HRIS Cost Justification
The costs of purchasing and implementing a high-end, fully-functional human resource information system can easily skyrocket into six- or seven-figure sums. Too often, organizations make the mistake of estimating their HRIS expenses based only on the software licensing fee, and they neglect to account for the project costs of hardware, enabling software, telecommunication capabilities, staff training, and application consultation, which can ultimately amount to additional thousands and even millions of dollars. A crucial aspect, then, in any HR Information Systems project is knowing just how to quantify the benefits of the new system in order to accurately justify the significant expenditure of money.
Generally speaking, most companies strive for cost justification by evaluating ways in which the benefits of HRIS will reduce their expenses, pinpointing the administrative costs that the new technology can minimize. Such organizations tend to look only at the costs of dealing with personnel, payroll transactions, and existing software system maintenance, resulting in an extremely limited view of what HR software solution can offer in the “big picture” business context. Rather than simply honing in on how the HRM Software can perform current work at lower cost, organizations need to start seeking out ways in which their new systems can help them to do more.
HRIS in Terms of Value-Added
The trick to truly calculating the cost justification of a new Employee tracking Software is to think of your HR application in terms of improved business performance. An HRIS put to effective use should not simply reduce the costs of existing functions – it should open up opportunities for new and different processes which will accelerate efficiency and better achieve the business objectives of your organization as a whole. Human Resources is an essential division within any organization, charged with the manifold duties of workforce management, performance measurement, and adaptation to ever-changing business demands; it is HR which keeps track of the information necessary to keep a company operating smoothly. Nothing could be more important, therefore, than a cohesive and accessible HR information base which readily offers useful data to decision-makers throughout the company.
In order to think of your HR software in terms of added value, you need to target the ways in which your new comprehensive workforce information can support the goals of your organization and make them more achievable. The core principle behind this “strategic justification” of HRM Software is the recognition of employee information as being an indispensable asset to the success of your company. By analyzing the needs and demands of your business, you can easily construct a “pyramid of value” in which you define processes based upon their dependence on other processes and overall importance to the performance of your organization.
The Pyramid of Value
By sorting HR system processes into a balanced pyramid of value, management can accurately identify the areas in which HRIS fuels overall business improvement, thereby effectively and strategically justifying cost. In order to shape your own pyramid, consider these items in the following order:
Key business strategies. The peak of the pyramid should be comprised of an organization’s “key business strategies,” or overarching goals as defined through a mission statement and senior executive discussions. These strategies include the specific purpose of the company and plans for its immediate future, such as global market expansion or development of new lines of business.
HR strategies in support of key business strategies. A thorough understanding of key business strategies allows HR management to subsequently assess the importance of those strategies in relationship to the human resource department and its responsibilities within the company. HR strategies are those capabilities and processes which HR will provide in order to support the business’s success and progress in its chosen direction; for example, an increased demand of certain skills in new workers in order to accommodate expansion into a new line of business. HR strategies are a statement of the contributions human resources must make in order assist the company in achieving its key business goals.
IT strategies in support of key business strategies. As with HR, the information technology strategy is defined by what obligations IT must, through the provision of data and communication capabilities, fulfill in order to best expedite the organization’s accomplishment of its key business aims.
HR and IT strategies’ implications for HR information management. HR information management is the junction at which management of workforce and management of information technology converge. Because an HRIS must support the directions of both HR and IT, an HRIS manager must have an in-depth comprehension of both HR and IT strategies before beginning to formulate a successful system platform. Furthermore, the HRIS must retain its original purpose in supporting the organization’s overall business direction, and consequently any functional requirements of the HRIS should be defined in relationship to their support of specific elements of the key business strategy.
Potential HRIS solutions to satisfy these requirements. Having established the business functions required of a new HRIS, based upon the ways in which these requirements support business, HR, and IT strategies, an organization can begin to outline a set of solutions necessary to satisfy those business demands. Essential in considering various solutions is to remember all of the directions and strategies which must be supported. For example, an organization seeking to increase the independence of separate business units and line managers would find a system allowing for decentralized maintenance of employee data to be most advantageous.
Platforms in support of HRIS solutions. When looking into software, hardware, and service providers for a new HRIS, the HRIS project team should seek out those which best support the established HRIS management strategy. As always, that strategy, as well as the HRIS products selected in support of it, must support the organization’s key business strategy.
Implement to optimize return. The methods by which a new HRIS is implemented should be no less strategy-oriented than was the actual selection of the HRIS. The agenda for implementing the many different processes of the new HR information system should be closely tailored to match the key business strategy, allowing those features and capabilities of the greatest business value to be implemented first.
In the end, this value-added approach to HRIS cost justification allows management to very thoroughly understand the many potential bridges between the new system and the key business strategies of the organization itself. The value of HR information to business success becomes increasingly evident as we realize that HRIS is not simply a means of minimizing administrative cost, but rather a tool through which we can facilitate the realization of large-scale business aims. Instead of treating HRIS as a “shortcut” for current processes, the value-added approach allows us to regard HRIS as a genuine business partner working actively to improve the organization as a whole.
