How do you justify an investment when HRIS ROI is not quantifiable?

May 14, 2015
This article posted in: HR Systems  Tags: Technology, HRIS/HCM, ROI

It’s Monday, and you’re in a HR team meeting discussing strategy for the next 12 months. Your VP announces that the executive committee believes now is the right time to begin searching for a new HRIS system because of projected growth and potential acquisition(s) planned. To your surprise, your VP just designated you as the project manager for this new HRIS initiative and the delivery of the HRIS ROI. You’re excited and thrilled to finally be getting a new HRIS system, but you are also a bit nervous about this responsibility.

HRIS ROI (Return on Investment)

Considering the company has been using manual spreadsheets and a few other disparate systems to manage your workforce, you know that finding a single HR systems vendor with a cloud offering that can replace all of your company’s existing point solutions isn’t going to be easy. You’ll need to re-evaluate your current recruiting, onboarding, core HR, benefits, performance management, time & attendance, and learning management solutions and processes; all within the tight budget and time frame parameters targeted for this initiative.

As the meeting ends, your VP reminds the team that in order to purchase a new system, a HRIS ROI with full cost justification needs to be made to the executive committee prior to funding. The presentation will need to show direct financial savings and overall value anticipated as a result of deploying any new HR technology. Ugh!

You begin your search on the internet, finding a wide variety of HRIS ROI tools offered by HRIS vendors or consultants as a resource. A common theme emerges as you drill into the details of each tool. Regardless of the justification formulas and calculators provided in the tools, it’s clear that employees are by far the largest expense any company has on its P & L statement. Regardless of whether you have 40, 400 or 4,000 employees, the total cost of labor is by far the #1 expense for any U.S. business.

As a result, the most common quantifiable financial savings in an HRIS investment are tied to the following:

1. Elimination of Manual Processes

2. Significant Reduction In Time To Process Transactions

3. Reduction in Risk and Litigation Protection

The challenging part of your presentation is going to be the unquantifiable HRIS ROI. As a CFO once explained to me, the single-word meaning of “unquantifiable ROI” is “Fluff.” To provide some greater context for the word “Fluff,” I’d thought I’d give a few examples.

Example #1 – If an outcome of purchasing an HRIS system is to provide enhanced visibility of company goals by allowing 24x7x365 access via an intuitive iTunes UI on any device, wouldn’t improving company alignment and giving each individual clear line of sight to their goals and their performance be imperative to the success of the company? Subjective? Yes. Fluff? I don’t think so.

Example #2 – A female employee speaks to an HR representative on your team and states that she feels as though her male counterparts are being compensated more for the same work. She requests equal pay for equal work. You notify your VP immediately about the possibility of a discrimination claim made by one of your employees, noting that the matter is serious. Time to do some fast research. You access the analytics of your HRIS to look at employee salaries in that particular position based on gender. At first glance, you notice males are making almost twice what females are making in that position. Gulp! Not good. You dig a little deeper and ask the system to show you years of service for employees in this position by gender. The male workers have an average of 8.5 years of service, whereas their female counterparts have only 1.8 years of service on average. Whew! That helps explain possibly why the men are being compensated more than the women in this position. Is the ability to access and analyze this level of detail in just a few minutes fluff? In one Florida pay discrimination case, Heidi Wilson, a former Citicorp manager, was awarded $340,000 for equal pay act violations. “Fluff?” $340K worth in this case.

Example #3 – It’s October, and everyone is pushing hard to surpass the corporate goals that were laid out by your CEO in January. You review the PTO balance report for the company and notice a significant number of employees aren’t taking time off. Having potential employee burn-out and attrition is one concern, but the increasing PTO liability on the balance sheet is another. Having real-time data and the ability to act on it could prevent turnover, employee fatigue, and decreased productivity. It could also set the groundwork for a plan to reduce PTO liability through managed vacation planning.

