Investment in HR software requires a thorough business case that pinpoints all costs, potential benefits and project risks to receive financial approval and endorsement across the organisation.
First, do you need to invest in HR software?
HR leaders and chief information officers ask this question constantly when justifying a business case. The case for investing in HR software in your company depends on certain key parameters:
- Does your organisation consume more than 20 per cent of your total operating costs on your people?
- Does hiring and retaining talent feature regularly in your strategic meetings?
- Are you looking for ways to better align individual performance to business goals?
- Are you creating a new performance culture within your organisation?
- Are you looking at cutting the cost of delivering HR services and processes?
- Do you wish to forecast and plan people programmes to deliver measurable outcomes?
If the answer is yes to most of these questions, an investment in HR software is probably well-justified and an important part of your HR strategy. This is because HR software will help to enable your plans efficiently and consistently and will function as the foundation of a number of initiatives that can have measurable results.
Specify goals
As a first step, define your company’s goal for investing in HR software.
Your aim could be to reduce the administrative cost of HR functions, such as simplifying the manual labour required to manage a benefits programme. The goal may be to increase employee productivity, by reducing the time it takes a manager to open a job requisition and enable a new hire or the time it takes for an employee to change their benefits selections or calculate their current incentive pay performance.
Next, be sure that all stakeholders are committed to the project.
To achieve the benefits that HR management software can provide IT departments must implement the appropriate infrastructure. The human resources team must communicate the goals of the programs and re-engineer their processes to improve productivity and in many instances, employees and managers have to change the way they conduct their portion of HR administration.
The IT department may deploy the perfect HR infrastructure, but if HR staff, or employees and managers fail to adopt the systems, the benefits are not likely to come.
Create the business case
Lastly, create the cost-justification business case. This is a time-honoured financial analysis to assure that an investment will meet certain payback criteria for the organisation. It will also compare various investment options to identify the optimal selection of the highest reward and lowest risk solutions.
Traditional business cases compare the quantifiable costs and benefits of the proposed solution over a set time-frame, typically three to five years.
A credible, realistic business case arms the HR and IT teams with the quantification needed to win over sceptics – most often a chief financial officer or even a board of directors.
It also helps the core team move beyond their emotional connection to the solution and make the case pragmatically, enabling others to perceive the wisdom in the investment, and make a rational decision.
Here are some guidelines to consider:
Project costs
Measure the one-time and on-going investments required in the solution, which is Often called total cost of ownership. All of the related costs to the organisation need to be estimated over the life of the investment.
Initial IT costs include the investment in licensing the HR software, purchase of servers, possible computer upgrades, implementation labour, development and customisation, professional services for data migration and IT training. The software licensing costs are typically less than 10 per cent of the total cost of ownership.
A hidden cost is the ongoing IT management and maintenance of the solution. This includes the IT resources to manage the software and server systems upgrades, helpdesk support to answer “how-to” questions – particularly on new self-service applications, and on-going customisation and development. Expect these costs to represent 15 per cent to 25 per cent of the original software investment.
The business unit investment is often overlooked or underestimated. This includes coordination and planning meeting participation, user training labour and course fees and business change management or re-engineering labour. These business unit costs for HR software solutions can be equal to or greater than the initial IT investment.
Tangible benefits
These are the savings or business impacts that can be quantified in monetary terms, and are harder to determine than the costs. The difference between the current organisation on an as-is basis and the to-be impact on people, processes and business, is the value of the solution.
Some sample tangible benefit areas include:
- HR productivity improvements
- Employee/manager productivity improvements
- Improve employee retention
- Strategic business impact
- Lower employee turnover costs
- Reduced training and administration costs
- Reduced total employee costs
- Overheads/outsourced fee avoidance
- Compliance and error reduction
Intangible benefits
Though harder to quantify, some chief executives and board members view intangible benefits as the most important criteria, and almost half look at both intangible and tangible benefits before authorising investment in an HR solution.
- Brand advantage
- Strategic advantage
- Competitive advantage
- Intellectual capital
- Organisational advantage
Project risk
Twenty per cent of all IT projects are cancelled before deployment; over 40 per cent fail to meet budget, schedule and requirement goals. Risk-adjusted analysis is a critical element of the business case, especially with our low tolerance for failure in today’s business environment.
Factoring in project risks helps create a more realistic business case where expected benefits of a solution are measured on the level of risk, factoring in the lack of clarity in meeting cost goals or obtaining benefits.
Risk can be measured based on the probability of occurrence, and the likely impact on the costs and benefits, in some instances, discounting the value of the project significantly. The risk measurement for HR software projects typically include items such as:
- Labour resource availability
- Slow or low user acceptance/adoption
- Compatibility with existing or future systems
- Supplier reliability
- Management commitment and funding
- Schedule overruns or delays
- Legal exposure or regulation non-compliance
- Organisational risks
- Dependencies on other projects
Ananda Roy is an associate vice-president at Adrenalin eSystems
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