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Convincing your CFO to spend company money on a new HR system requires a forceful argument and some convincing financial numbers. For Freddye Silverman, that meant digging up data on employee productivity.
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Silverman, who was a human resources professional before becoming an HR technology consultant at Jeitosa Group International, was writing a business proposal to purchase a self-service HR portal so employees could access and edit their personnel information. She was sure it would save everyone the time spent obtaining, filling out, copying and delivering paper forms. But she needed proof. So Silverman got a stopwatch and began clocking employees when they updated their personal data. She calculated the average time spent per employee and multiplied that by the average employee salary. Then she included that data in her business proposal for the self-service HR software.
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“It was a no-brainer. Easiest case I ever put together, because it was in hard dollars,” Silverman said.
Laying out a compelling business case for a new HR system that shows the projected benefits -- cost savings, productivity gains or reduced risks -- is the critical first step of any investment in human capital management (HCM) software.
HCM applications within an HR system cover a range of HR-related functions, such as recruiting, talent management, performance management and succession management, among others. The benefits cited in a business case might include increased productivity due to getting recruits vetted and on the job faster, labor savings from automating the process of sorting resumes or lower employee turnover as a result of more accurate rewards and compensation for top performers.
Putting a price on HR system benefits
Kathy Schultz, director of IT for Banner Health, an Arizona-based chain of hospitals and specialty clinics says ROI for its HR systems comes from such things as time to fill a position, employee retention, total productivity and the percentage of contract labor to total labor. According to Banner’s HR department, it costs the company $60,000 per employee that is turned over, including the cost to recruit, train and provision a new hire for a position. Automating the recruiting process can lower the turnover cost by reducing the labor needed to sift through resumes. Integrating the recruiting module with the payroll system (which the company has not yet done) could further reduce costs by eliminating the need to pay people to re-key data from one system to the other.
HR teams can conduct much of that research needed to show real and achievable benefits within their organizations by using the company’s existing data for figures such as salaries, contract labor and overhead. The teams can also obtain data from organizations such as CedarCrestone, the Corporate Executive Board (CEB), The Hackett Group and the Institute of Management and Administration (IOMA). These groups provide industry-specific operational data and HR benchmarks.
“If I say that buying this technology will mean we can get somebody into a new position faster, the CFO is surely going to poke holes in that and ask why we need technology to do that. How is a change in software going to help?” Silverman said.
Besides cost savings, don’t overlook the potential benefits of cost avoidance. For example, what is the cost if the organization doesn’t implement an HR system? That’s a common question in the security software industry, where a catastrophic breach or even a minor employee theft of data could cost the organization tens of thousands of dollars in fines or lawsuits. In terms of HR, employee issues that are not handled correctly can lead to disgruntled employees who may consider leaving.
Silverman relates the time when she was off-site in a branch office of her company and heard a discussion between an angry employee and the HR manager. The employee, who needed to go on disability, was upset with what he had learned about the company's disability benefits from the corporate HR office, which he had called earlier. It quickly became apparent that he had spoken to a temp worker, not an HR employee, and the information given was based on state law, not the company's own benefits plan.
Silverman also began to realize that HR information differed from office to office, and that employees often called around looking for the best answer to their questions.
“That was a total inconsistency of service levels, and a legal exposure for the company. It was a good illustration in my business case for why that company needed to invest in HCM,” she said.
Don’t neglect TCO for an HR system
While ROI and benefits are core to making the business case, total cost of ownership (TCO) is also important, experts say, and not knowing the TCO of the new and old HCM or HR systems can derail an otherwise good argument. According to Silverman, one of the biggest problems that HR managers have when they attempt to write a business case is they forget to calculate TCO.
“You can’t bring a business case to someone unless you can compare it favorably to what you’ve already got. A big part of that is being able to explain the total cost of ownership,” Silverman said.
The TCO of the new system may not be less than the existing on -- in fact it may be higher -- but it is critical to know those numbers, Silverman said, and be able to justify them.
TCO should include the software -- licensed or the monthly Software as a Service fee -- as well as the labor required to implement and maintain it, the hardware costs and the outside consulting expenses. Costs should be outlined for both existing and future systems.
“You’re not going to win the battle on TCO,” she said. “But if somebody asks you what it’s going to cost, you better know it and be able to talk about it.”