Cost justifying HRIS

investments
Group
3
Jaspreet
Manas
Preetam
Shakti
Snigdha
Sonali

Contents
Introduction
HR Matrix
Justification strategies for HRIS investments
Evolution of HRIS justification
Approaches to investment analyses
HRIS CBA analysis
CBA Matrix
Example of CBA analysis

Estimating the timing of benefits & costs

Estimating the value of indirect benefits

Introduction

HRIS provides primary infra structure used to deliverhr 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
Measures absenteeism
month / Avg no of
employees during month *
no of work days * 100

Health care costs per

employees

Total cost of health care /

total employees

Vacancy rate

Total number of vacant

Measures vacancys rate
positions as of today / total
number of positions as of
today * 100

Per capita cost of

employees benefits

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 yourself
Focus on functionality not products
Estimate your business
Develop the best estimate possible
Developing 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 of
Sources 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 Analysis

Direct

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 enduser 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

Estimatingdescription
the value
approach

of undirected
When tobenefits
use it
Advantages/li
mitation

Direct estimation

Direct estimates of the

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

Cost is low
Attempting to
gain compliance
or mitigating
extreme risks
Substantial direct
cost reduction or
revenue
enhancements
exist

Quick and low

cost to perform
less data for
monitoring
implementation
and follow up
Highly
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
large
Organization has
limited
experience or no
data

Precise
estimation
through other
organizations
experience
Avg 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 cost
Assessment
capabilities to
gather data

Precise base line

Costs and current
performance of
existing process
compare with
potential
improvements
May 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

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