How to Measure the ROI from Your HR Software
Author: Guest Writer
20th August 2019
This is a guest post by Dave Foxall.
Just to establish the obvious: you didn’t buy your new HRMS as a pleasing ornament, nor as a way of ‘keeping up with the Joneses’ – you bought a new HRMS as a business investment and as such, you hope for (need!) to see a return on that investment.
Maybe that return is purely financial, including reduced HR costs and overheads, or perhaps you’re looking for greater efficiency – the most popular reason for implementing HR tech cited in a recent survey from Software Path.
But if you want to prove that return – to a doubtful C-suite, perhaps – you’re going to have to roll up your sleeves and measure it.
Benefits of measuring HRMS ROI
Calculating ROI is no five-minute task and it’s as well to be clear on why you’re investing yet more time and resources in measuring the effectiveness of an investment in time and resources.
Measure HRMS ROI and you’ll get:
- Confirmation that your original HRMS business was sound (or not).
- An up to date benchmark on the efficiency of your HR processes.
- Feedback on the selection and implementation of your HRMS.
- A steer on your future HR technology strategy.
Start before you begin
The first step is to go back to before you started seriously looking for the right HRMS. You had a business case that justified the time and expense. That outlined the expected benefits and improvements. Whether those benefits were in terms of cost, efficiency or resources, the business case points you towards the data you need to gather and analyze as part of your ROI exercise.
Examples of the kind of data that may be relevant include:
- The flow of HR transactions
- Specific HR processes
- Employee engagement
- Changes to HR expenditure
- Management time spent on HR
What did your HRMS actually cost?
Once you know what data to look for and where, you can begin calculating and the first step is to know exactly what you spent.
The total cost of ownership for a HRMS includes:
- The ticket price – either a license fee or regular pay-as-you-go installments to the vendor.
- Implementation – staff time (project team and meetings, stakeholder groups, etc.), user training, possibly HRMS consultancy fees, any hardware/storage costs (if on-site).
- Maintenance – the vendor’s maintenance/support package, other contracted ‘extras’, staffing costs for anyone involved in keeping the HRMS up and running).
- Upgrades – the cost of keeping the system up to date.
What did you get for your time and money?
Going back to your HRMS business case and the project goals, and the data sources you identified as reflecting any improvements, assess what benefits have accrued.
Possibilities include a boost to HR performance KPIs, time savings, an impact on employee retention and/or turnover, faster or more efficient HR transactions, better staff engagement (either overall or in relation to specific HR activities), or possibly fewer sanctions or penalties for non-compliance with labor laws.
The $64,000 question: was it worth it?
Did you save or gain more than you spent?
Remember, not all savings and gains will be in monetary terms so in the case of, for example, improved employee engagement, you need to make a decision as to whether the investment was worth it.
Similarly, even if your savings outweigh your expenses, is it by enough to have made the whole project worthwhile? And if your HRMS seems to have cost you more than the value of its benefits, what can you learn from that if you’re not to repeat the experience on other projects?
Of course, in a few hundred words or so words, this is inevitably a broad brush look at HRMS ROI. To drill down to the next level, take a look at this HRMS ROI guide.
Dave has worked as HR Manager for the Ministry of Justice for a number of years, he now writes on a broad range of topics including jazz music, and, of course, the HRMS software market for HRMS World.
Date: 20th August 2019 | Category: HR Tech