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HRMS Cost Analysis Worksheets

Determine where costs are spent, where these costs can be either saved or reallocated, and how much will be spent on finding an HRMS solution to obtain those savings.

January 30, 2002
Related Topics: Technology
One of the hardest jobs in selecting a human resource management system is determining how much time and money you will save for your dollars invested, essentially return on investment. Gone are the days of putting in a new system and hoping to just break even.

The following sets of worksheets are intended to help an organization begin the process of determining where costs are spent, where these costs can be either saved or reallocated and how much will be spent on finding an HRMS solution to obtain those savings. The items listed on the worksheets are not exhaustive, and that's intentional. Each organization is different and will face different circumstances, costs and HRMS needs. However, most organizations will see savings in three different areas:

  • Labor cost savings in time spent on administrative items (data input, answering employee questions, etc.).

  • Savings in materials spent gathering employee information, such as forms.

  • Savings found through reengineering processes in a more efficient manner.

The worksheets allow for adding items that may pertain to a specific organization's objectives. Aside from a reference or two to specific HR metrics, the spreadsheets will allow for limitless scenario planning.

Tips on entering information: All number data is entered in the bold outlined boxes. Simply click on each box and enter the information. To edit the additional data lines, click on the beginning of the "Add Additional…" and type over with a new description. Then move over to the "Annualized Cost Reallocation" line and enter the annual cost for the item.

Purchase Implementation Costs
The total cost for an HRMS system will vary by organization. In most HRMS circles, total costs for HRMS installation include two items -- base system cost and implementation. To arrive at your total expected cost, implementation costs are generally represented as a multiple of the base system cost. Although this can range wildly, industry standards are about 2-3 times base software cost, although it can range higher based on factors such as:

  • Amount of customization required of the base system.

  • Number of additional modules implemented (financial, benefits, training, etc.).

  • The complexity of HR programs (e.g., flexible benefit program).

  • The level of the existing system infrastructure (e.g., little experience with client/server environment).

  • Use of external consulting help.

  • Extensive reengineering of processes.

The multiplier approach is the "quick and dirty" approach. If you have an idea of the individual parts of your HRMS implementation, then forego the multiplier approach and use the listing approach that follows the multiplier part. A few common parts of HRMS installation have been included, but there will most likely be others. Spend some time brainstorming the different areas that will be impacted and list them, regardless of the cost. Over the course of an implementation, small items can add up!

Post-Implementation Support Costs
Although the majority of HRMS costs are realized in the implementation stage, the true measure of return on investment is the amount of savings seen over the long haul. Therefore, you need to continue to measure your ongoing costs to support the system and its processes. This worksheet is set up in similar fashion to the 'Purchase-Implementation Costs' sheet, because, in most cases, you will continue to have many of the same costs, perhaps on a smaller scale. These costs need to continue being weighed against cost savings realized.

Internal Cost Reallocations
This is probably the hardest and yet most rewarding part of the 'return on investment' process. As mentioned above, there are generally three areas that costs are saved. These costs can truly be saved only by not being expended elsewhere in the organization (i.e., jobs are eliminated). However, it can be argued that costs never really are saved, they are merely reallocated to other parts of the business, even if it ultimately is the owners or stockholders of the company through dividends.

Again, an HRMS installation should be able to create real savings that can be used for better or more strategic business purposes. In the simplest terms, if an HR generalist is spending one hour out of each day improving employee communication instead of inputting a new employee's information into a database, is that not better for the business?

The worksheet focuses on four typical areas of human resources. Of course, more can be added as you see fit. The first part of each section focuses on the time savings realized by not spending time on routine HR processes. NOTE: A couple of the items are expressed on an annual basis. Getting to these numbers may involve some use of time studies for different areas. But remember to only enter expected hours saved by implementing the HRMS, not total hours spent currently. The "Annualized" number assumes full-time equivalents working 2,000 hours (40 hour workweeks minus two weeks vacation).

Following the labor hour analysis are areas to enter specific cost items that are expended for each of the areas. Sample cost items have been entered in each, but do not need to be considered if they do not apply in your situation.

SOURCE: The ROI of Human Capital, Jac Fitz-Enz, 2000

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