How to conduct a HRMS cost benefit analysis in four steps
The final judgement on the success of any project is a matter of costs covered versus benefits accrued, and your HRMS is no different. You’ve spent time and money on some shiny new technology; the question is, was it worth it?
To find out, you need to know the full cost of the project, including the system, hardware, supporting software, people’s time, any external consultancy, and training costs.
1. Know the cost…
The key figure you’re looking for is the total cost of ownership, or TCO. This goes far beyond the figure on your HRMS’s price ticket. In fact, it’s an ongoing, ever-increasing figure given that the TCO is whatever it costs you during the entire time you’re using it.
So what’s included in the TCO? Key elements are:
- One-off cost of the license OR the monthly subscription fee for the software.
- Labor costs during the HRMS implementation process (including any specialist consultancy costs).
- Labor costs of using the system on an ongoing basis.
- Data cleansing and data migration.
- Updates and maintenance for the lifetime of the system (including patches and fixes).
- Staff training (both for the initial go-live and for new hires coming in post-implementation).
Prior to going ahead with sourcing and then implementing your HRMS, these anticipated costs should be calculated as part of the initial business case for the purchase.
2. Know what you spent
If the headings above represent estimated costings, the post-go-live step is to calculate the real ‘money spent’ figure for each heading. Even if you’ve spent more than you planned, the project may still be a success; that depends on the benefits you’re realizing…
3. Factor in the benefits
Similar to the hard costs in the business case, the expected benefits should be clear from the beginning of the project. It should also be possible to attribute hard cost figures to each one. Your benefits may vary but at the least, they should include:
- Improved HR productivity.
- Labor savings due to self-service HR transactions (expressed either as full-time equivalents or per capita).
- Time saved due to streamlined HR processes.
- Improved employee retention (consider the cost of the recruitment campaigns you’re NOT having to run).
- Reduced employee turnover.
- Headcount reduction (due to requiring less staff to provide improved HR services).
4. Decide whether it was worth it
As already mentioned, the cost of your HRMS continues as long as you use it. However, the value of the benefits should also continue to increase and after a certain point, not only will the benefits be worth more than the cost but that value for money should only continue to increase. In any cost-benefit exercise, a date must be chosen and calculations made accordingly.
The bottom line output is a statement of the final costs of purchase and implementation PLUS the ongoing operating costs to date COMPARED TO the value of the benefits realized.
Whatever the answer, any cost-benefit analysis should beg the question, how can we improve our return on this investment?
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