Cost justifying HRIS invesment

Market the function

Measuring Provides accountability
human Demonstrate contribution to bottom line
resource Cost justifying HRM programs
effectiveness
Tie to strategic planning
 HR moving from being a cost center to profit
center (2000)

Traditional financial measures not sufficient (many

HR outcomes are intangible…)

Identifying Direct (hard) and Indirect (soft) benefits

HRIS value
Implementation costs: Direct (hour/wage,..) -
Indirect (lost productivity)

Timing of benefits (short/long term)

 1. Audit approach – Key Indicators
Approache reviews outcomes of HR functions
s to benchmarking

evaluate 2. Analytic approaches – best

human practices

resource • determines whether program had

intended effect/impact: Fitz-Enz
practices • estimates costs / benefits of program
utility analysis: (CBA)
 Unit in dollars

HRIS cost HRIS CBA: Comparison of projected

cost&benefits
benefit Cover full suit of HRIS functionality
analysis
(CBA) HR metrics

Compare costs/ value within&outside

 Risk avoidance strategies

Justifying Organization
HRIS costs enhancement strategies

Evolution?
 Basic information:
HRIS CBA • Sources of costs and benefits
• An estimated dollar value for
investment each cost and benefit item
analysis • The time when the
organization will incur each
cost and receive each benefit
HRIS CBA matrix

Direct (hard) Indirect (soft)

Benefits Revenue 1. New revenue 2. Improvement
enhancement potential
Cost reduction 3 Direct costs 4. Potential costs
Costs New 5. Out-of-pocket 6. Indirect costs
implementation costs (technical support
costs needs)
 Example of an E-learning CBA Matrix

Direct (Hard) Indirect/Contingent (Soft)

Conducting custom e-learning training module
Better customer service leading to increase in repeat
development
sales
Revenue enhancements for other organizations
A more agile organization able to respond rapidly to
Sales of locally developed learning modules or
market changes
programs

Improved training effectiveness through

Reduced travel expenses
customization and just-in time delivery = faster
Reduced facilities costs (e.g., for room and
learning curve, less lost productivity while waiting for
equipment rentals
training, and right amount and type of content
and refreshments)
More agility, able to disseminate new cost-reducing
Reduced requirements for paper-based training
best practices more quickly
materials and
Reduction in turnover (41% of employees will look
Cost reductions teaching aids
for another job within 12 months due to poor
Reduced expenses for instructor fees or salary and
training and education; with good training and
benefits
education, this percentage drops to 12%) and in
costs (if internal)
absenteeism
Reduced costs for replacement workers if trainees
Improved safety (fewer injuries, less lost time, fewer
are required
insurance claims lower workers’ compensation costs)
to be away from their work
Employee time saved
Estimateing indirect benefits

Estimating Estimating benefit magnitude

Mapping Mapping benefits to cost or revenue changes

Converting Converting magnitude estimates to $

Approach to estimating benefits
Approach Description When to Use It Advantages/Limitations
Quick and low cost to perform
Best when costs are not large
Direct (“gut level”) estimates of May not provide data that contain sufficient detail
Appropriate when attempting to gain
the relationship of the potential for use in monitoring implementation effectiveness
Direct estimation compliance or mitigating extreme risks
benefits to the estimated costs of or to perform follow-up analyses
When substantial direct cost reduction or
engaging in an investment Highly dependent on the expertise of the decision
revenue enhancements exist
maker

Using benchmark data from Superior to direct estimation when costs are Allows the organization to develop more precise
other firms to estimate the large estimates than direct estimation based on the
Benchmarking potential benefits and costs that When the organization either has limited collective experience of other organizations
are likely to result from the experience or no data concerning the area of Average estimates of outcomes may not generalize
purchase of HRIS functionality functionality to the target organization

When costs are high and benefits are not Provides the most precise estimates of the baseline
Analysis based on specific
obviously dramatically larger than costs costs and current performance of existing processes
internal assessments of actual
Internal assessment When the organization has the assessment against which to compare potential improvements
costs and likely benefits (e.g.,
capabilities in place to gather the appropriate May increase both costs and time required to make
activity-based costing)
data decisions

When different amounts or sources of

Using combinations of these information are available for different types Permits the organization to use the best methods
Mix and match
approaches of costs and benefits (e.g., most likely available
scenario)
General categories of costs of human behavior in
organizations
• Turnover
• Absenteeism and sick leave
• Effects of Smoking in Work Place
• EAP & Wellness programs
• Employee attitudes
• Labor contract costing
• Recruiting
• Selection
• Job Performance
• Training
• Career Development
 •• Incremental Absenteeism
• Incremental Medical care
Costing the • Incremental Morbidity and premature
effects of morbidity
• Incremental Insurance
smoking • Incremental On-the-job time lost
• Property damage and depreciation: Burns &
odors
• Reduced Maintenance
• Involuntary smoking – 2nd hand smoke