Evolution Of Hris Justification, Ravenshaw Management Centre

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 ü ü ü ü ü ü ü

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 ? ü 2.could the system be delivered in time?

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HR METRICS Human capital ROI

(Revenue-(operating ROI ratios for expenses-[compensation employees cost + benefit cost) Human capital (Revenue – (Operating Value of work value added expense – [compensation force knowledge. cost + Benefit cost ]))/ no. of FTEno. of Revenue factor Total Revenue/ Total Effectiveness of FTE company Training Total training cost / Headthe 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 expense factor

HR 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 employees Vacancy rate 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  

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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

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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.

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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.

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HRIS CBA Analysis Direct

Benefits

Benefits

Costs

Indirect

Revenue New Revenue Improvement Enhancement (New sales) potential (Better Cost Direct costs decision Potential costs making) Reduction (cancelled (saved staff vendor time) contracts) New 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

Revenue Enhancements Cost reductions

Cost of implementation

Indirect

Outsourcing eBetter customer learning sales of service leads to locally developed increase in repeat learning modules or sales Reduced Improved programsT.A. , HRA, requirement safety(fewer for paper based injuries, less lost learning materials time, fewer Installation support Increased of & teaching aids insurance use claims) software fee, end-user help desk license fee, courseware courseware redevelopment Preetam - 34 purchase, training

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

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Estimating the value of approach description When to use it Advantages/l undirected benefits imitation Direct Direct estimates Cost is low Quick and estimation

of the relationship Attempting to of the potential gain benefits to the compliance or estimated cost of mitigating engaging in an extreme risks investment Substantial Bench marking Using bench mark When cost is direct cost data from other large reduction or firms to estimate Organization revenue the potential has limited enhancements benefit and costs experience or exist that are likey to no data result from the purchase of HRIS functionality

low cost to perform less data for monitoring implementati on and Precise follow up estimation Highly through dependent on other expertise organizations decision experience Avg estimation may not be generalize Manas- 25

Contd… approach Internal assessment Mix and match

description Analysis based on specific Using internal combination of assessments of these actual cost and approaches likely benefits

When to use it Advantages or Cost are high /limitation Precise base line benefits and Differentnot veryCosts Permits the large thenorcost current amounts organization to Assessment performance resources of use the best of capabilities information to are existing methodsprocess gather data compare available for available with different types potential improvements of cost and May increase benefits both costs and time

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