in Education sector most probably in Social sector in Andhra Pradesh. I might work in a private company for a while but eventually I want to become a social entrepreneur in Education sector. Given that, I think my total worth should be measured by the effect I have on the students I educate. This is a hard thing to measure and I can't actually take credit for all the change that my intervention brings about because even though the change might be initiated by my intervention, there must have been lot of things that the children already have and have helped my intervention. So for that, I'll have to give myself only a fraction of the credit.
To measure the value of the change in the students:
I consider that my intervention is going to bring about some 4% change in the earning power of the students. Ignoring other externalities and constraining myself to only this change brought about, I've done a calculation in the attached excel file. I consider the future estimates of per capita GDP in PPP terms. Assuming I start educating now, I'll be affecting some change only after 12 years (2025) or so given that the students don't join the workforce until then. I also assume that I start with a 100 students and each year the no of students increases by 50%. After 10 years it grows by 15%. After 10 years it grows by 5%.
Given these, the total change is about $584M. Of that, I give myself 10% credit which means my IC is $58.4M. This is my total worth.

SN:  Direct
Right now I am looking for a job and will continue to be doing job till next 20 years. So considering the starting CTC package from IIM A to be 14lpa (minimum) and doing job in same company for 3 years and considering 10% of hike in salary but not exactly applied as it may differ. Switching job after 3 years will give hikes in between. Other economic factors are not considered.
Industry experience and PGP from India’s top most B-school IIMA will help to get good hikes when switching and promotions take place. The position expected at this job switch should be of top management.
Till age of 58 I will work in a company then I would retire. Retire doesn’t means I won’t work but I will start something on my own. Taking that value worth 50 lakhs for 1st year assuming constant percentage hike till age of 75.
Total Individual Capital by adding all turns out to be = Rs. 3362 lakhs
Taking CTC values of package that would be offered
Starting from 14lpa
Year
Pkg.
Year
Pkg.
Year
Pkg.
Year
Pkg.
1
14
11
42
21
96
31
105
2
15.5
12
44
22
110
32
115
3
17
13
46
23
122
33
125
4
22.5
14
55
24
134
34
135
5
24
15
57
25
50
35
148
6
26
16
60
26
65
36
162
7
30
17
66
27
72
37
178
8
32
18
72
28
80
38
190
9
34
19
80
29
88
39
205
10
40
20
88
30
97
40
220

Assuming physical assets worth 10 lakhs
Intellectual Capital = 3362 – 10 = 3352 lakhs
Indirect
Indirect means capital generated because of me by other people or an organisation.
Considering ratio of earning 1:4 for organisation per individual I will be working with
Indirect IC generated for organisation because of me = 3362 * 4 = 13448 Lakhs
My family members and employees of the company I will be working with will learn from me.
During the journey I will train/mentor some of the employees of the organisation
This is minimal percentage I would count on my head out of they are generating capital.
Combining all for next 40 years indirect capital would be around 10 lakhs
So total Individual Intellectual capital = Direct + Indirect:   = 3352 + (13448 + 10)   = Rs16810 lakhs


ICIV is an interesting concept for skills development and growth. Please give your views below. When you quote, please acknowledge this as a concept by T.V. Rao. 

1 comment:

Anand Kumar said...

Dear Sir, this is a wonderful concept. Want to know whether the concept of ICVI acknowledges KSAs which may prove to be negative factors that may be depreciate one's ICV.