Chapter 8 Cost Justifying HRIS Investments*Done Flashcards
Why should HR learn the business language (business language=$$ dollars) ? 5 reason
- Increase perceived value of the HR function
- Demonstrate contribution to bottom line - not just cost centre
- Provide Accountability
- Tie to strategic planning
Many HRIS implementations fail because _____ ______ was not done as part of the business case for the justification of the HRIS project
cost-benefit analysis (CBA)
Strategies for justifying HRIS investments fall into what two categories?
- risk avoidance
2. Organization enhancement strategies
Risk avoidance definition
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
Example of when Risk avoidance strategy would be used
Y2K
regulated compliance
potential failure of legacy systems
Organizational enhancement strategy Definition
highlights how the effectiveness of the firm will be improved by the addition of a new HRIS
what are two measurements the Organizational enhancement strategy highlights?
Increased revenue
reduced costs due to new/improved HRIS
Why is Organizational enhancement strategies harder to sell to decision makers compared to Risk avoidance strategies?
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
what are the 7 guidelines for a successful HRIS CBA?
- The objective is improving org. effectiveness
- be honest with yourself (keep open mind)
- focus on functionality not products
- estimate benefits first
- know your business
- develop the best estimate possible
- separate; CBA estimates from questions of how to best package the analysis to justify a final decision
cost benefit analysis definition
a comparison of the project costs and benefits associated with an HRIS investment
How can a cost benefit analysis be presented mathematically ?
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
knowledge of capital, cash flow, ROI, payback period, NPV and IRR are required to understand CBA? T/F
false, useful but not required
What are three basic pieces of info need to conduct CBA?
- Sources of costs and benefits
- Estimated dollar value for each cost and benefit item
- The time when the organization will incur each cost and receive each benefit.
Hr ______ can be a good place to start in identifying the areas of cost
metrics
what are 6 areas of cost metrics can measure?
Absence rate Cost per hire Healthcare costs HR Expense factor Training costs Turnover costs
Direct Benefits definition
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
Indirect revenue definition
often less quantified because occurrence
a. less certain
b. difficult to establish
ex. improved potential, increased technical support needs
What are the challenges of determining direct and indirect benefits ?
- Traditional financial measures difficult for HR
- Many HR outcomes are intangible Ex.Employee engagement
- Potential benefits are harder to quantify in $$’s
steps in the behavior costing approach (Fitz-Enz)
- process- change recruiting source
- outcome - shorten time to fill jobs
- impact- less need for overtime temp ee’s
- value added- cost savings
4 different approaches to estimating benefit magnitude
- direct estimation
- benchmarking
- internal assessment
- mix and match
p. 218
Direct Estimation by Subject Matter Expert(s)
is most appropriate for ______ ______ ?
Most appropriate for risk avoidance (eg., costs reduced by employee self-service ) or small projects
benchmarketing is built on others’ ________
experience (eg., PeopleSoft implementation costs in other organizations)
Internal Assessment
is an analysis based on …. ?
Analysis based on specific internal assessments of actual costs and likely benefits – can only be used if there is previous experiences similar within org.
Mix and match
definition
Using combinations of the alternative estimating approaches
general categories of costs of human behavior in organizations
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
3 components of costing employee turnover
Separation Costs
Replacement Costs
Training Costs
The four components of separation costs are … ?
- 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
Replacement costs consist of eight components as follows:
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
3 common problems in developing an HRIS CBA
- It ignores HR’s more strategic role in improving organizational effectiveness (Improved employee performance)
- In many instances items listed as direct cost reductions are actually indirect cost reductions
- Be sure that value estimates assigned to time saved are reasonable
