8 hidden HRMS costs that can blow your implementation budget
It’s obvious that the stated price on your new HRMS is not the final cost of the system. And we’re not just talking about the cost of delivery. With any business system, there are hidden costs attached and an HRMS is no exception. To be clear, we’re not talking about ‘secret’ or deliberately hidden costs, just the non-price tag factors that are so easy to forget or gloss over when you’re putting together your project budget.
Why is this important? We’ve all heard the various project failure statistics – some as high as 7 out of 10 projects failing – but a more shocking figure comes from the Harvard Business Review, stating that while the average project financial overrun was 27%, a sixth of projects exceed their planned budgets by 200% (accompanied by a schedule/time overrun of up to 70%). So, unless you, your project, your C-suite, and your organization as a whole are comfortable with spending three times more than planned, hidden costs are important to factor in…
What is a ‘hidden’ cost?
There’s a difference between the stated cost and the total cost of ownership (TCO) of an HRMS. That difference derives from the system’s hidden costs; which are necessary to the operation and integration of your new system. Whatever you pay up front, that TCO is the true cost of your new HRMS and apart from anything else, it’s a cost you need to know if you want to accurately calculate the systems return on investment.
Apart from your license or subscription payment, hidden HRMS costs include labor costs (both your own and any consultants you bring in), data cleansing and migration (assuming you have a legacy system), maintenance and updates during the course of the system’s lifespan, and user training. Below you’ll find a list of ‘hidden’ costs that have the potential to wreck your HRMS implementation budget, if not factored into your project costs.
1. System installation
This represents the technical installation of the HRMS and the additional costs included in the process of getting the system not only to the ‘go-live’ day but functioning correctly beyond that. Such costs can include cleansing and migrating the data from legacy systems (though this can be minimized if you have a regular data validation and checking regime) and the hardware costs if any.
In one sense, the simplest route here is to opt for one of the many, many cloud HR systems. Such systems require no on-site hardware, nor any maintenance responsibilities for the client company. Cloud HRMS also usually comes with a subscription pricing model, which spreads the cost more than the up-front license fee associated with more traditional on-site systems.
2. System upgrades
No software lasts forever and even during its life cycle, most software will receive regular upgrades to maintain or add functionality and take account of new information in a changing environment (for example, changes to legislation or local laws that impact on your HRMS’ compliance capabilities). Depending on your contract with the system vendor, such upgrades may attract an extra cost. Check up front what their planned upgrade schedule is and what it will cost you.
3. System maintenance costs
Unlike an upgrade which usually adds or improves system performance, maintenance is about ensuring that the system continues to function as planned and promised. It could be anything from bug-fixing to addressing external problems (for those old enough, Y2K was probably one of the biggest ever maintenance issues for all systems) to extracting dust from the hardware.
4. Direct labor costs
As long as human beings are involved (and you’re paying those human beings for their time and knowledge) then there will be a labor cost to your HRMS. The most direct (and easily identifiable) labor costs are those of your own employees that spend some or all of their time supporting the system e.g. maintenance, repairs, training, etc. Another such expense is the cost of employee time spent in user training. Whatever such factors cost you is attributable to the HRMS project.
Naturally, if you opt for an on-site HRMS, this direct labor cost will be higher due to the IT personnel maintaining the system’s functioning, including hardware maintenance.
5. Indirect labor costs
The indirect equivalent in terms of labor is represented by the time of those employees whose people management activities are directly linked to the HRMS – this might include collection of staff data, timesheet monitoring, answering staff questions about the system, etc.
Of course, if your HRMS delivers the hoped-for benefits, there should also be indirect labor savings, as the system’s transformed HR procedures mean less time and effort from its users.
6. Direct non-labor costs
Look for added extras from the system vendor and any related in-house corporate overheads; for example, the opportunity costs related to user training – while everybody is learning about HR portals and personalized dashboards, what money is the company not making?
7. Outsourcing costs
Not every element of your HRMS installation will be done in-house. A common option is to engage an HRMS consultant (either completely independent or from the vendor company) to apply their skills and expert knowledge of the HRMS landscape to your selection or implementation projects, or both.
Sometimes it seems that the HRMS market is infinitely varied and that the result of your selection process should be a perfect off-the-shelf fit for your business needs. However, the reality is that many companies opt to customize their HRMS, perhaps adding additional (and essential) functionality, a mobile app, integrating with your other business systems, or maybe just tweaking the user experience so it fits the company’s own branding. Whatever changes you want, they’ll add to the cost.
So… your HRMS budget should include not only the system price tag, but also as many of the above that apply to your specific situation.
The good news is that these so-called hidden costs are not really hidden. Though they can be easy to overlook (or maybe you really just don’t want to think about them – that’s understandable!). The key is taking the time at the beginning of the project to think through and identify every cost heading. It may be tedious – even depressing – but it’s much better than being ambushed later by a cost you’d ignored.
After all, while your C-suite sponsor is more likely to sign off on a ‘reasonable’ budget figure, if the project begins to overrun on that figure (likely) and take more time to deliver than planned (not unheard of) then that same sponsor will soon be complaining. If there’s a robust discussion to be had about budget size then better to hash it out right at the beginning.
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