What to consider when forecasting your HRMS ROI
The chances are, you already have an HRMS ROI forecast. After all, when you made the business case for your new HRMS – when you pitched it to the CEO, the board, or even just to yourself – you promised a certain level of improvement. You promised cost savings. Or headcount reduction. Or faster HR transactions. Or all three and more. The point is, you promised something, otherwise it wasn’t a business case.
That promise is your starting point. That promise is the kernel of your HRMS ROI forecast.
Of course, it may need refining somewhat and that refinement process comes through deciding on the relevant measures and metrics that you’ll utilize to prove that the return has been made (or not).
Usually, the biggest restriction on setting your HRMS ROI metrics is the absence of good benchmark data. If you’re looking to compare pre- and post-HRMS costs, then it stands to reason that you need data that predates the system. This can mean you’re restricted to the metrics already in use (i.e. your existing historical data) or you introduce new metrics sufficiently in advance of HRMS go-live to gather at least a snapshot’s worth of benchmark data.
One option – if your new HRMS isn’t your first – is to revisit the ROI exercise for your previous HRMS. Evaluate and review that process before embarking on the next. Were the metrics and measures you used the right ones? If not, what metrics and targets should you be measuring to match your current business plan and/or KPIs? Of course, it’s worth bearing in mind that if the metrics change too much, benchmarking becomes considerably more difficult. However, if the previous metrics really weren’t right, better to throw them out and start afresh!
Metrics to measure
But which metrics should you track and measure to give you a true picture of the ROI of your new system? Naturally, it depends on your business and your priorities, but possible sources of metrics include:
- Improvements to HR-specific KPIs.
- Faster HR transactions.
- A percentage reduction in certain types of calls/queries to HR (depending on what self-service functionality your HRMS offers).
- More efficient recruiting (assuming the HRMS has a recruitment module); e.g. measuring the time from vacancy to post filled.
- Percentage of total operating costs devoted to your workforce.
- Employee engagement; measured via staff opinion survey or similar.
- Improved employee retention and turnover rates (reflecting better initial recruitment outcomes).
- Lower cancellation rate for training activities i.e. better value for money.
- Better legislative compliance e.g. a reduction in sanctions and extra work due to late or incorrect filing.
A few statistics
Incidentally, if you’re wondering whether an HRMS can really make a difference worth measuring, research from BambooHR indicates that HR software can lead to the following savings:
- 50% off the cost of onboarding
- 40 hours per month saved by using electronic signatures
- 3 days of unreported paid time off per employee per year
- 5 hours of HR time per day thanks to employee self-service
- Annual overall savings of nearly $95,000
(Based on an example organization of 100 employees.)
Added value areas
As a further avenue to explore, look for opportunities to measure the added value that your HRMS is bringing to the organization. It may be that incomplete benchmarking data is available or, for example, not all departments are providing the full data picture to use your chosen metrics. Possible added value measures could be:
- Service quality.
- Additional projects and services delivered (using time freed up by the HRMS).
- Mitigated risks – returning to your initial business case, did you identify the risks of not investing in an HRMS? If so, in what ways have you reduced or avoided those risks?
- Impact on wider-than-HR issues, such as your company brand, competitive advantage, intellectual capital, and so on.
It may not always feel like the ‘sexiest’ part of the HRMS purchase process but by forecasting your ROI as accurately and as comprehensively as possible, you’ll be not only proving the good sense of the purchase to the board, but also enhancing HR’s credibility within the company. Not to mention the fact that if you select relevant metrics then you’re starting to build up a body of useful data that will inform,and improve, your HR technology investments for years to come.
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