THE VALUE OF UNQUANTIFIABLE HRIS ROI

“Too often, companies focus solely on trying to come up with some sort of calculation to show precise cost savings when, in all honesty, sometimes the most important and more valuable benefits are those that are not quantifiable”, says my colleague Sandi Krason. She continues with “attributes such as increased reliability on data, a UI that is modern and that people want to use, improved engagement with candidates, and dashboards employees and managers can utilize to measure their performance may be really hard to quantify, but the value these improved attributes bring to a business is substantial.”

So why do so many companies leverage old, outdated HR software, and even sometimes manual processes, to help manage their largest expense, when there is such a significant amount of risk of being fined or sued? I believe it’s because they don’t understand the core value of what an HRIS offers. It’s the “I” in “HRIS” (Human Resource Information System) that offers the best value of unquantifiable ROI.

So here is my POV (point of view).

The most valuable component to an HRIS investment is not the operational efficiency, the sexy UI, or the potential 30% savings by eliminating transactions, but the ability to access meaningful data and measure your strategies against user-defined metrics. In case you think I am being too general, here are several examples of what I would consider to be “meaningful data” or unquantifiable attributes as a result of investing in an HRIS.

  1. Identifying best hiring sources for employees based on performance ratings in their respective jobs. Learning that employee referrals is the top source for high performers, while job postings from Glassdoor results in low performers. Valuable information? You decide.
  2. Empowering employees to freely discuss and enroll in company benefit plans in the privacy of their homes. Providing this control, convenience and privacy is important to employees today.
  3. Searching for ways to help your executive team increase revenue? Initiating an e-Learning strategy to increase employee skills, increase productivity and measure the impact of their performance based on target goals could return a 5% increase. E-Learning also provides employees with the ability to have some control over their career development, which positively impacts each employee’s morale and self-worth.
  4. Increase employee recognition by publishing time-sensitive contributions with badges and notoriety via HRIS collaboration tools. Modern HRIS applications have a type of internal online chat which offers real-time text transmission. Managers use this mechanism to provide better coaching, motivation and team alignment.
  5. Ability to instantly identify high, medium and low performers based on user-defined criteria combined with a compensation strategy to push employees in a specific direction. Leading individuals with carrots versus hitting them with a stick instils loyalty and a sense of belonging.
  6. Creating user defined reports and dashboards with KPI’s to measure the predictability of the business and trends in your workforce.
  7. Implementing a recruiting and onboarding system. As an executive, you are constantly trying to find ways to distinguish your company with your customers, your employees and your competition. First impressions are critical as they distinguish your company’s brand. Creating an efficient, modern and easy-to-use talent acquisition and onboarding process via self-service portals creates an impactful and memorable impression.

In my experience, businesses that are only looking for a “quantifiable ROI” never seem to find enough direct savings and, as a result, the project stalls in the sales cycle and never gets funded. The operational efficiency argument doesn’t offer enough savings within a reasonable period of time for the HRIS to be justified on that basis alone. Rarely will the financial savings alone cover the costs of an HRIS system. In the end, I find businesses resolving their HRIS ROI concerns with a combination of hard and soft dollar savings. The combination of the two offers a more balanced approach in terms of what executives have stated regarding the justification of an HRIS ROI.


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About the Author:

Mike Maiorino

Mike Maiorino is the Founder and CEO of HRMS Solutions. His 30 years of dedication to the HR/ Payroll technology profession, with a proven track record of results and recognition, has earned him a reputation for being a subject matter expert regarding HCM Solutions. Mike has served in a number of sales and managerial positions for leading providers of HR and Payroll solutions, including ADP, Sage Software, Kronos and Infor (fka SSA Global / Infinium). He is a member of the BAHRA Chapter (Boulder Area Human Resource Association) and completed his certification as a PHR (Professional in Human Resources) in December, 2002. Mike was also recognized in Biltmore Who's Who in 2007 as one of Washington, DC's most distinguished members.

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