Cost justifying HRIS

investments
Group - 3
 Contents
ü Introduction
ü HR Matrix
ü Justification strategies for HRIS investments
ü Evolution of HRIS justification
ü Approaches to investment analyses
ü HRIS CBA analysis
ü CBA Matrix
ü Example of CBA analysis
ü Estimating the timing of benefits & costs
ü Estimating the value of indirect benefits
ü
 Introduction
ü HRIS provides primary infra structure used to deliver-
ü hr programs
ü hr regulatory
ü HRIS brings faster – recruiting ,compensation , job analysis
ü
ü Larger companies have more features in their HRIS system
ü Two criteria in 2000 for decision takers –
ü 1.did the new system offer the base line functionality required by
the organization in a y2k compliant form ?
ü 2.could the system be delivered in time?

Sonali - 50
 HR METRICS
Human capital (Revenue-(operating ROI ratios for
ROI expenses-[compensation employees
cost + benefit cost)
Human capital (Revenue – (Operating Value of work
value added expense – [compensation force knowledge.
cost + Benefit cost ]))/
Revenue factor Total no. of
Revenue/ FTEno. of
Total Effectiveness of
Training FTE
Total training cost / Headthe company
Training cost for
investment factor count employees
Training (ROI) Total benefits-Total cost Total financial
*100 benefit an
Turn over cost Total cost of separation organization
It determines turn
realizes
+vacancy+ Replacement over cost for one
+ Training position
Snigdha- 49
 HR
HR expense factor
METRICS
HR expense/ Total Total operating
operating expense expenses in an
organization
Absence Rate No of days absent in Measures
a month / Avg no of absenteeism
employees during
month * no of work
Health care costs per Total cost of health Per capita cost of
days * 100
employees care / total employees benefits
Vacancy rate employees
Total number of Measures vacancy’s
vacant positions as of rate
today / total number
of positions as of
today * 100

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
üThe objective is to implement
organizational effectiveness
üBe honest to yourself
üFocus on functionality not products
üEstimate your business
üDevelop the best estimate possible
üDeveloping an accurate CBA and
justifying a choice should be regarded
as different issues.
• Jaspreet - 20
 Cost Benefit Analysis
ü A comparison between projected costs &
benefits.
ü Advisor may be from finance & account
department.
ü Investment analysis are done on the basis of
ü Sources of costs & benefits.
ü An estimated dollar value for each cost & benefit
item.
ü Time when organization will incur each cost &
receive each benefit.
ü
Preetam - 34
 HRIS CBA Analysis
Direct Indirect

Benefits Revenue New Revenue Improvement

Enhancement (New sales) potential
(Better
Benefits Cost Direct costs decision
Potential costs
Reduction (cancelled making)
(saved staff
vendor time)
Costs New contracts)
Out of pocket Indirect costs
Implementatio costs (Increased
n (software, technical
Costs service support needs)
agreement) Preetam - 34
 Example of e-learning
CBA matrix
Direct Indirect

Revenue Outsourcing e- Better customer

Enhancements learning sales of service leads to
locally developed increase in repeat
learning modules or sales
Cost reductions Reduced
programsT.A. , Improved
HRA, requirement safety(fewer
for paper based injuries, less lost
learning materials time, fewer
Cost of Installation support Increased
& teaching aids insurance use of
claims)
implementation software fee, end-user help desk
license fee, courseware
courseware redevelopment
purchase, training Preetam - 34
 Estimating the timing of
benefits and cost
ü After identified and valued the benefits and cost
ü When the cost and benefit will occur in the entire
HRIS project
ü Organization link to cash inflow and out flow
ü the cost and revenue differ from time periods
ü Critical period 5 years

Manas- 25
 Estimating the value of
approach description When to use it Advantages/l
Direct
undirected benefits
Direct estimates Cost is low
imitation
Quick and
estimation of the relationship Attempting to low cost to
of the potential gain perform less
benefits to the compliance or data for
estimated cost of mitigating monitoring
engaging in an extreme risks implementati
investment Substantial on and
Bench marking Using bench mark When cost is Precise
direct cost follow up
data from other large estimation
reduction or Highly
firms to estimate Organization through
revenue dependent on
the potential has limited other
enhancements expertise
benefit and costs experience or organizations
exist decision
that are likey to no data experience
result from the Avg
purchase of HRIS estimation
functionality may not be
generalize
Manas- 25
Contd…
approach description When to use it Advantages or
Internal Analysis based Cost are high /limitation
Precise base line
assessment
Mix and match on specific
Using benefits
Differentnot veryCosts
Permitsand
the
internal
combination of large thenorcost current
amounts organization to
assessments of
these Assessment
resources of performance
use the best of
actual cost and
approaches capabilities
information to are existing
methodsprocess
likely benefits gather data
available for compare
available with
different types potential
of cost and improvements
benefits May increase
both costs and
time

Manas- 25
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