Chapter 8 Cost Justifying HRIS Investments*Done

Question 1

Why should HR learn the business language (business language=$$ dollars) ? 5 reason

Answer 1

1. Increase perceived value of the HR function
2. Demonstrate contribution to bottom line - not just cost centre
3. Provide Accountability
4. Tie to strategic planning

Question 2

Many HRIS implementations fail because _____ ______ was not done as part of the business case for the justification of the HRIS project

Answer 2

cost-benefit analysis (CBA)

Question 3

Strategies for justifying HRIS investments fall into what two categories?

Answer 3

1. risk avoidance

2. Organization enhancement strategies

Question 4

Risk avoidance definition

Answer 4

Used when investments are believed to eliminate or mitigate significant future risks faced by the org.

Risk avoidance justifications focus on the magnitude and probability of risks and often are not supported by the extensive investment analysis required by CBA

Question 5

Example of when Risk avoidance strategy would be used

Answer 5

Y2K
regulated compliance
potential failure of legacy systems

Question 6

Organizational enhancement strategy Definition

Answer 6

highlights how the effectiveness of the firm will be improved by the addition of a new HRIS

Question 7

what are two measurements the Organizational enhancement strategy highlights?

Answer 7

Increased revenue

reduced costs due to new/improved HRIS

Question 8

Why is Organizational enhancement strategies harder to sell to decision makers compared to Risk avoidance strategies?

Answer 8

enhancements do no carry the threat of real loss in no action is taken. Often there no sense of urgency

require more rigorous support and are subjected to more intense scrutiny by decision makers

Question 9

what are the 7 guidelines for a successful HRIS CBA?

Answer 9

1. The objective is improving org. effectiveness
2. be honest with yourself (keep open mind)
3. focus on functionality not products
4. estimate benefits first
5. know your business
6. develop the best estimate possible
7. separate; CBA estimates from questions of how to best package the analysis to justify a final decision

Question 10

cost benefit analysis definition

Answer 10

a comparison of the project costs and benefits associated with an HRIS investment

Question 11

How can a cost benefit analysis be presented mathematically ?

Answer 11

cost benefit ratio

At its core the CBA is an analysis of change in the cost benefit ratio. The size of the gap between two CBR’s is what will have an effect on the decisions

Question 12

knowledge of capital, cash flow, ROI, payback period, NPV and IRR are required to understand CBA? T/F

Answer 12

false, useful but not required

Question 13

What are three basic pieces of info need to conduct CBA?

Answer 13

1. Sources of costs and benefits
2. Estimated dollar value for each cost and benefit item
3. The time when the organization will incur each cost and receive each benefit.

Question 14

Hr ______ can be a good place to start in identifying the areas of cost

Answer 14

metrics

Question 15

what are 6 areas of cost metrics can measure?

Answer 15

Absence rate
Cost per hire 
Healthcare costs
HR Expense factor
Training costs
Turnover costs

Question 16

Direct Benefits definition

Answer 16

generally refers to benefits and costs that are

a. that are very likely to occur
b. whose values are easily estimated
ex. direct revenue, direct costs

Question 17

Indirect revenue definition

Answer 17

often less quantified because occurrence

a. less certain
b. difficult to establish

ex. improved potential, increased technical support needs

Question 18

What are the challenges of determining direct and indirect benefits ?

Answer 18

• Traditional financial measures difficult for HR
• Many HR outcomes are intangible Ex.Employee engagement
• Potential benefits are harder to quantify in $$’s

Question 19

steps in the behavior costing approach (Fitz-Enz)

Answer 19

1. process- change recruiting source
2. outcome - shorten time to fill jobs
3. impact- less need for overtime temp ee’s
4. value added- cost savings

Question 20

4 different approaches to estimating benefit magnitude

Answer 20

1. direct estimation
2. benchmarking
3. internal assessment
4. mix and match

p. 218

Question 21

Direct Estimation by Subject Matter Expert(s)

is most appropriate for ______ ______ ?

Answer 21

Most appropriate for risk avoidance (eg., costs reduced by employee self-service ) or small projects

Question 22

benchmarketing is built on others’ ________

Answer 22

experience (eg., PeopleSoft implementation costs in other organizations)

Question 23

Internal Assessment

is an analysis based on …. ?

Answer 23

Analysis based on specific internal assessments of actual costs and likely benefits – can only be used if there is previous experiences similar within org.

Question 24

Mix and match

definition

Answer 24

Using combinations of the alternative estimating approaches

Question 25

general categories of costs of human behavior in organizations

Answer 25

Turnover
Absenteeism and sick leave
Effects of Smoking in Work Place
EAP & Wellness programs
Employee attitudes
Recruiting
Selection
Job Performance
Training
Career Development
Labor contract costing

Question 26

3 components of costing employee turnover

Answer 26

Separation Costs
Replacement Costs
Training Costs

Question 27

The four components of separation costs are … ?

Answer 27

• Exit Interview:Interviewers time,Termination time
• Administrative Functions Related to Termination:
  Removal of employee from payroll, Termination of employee benefits, Turn-in of company equipment
• Separation Pay: Severance packages
  Increase in Unemployment Tax

Question 28

Replacement costs consist of eight components as follows:

Answer 28

Communication of job availability
Pre-employment administrative functions
Entrance Interviews
Testing
Staff meetings
Travel and moving expenses
Post employment acquisition and dissemination of information
Medical examination

Question 29

3 common problems in developing an HRIS CBA

Answer 29

1. It ignores HR’s more strategic role in improving organizational effectiveness (Improved employee performance)
2. In many instances items listed as direct cost reductions are actually indirect cost reductions
3. Be sure that value estimates assigned to time saved are reasonable