How to calculate cloud HRMS TCO correctly

Cloud and SaaS HRMS solutions are often chosen for financial reasons as their low upfront costs provide the cornerstone for a winning business case. Many companies are later surprised when the total cost of ownership exceeds their original assessments. Here are three typical areas that are often missed out from cloud HRMS TCO estimates.

1. Look into contractual obligations

How flexible is your SaaS contract? In the past on-premise HRMS applications allowed you to purchase and install an application and then you could do what you liked as they had no visibility into how the application was used. Cloud solutions are more of a big brother atmosphere as vendors are hosting your database.

Recommended reading: use our comprehensive HRMS pricing guide to help calculate the cost of your cloud HRMS TCO

Many companies lock in a multiyear SaaS contract to get the best rates but then struggle as their HRMS cannot meet the changing needs of the business. I recently consulted with a large multinational who was licensed for three years for a population of over 100k employees. The business then decided to spin off half of the company in a divestiture. The HRMS contract was priced based on headcount, so even though they could ramp down their counts, the cost per employee for a lower population was higher as they lost their volume discount.

2. Factor in cloud HRMS upgrades

Upgrades are an expected activity in the HRMS world but cloud updates are more frequent, with the benefit that the software is up to date on legislation and vendors can react quickly to enhancement requests. A downside of multiple upgrades in a year is the amount of time and effort that needs to be devoted to testing each upgrade. Many companies have outsourced to providers of other systems such as payroll, talent management applications or compliance software. Often, these applications will change an additional fee for producing and uploading test files. They may also charge additional payments for changes to your interface files or data structures. These modifications and costs are frequently unknown in the early days of signing a contract and only become visible once you’re into the upgrade cycle.

3. Establish whether HRMS training costs are ongoing

Support documentation such as course content, user handbooks and manager and employee quick guides are a necessary part of implementation. Most companies include the creation of training documentation and materials as a part of their business case and the budget is spent to get everyone trained and ready for the rollout.

The surprise comes later as most companies are not prepared for the amount of time and effort that it takes to review these materials each time there is an upgrade. For example, a major SaaS HCM modified its pages to make a more streamlined design. The employee photo was moved from the center to the left of the screen and menus were rearranged. Their HR call center then experienced an increase in call volume from employees and managers as the instructions on how to do transactions were outdated. New HR core users were also confused, the recorded webinars on how to perform HR transactions such as new hires did not reflect the current system.

While SaaS systems are often intuitive and require less training, the regularity of upgrades can cause a lot of downstream work to modify your user guides, course content and instructional materials which is further compounded in costs if you rely on third party consultants to provide learning materials. As many SaaS release new updates two or three times a year, these costs can quickly add up.

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Heather Batyski

About the author…

Heather is an experienced HRMS analyst, consultant and manager. Having worked for companies such as Deloitte, Franklin Templeton and Oracle, Heather has first-hand experience of many HRMS solutions including Peoplesoft and Workday.

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Heather Batyski