When your company selects a new HRIS, there is an expectation that the investment will yield cost savings and other benefits. These gains can all be considered as part of the return on investment for the system. However, the chances are good that the ideas regarding ROI start out very vague.
The following are a few tips that can help your company narrow down ways a HRIS can provide financial benefit to your company. These tips can then lead you to logically estimate the ROI and use those estimations during the budgeting and selection processes.
HRIS and ROI
When your company acquires a HRIS, the purchase and time investment is surely made with the expectation of seeing profits increase by one means or another. Upper management, shareholders, and any other parties that had a hand in supplying the capital and resources needed for acquisition and implementation will most likely ask for concrete evidence to show that the investment was a wise one. Actual profits and sales may or may not accurately reflect improvements, so it is important to devise a system that supplies other ways to present ROI.
Calculate all HRIS Costs
In order to show that a HRIS was a good investment, it is important to know how much that investment actually was. Add up all funds put towards software, paid for support, and put towards maintaining the solution. Add actual labor dollars spent on implementation or wasted because of downtime and add this number to the HRIS cost.
Track Labor Hours Used for Manual Tasks
Labor hours translate to real dollars. Once you know how many labor hours are spent performing tasks such as calculating payroll, delivering updated job description information, onboarding, and updating employee information, you can easily convert those hours to real dollar amounts and determine how much money could be saved based on information provided by vendors.
The only hard part of the equation is devising a way to track how much time is spent on those specific tasks that could be automated.
Estimate Benefit Areas
When your company decided to get a HRIS, chances are good that features were prioritized by expected cost and time savings. Instead of reinventing the wheel, use this prioritized list as a jumping-off point for ROI tracking. Expand the list by estimating other areas in which the HRIS may save time and money, and then track those areas as well.
Estimate Productivity Increases
To estimate productivity increases, it’s necessary to utilize outside information from similar companies that have already implemented a HRIS. You can compare your own productivity data to the other company’s productivity data prior to the HRIS implementation and after. This will give you a way to reasonably estimate how much more money your company could earn with greater productivity rates after implementing a HRIS.
Job Position Savings
If an entire position in the HR department (or more) could be saved by implementing HR software, it may have a substantial financial benefit for an organization. Costs associated with recruitment, onboarding, training, and continuous salary should be figured into the calculation.
Of course, if downsizing the HR department means transferring an HR professional to another department or laying workers off, these costs should be deducted from ROI estimates.
Retention and Job Satisfaction Improvements
When employees are able to control their own information through a self-service portal, have time off requests approved quickly, and play an integral role in their own development and training, it can boost employee confidence and ultimately job satisfaction. Satisfied employees will be more likely to stick around, which can also positively impact retention rates.
Current retention rates can be compared with data from other companies that have implemented HR software, in order to determine retention related savings estimates.
Convenience, relief from everyday headaches, improvements in processes used to recruit employees, and many other HRIS benefits may be unquantifiable when calculating ROI. Instead of trying to determine how to quantify these items, it may be helpful to create a separate area of the ROI report to simply list the expected “unquantifiable returns.”
In many cases, these returns act as perks during the period in which the company is waiting to break even on the investment. Therefore, they may be a determining factor when deciding to move forward with HRIS implementation.
Go Back in Time
Not literally, although that would be great. Go back to past dates and compile reports of all of the features that you will be tracking so that you have a point of comparison when it comes time to measure progress. Go back a little way and make sure that you have information from a few different time periods so that you can show that improvements are actually a result of the new HRIS and not just cyclical.
Sit Back and Track
Most HRIS make it easy to track and report things like time spent on specific tasks, so after the features that will be tracked have been specified, it is simply a waiting game. Let the system continually track the activities that you expect to improve because of the HRIS. Efficiency will generally increase as employees and managers get used to using the new system, so it is also important to show this progress.
Compare and Calculate Results
Compare the past reports and the new information to see if time or money has been saved in the expected areas. Perform calculations to determine the exact ROI to date, figuring labor dollars into the equation. Don’t be discouraged if progress is slow or if results are not immediately visible, as a HRIS is a long term investment that may take a while to pay off.
Use ROI Calculations for Future Changes
An ROI calculation should be seen as a tool to track progress, rather than as a final answer for whether or not the HRIS was a good investment. Tracking progress is sure to reveal areas that can-and should-be improved. When these areas are identified, the tracking systems that are already in place can show you the impact of changes that you make, allowing you to hone processes for ever greater efficiency and productivity.
Authored by: Dave Rietsema