Cost justifying HRIS investments

Group - 3Jaspreet

Manas

Preetam

Shakti

Snigdha

Sonali

Contents

IntroductionHR Matrix Justification strategies for HRIS investmentsEvolution of HRIS justificationApproaches to investment analysesHRIS CBA analysis

CBA MatrixExample of CBA analysis

Estimating the timing of benefits & costsEstimating the value of indirect benefits

Introduction HRIS provides primary infra structure used to deliver- hr programs hr regulatory HRIS brings faster – recruiting ,compensation , job analysis

Larger companies have more features in their HRIS system Two criteria in 2000 for decision takers – 1.did the new system offer the base line functionality required by

the organization in a y2k compliant form ? 2.could the system be delivered in time?

Sonali - 50

HR METRICS

Human capital ROI (Revenue-(operating expenses-[compensation cost + benefit cost)

ROI ratios for employees

Human capital value added

(Revenue – (Operating expense – [compensation cost + Benefit cost ]))/ Total no. of FTE

Value of work force knowledge.

Revenue factor Revenue/ Total no. of FTE Effectiveness of the company

Training investment factor

Total training cost / Head count Training cost for employees

Training (ROI) Total benefits-Total cost *100 Total financial benefit an organization realizes

Turn over cost Total cost of separation +vacancy+ Replacement + Training

It determines turn over cost for one position

Snigdha- 49

HR METRICS

HR expense factor HR expense/ Total operating expense

Total operating expenses in an organization

Absence Rate No of days absent in a month / Avg no of employees during month * no of work days * 100

Measures absenteeism

Health care costs per employees

Total cost of health care / total employees

Per capita cost of employees benefits

Vacancy rate Total number of vacant positions as of today / total number of positions as of today * 100

Measures vacancy’s rate

Snigdha- 49

Justification strategies for HRIS investment

Two categories'

1. Risk avoidance- are used when investments are believed to eliminate or mitigate significant future risk

It focuses on magnitude and timing of risk and are not supported by the extensive investment analysis required by CBA

2. Organization enhancement- it highlights how effectiveness of the firm will be improved by the addition of a new improved HRIS- as measured by increases in revenues or reductions in cost

They are more challenging to sell to decision makers than risk avoidance because enhancement don't carry the threat of real loss

Shakti- 45

Evolution of HRIS justification

• Next generation of HRIS functionality will be more difficult to justify

• Shift from administratively intense paper and pencil hr process to electronic transaction processing

• Up gradation will still be done incase of small and medium size organizations for reduction in cost

• Under investment in HRIS is likely for organizations with an operational HRIS

• Use of out dated CBA methodologies that emphasize cost reduction and don't recognize the value of organization enhancement

• HRIS need tools to identify the sources of value that result from HRIS investment

Shakti- 45

Keys to successful HRIS

The objective is to implement organizational effectiveness

Be honest to yourselfFocus on functionality not productsEstimate your businessDevelop the best estimate possibleDeveloping an accurate CBA and

justifying a choice should be regarded as different issues.

Jaspreet - 20

Cost Benefit Analysis

A comparison between projected costs & benefits.

Advisor may be from finance & account department.

Investment analysis are done on the basis ofSources of costs & benefits.An estimated dollar value for each cost & benefit

item.Time when organization will incur each cost &

receive each benefit.

Preetam - 34

HRIS CBA AnalysisDirect Indirect

Benefits Revenue Enhancement

New Revenue (New sales)

Improvement potential

(Better decision making)

Benefits Cost Reduction

Direct costs(cancelled vendor

contracts)

Potential costs(saved staff time)

Costs New Implementation

Costs

Out of pocket costs

(software, service agreement)

Indirect costs(Increased

technical support needs)

Preetam - 34

Example of e-learning CBA matrix

Direct Indirect

Revenue Enhancements Outsourcing e-learning sales of locally

developed learning modules or programs

Better customer service leads to increase in

repeat sales

Cost reductions Reduced T.A. , HRA, requirement for paper

based learning materials & teaching aids

Improved safety(fewer injuries, less lost time,

fewer insurance claims)

Cost of implementation Installation support software fee, license fee,

courseware purchase, training administrator

etc.

Increased use of end-user help desk

courseware redevelopment

Preetam - 34

Estimating the timing of benefits and cost

After identified and valued the benefits and cost

When the cost and benefit will occur in the

entire HRIS project

Organization link to cash inflow and out flow

the cost and revenue differ from time periods

Critical period 5 years

Manas- 25

Estimating the value of undirected benefitsapproach description When to use it Advantages/limitation

Direct estimation Direct estimates of the relationship of the potential benefits to the estimated cost of engaging in an investment

Cost is lowAttempting to gain compliance or mitigating extreme risksSubstantial direct cost reduction or revenue enhancements exist

Quick and low cost to perform less data for monitoring implementation and follow upHighly dependent on expertise decision

Bench marking Using bench mark data from other firms to estimate the potential benefit and costs that are likey to result from the purchase of HRIS functionality

When cost is largeOrganization has limited experience or no data

Precise estimation through other organizations experienceAvg estimation may not be generalize

Manas- 25

Contd…approach description When to use it Advantages or

/limitation

Internal assessment Analysis based on specific internal assessments of actual cost and likely benefits

Cost are high benefits not very large then costAssessment capabilities to gather data

Precise base lineCosts and current performance of existing process compare with potential improvementsMay increase both costs and time

Mix and match Using combination of these approaches

Different amounts or resources of information are available for different types of cost and benefits

Permits the organization to use the best methods available

Manas- 25

Thank You